Indian farmers and exporters of farm products will have to wait until September to find out how they will be affected by last week?s reform of the European Union?s Common Agricultural Policy (CAP).

This is because the primary purpose of the recent marathon negotiations by European Union (EU) farm ministers was not to put an end to the distortions in international trade for which the CAP is responsible but to reform an outdated agricultural policy for essentially internal reasons.

The implications for world agricultural trade of the compromise package adopted by the EU agricultural ministers on June 26 should become clearer in September, when agriculture ministers from the 146 WTO countries meet in Cancun, Mexico.

The fact is that the EU?s failure to agree on CAP reform had put on hold the agricultural negotiations taking place in Geneva under the banner of the WTO. Which is why the WTO?s Director-General, the former Deputy Prime Minister of Thailand, Supachai Panitchpakdi, breathed a sigh of relief on hearing the news of the successful outcome of the EU farm negotiations.

The breakthrough at the EU level does not mean, however, that there will be a breakthrough in Cancun. What may well happen is that the WTO agricultural negotiations are now taken hostage by the EU and the United States.

Also, there is a danger that the EU, having taken the politically risky step of radically changing the way it subsidises its own farmers, will now challenge the Bush Administration to reform American agricultural policy.

Now that the EU has reformed its agricultural policy, EU farmers are less likely to produce surplus.

This is because after 2005 the EU will no longer subsidise farm production but rather farm incomes. The result should be a fall in the EU?s agricultural exports. As these exports are subsidised by the EU, they both depress prices on world markets and make it more difficult for developing countries to compete successfully in export markets.

The situation is made worse for farmers in developing countries because the EU uses some of its agricultural surpluses in its food aid programme.

Further, the EU can be expected to press the US to reduce the subsidies it pays to American farmers, which also leads to overproduction. Although the total amount of American farm subsidies is half that of total EU subsidies, the US disrupts world agricultural trade more than the EU because of its greater use of export subsidies.

In other words, the ball is now in the American court, as far as the EU is concerned, and it may well insist that the Bush Administration, which has already virtually doubled agricultural subsidies, begin by reforming its own farm policies.

But the reform of EU, American and Japanese farm policies is only one of the three key issues in the WTO agricultural negotiations. Of much greater importance to India and other developing countries are the two other issues: export subsidies and tariff cuts. And on these two key elements of the WTO negotiations, the EU is much less forthcoming.

The American position, on the other hand, is clear on all three elements. It is prepared to reduce its own agricultural subsidies if the other agricultural nations undertake to eliminate export subsidies, cut tariffs, so that the highest rate is 25 per cent and substantially

reduce subsidies to their farmers.

The EU?s decision to reform its agricultural policy does not involve a reduction in its agricultural budget. Total spending has been capped at euros 43 billion until 2013, even though EU membership will expand from 15 to 25 next year, with the addition of 10 Central European and Mediterranean countries. Farmers will continue to be subsidised, but no longer in relation to the quantities produced. Rather, they will be expected to promote rural development (by taking in tourists, for example), and to protect the environment.

The EU is also prepared to open up its market to the exports of developing countries, but if the French have their way, the main beneficiaries will be the least developed countries, such as Bangladesh, and African countries south of the Sahara. French policy was neatly summed up by the French agricultural minister with the slogan ?Mali, not Australia.? Mali is of course a former French colony. And the slogan even rhymes in French: ?Mali, pas l?Australie.? This is because CAP reform, while a necessary first step towards relaunching the agricultural negotiations in the WTO, does not address the two key issues of export subsidies and tariff reductions.