agricultural liberalization is at a standstill. The World Trade Organization’s (WTO)
ministerial meeting in Cancun in September will be a key indicator as to how far
the Doha round of trade talks will go towards liberalization, giving more access
to the developing world. In order to see progress occur, the United States must
continue to stand with the Cairns Group (3) in
advocating greater liberalization in the Doha round and pushing the European
Union (EU) to make substantial cuts in farm subsidies.
Franz Fischler, the EU
commissioner responsible for Agriculture, Rural Development and Fisheries, has
described the EU’s recently proposed reforms as “the beginning of a new era” and
has called on the US to end its “highly distorting agricultural policies.” The
reality unfortunately is very different and in practice the reforms amount to
very little. The United States should not be fooled by European masquerades.
Common Agricultural Policy
1962, the European Union’s Common Agricultural Policy is the world’s biggest
system of farm subsidies. The CAP accounts for an astonishing 85% of the world’s
agricultural subsidies (4), and it is estimated that the
cost to the world economy is $75 billion per year (5).
The chief beneficiaries in Europe are French farmers, who receive over $10
billion a year, nearly 20% of the total CAP budget. Roughly 70% of CAP funds go
towards just 20% of Europe’s farms.
of half-hearted attempts at reform, the European Commission has been pressured
into making changes to the way in which in which the CAP is run. The changes
will be introduced in 2005 and phased in over a two-year period.
Under the new proposals
farmers will receive a single annual payment in return for meeting
environmental, food safety and animal welfare standards. Previously, farmers had
received trade-distorting payments directly linked to agricultural production,
which had resulted in huge oversupply and subsequent dumping of food in third
world markets. The European Commission describes the new proposals as
‘decoupling’, or the separation of subsidies from production. In theory this
will enable the EU to support trade liberalization at the Doha trade round
the Reforms Make a Difference?
Not for the
first time the EU is guilty of rank hypocrisy masquerading as progress. Once
again the French have succeeded in blocking any meaningful reform of the CAP,
and as the French farm ministry has boasted, “this reform preserves the
essential principles of the Common Agricultural Policy.”
The reforms will not
result in any reduction in the CAP’s budget. The CAP will continue to be a huge
welfare system for a relatively small group of large-scale elite European
farmers who will continue to prosper. There is also no guarantee under the new
system that the EU will stop creating and dumping vast food surpluses on
developing countries, putting impoverished third world farmers out of business.
Since the Great
Depression, U.S. farmers have received ever-larger amounts of assistance from
the federal government. The recent U.S. farm bill increased the amount of
subsidies that American farmers receive by 70 percent. The sum of this
legislation is a 10-year program that will cost American taxpayers $180 billion.
The majority of the subsidies go to the wealthiest producers. These subsidies
benefit the rich while stealing opportunity from developing nations.
Proposal to the WTO
Ambassador Zoellick has
begun to move the US in the right direction. In July 2002, Zoellick made an
ambitious agricultural proposal to the WTO to radically cut tariffs and
subsidies. If implemented, this proposal will reduce the average allowed farm
tariffs from 62 to 15 percent. The proposal will also reduce trade-distorting
subsidies by over $100 million by establishing a cap of no more than 5 percent
of total agricultural production.
Radical change must occur
in order to achieve progress. As Mark Vaile, Australian Minister for Trade has
stated, “the Doha round offers a historic opportunity to improve the economic
prospects of the developing world. This is an opportunity we cannot afford to
squander." (6) Specifically, the Bush Administration
Continue to push the American agricultural proposal in the WTO. This proposal
will reduce trade-distorting subsidies by over $100 billion giving a shot of
economic opportunity to the developing world.
prepared to enact its WTO proposal unilaterally. This will prove to the world
that America is serious about agricultural liberalization.
Pressure Europe to move beyond its recent CAP reform proposal and offer
something more substantive. Ambassador Zoellick should not accept the EU’s
excuses for avoiding reform. Brussels should be reminded to put its money
where its mouth is by reducing subsidies to keep to the commitments made at
the Doha launch in 2001.
Developed countries should
travel to Cancun with a strategic plan to lower subsidies and tariffs in order
to finish the Doha round on time. Without real change, much of the developing
world will continue to be frozen out of the West’s markets and be consigned to
further decades of poverty.
1. Trade Policy Analyst,
2. Jay Kingham Fellow in
International Regulatory Affairs, Center for International Trade and Economics
at the Heritage Foundation.
3. The Cairns Group is a
group of 17 agricultural exporting countries chaired by Australia.
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July 27, 2003