Liberalising Farm Trade: EU Needs To Shoulder Responsibility

Written by Malcolm Subhan | Brussels, January 30: | Updated: Jan 31 2003, 05:30am hrs
Exporters of agricultural products cannot ignore that strange animal, the 15-nation European Union (EU). Nor can they get around it by dealing directly with individual member states, such as the UK, Germany or France. This is because the EUs agricultural policy, both domestic and external, is framed in Brussels, where one of the important institutions is the EU presidency, currently held by Greece.

Athens, in other words, will be largely responsible for setting the EUs agenda until June 30, when it will pass the baton to Rome. Given that the EU is the worlds largest importer of agricultural goods, and its largest importer of farm products from developing countries, it is important to know just where the Greek government stands as regards the WTO trade negotiations.

Greece, with a population of just under 11 million, is one of the poorer EU member states. It has a gross domestic product (GDP) of $100 billion, which represents less than two percent of the total GDP of EU ($6,800 billion). Agriculture is the main source of income, accounting for some 8% of the countrys GDP, 16% of total employment and 22% of its total exports. Greece accounts for a very small part of the EUs foreign trade under two per cent of its imports and exports, whether from non-EU countries or from within the EU. Its main trading partners are the other Mediterranean countries and the countries of Central and Eastern Europe. Greece accounts for around one per cent of the EUs total imports of agricultural products and drinks, and two percent of the EUs total exports of these products.

Greek agricultural production, especially of fruits and vegetables, but also of cotton, rice and tobacco, has benefited largely from EU subsidies. But following the changes introduced by the EU as a result of the Uruguay Round of trade negotiations, this production is coming under increased international pressure. Greece is therefore trying to improve its agricultural competitiveness through modernisation of its agricultural infrastructure and production, processing and marketing methods.

Agriculture is not among the priorities the Greek government has set itself during the six months of its presidency of the EU. Its five major priorities include the enlargement of the EU to take in 10 new countries, eight of them in Central and Eastern Europe; immigration and external relations, and more especially the EUs relations with its immediate neighbours, including the Balkan and Mediterranean countries.

Agriculture is seen by the Greek government in the context of EU policies. It recognises that 2003 will be a very important year for the WTO trade negotiations, and the Greek presidency will contribute to the preparation of the EUs stand at the WTO ministerial session to be held in Cancun, Mexico, in November (when Italy has the EUs rotating presidency). But its main focus will be on the interim revision of the EUs common agricultural policy.

The fact is that during this year, the EUs 15 member states will be juggling with two different, if closely related, sets of agricultural negotiations. The first set of negotiations directly affects the incomes of EU farmers and the level of domestic agricultural production. The second set of negotiations concerns the EUs external trade in farm products. The aim here is to liberalise world trade in agricultural products, and the negotiations being conducted in the framework of the WTO and the Doha Development Agenda. The proposals for both the domestic and WTO negotiations have been drafted by the European Commission (EC), under the guidance of its Farm Commissioner, Franz Fischler.

A key feature of the domestic reform programme is the decoupling of payments to EU farmers from their production. Farmers will receive a single farm payment, based on the payments they have received so far for arable crops, meat, dairy products, rice, seeds, etc during 2000 to 2002. At the same time, direct payment to bigger farms will be reduced.

The shift to a single farm payment will not distort international trade, and hence not harm developing countries, according to Mr Fischler. Equally important from the viewpoint of non-EU countries is the EUs decision to cap farm expenditure for the next 10 years. In other words, the same amount of money will be shared between more farmers following the enlargement of the EU to 25 member states by May 2004. After enlargement, there will be a 56% increase in the number of EU farmers and a 29 per cent increase in the area devoted to farming.

The WTO proposals that the Farm Commissioner has submitted to the 15 EU governments for their approval provide for a 36% reduction in average tariffs, with a minimum reduction of 15% per tariff line. At the same time, all developed and advanced developing countries would be required to provide duty-free and quota-free access to their markets for all imports from the 49 least developed countries (LDCs). The EC also favours duty-free entry for at least 50% of farm imports into developed countries from developing countries.

Mr Fischler has strongly challenged the American claim that the EUs average tariff is 30 per cent. He maintains that it is roughly three times lower in real terms, given that a total of 142 developing countries benefit from the preferences which the EU has granted them under its recently enhanced Generalised System of Preferences (GSP) scheme. The EU has also granted the 49 poorest countries duty- and quota-free access to the EU market under its Everything But Arms initiative.

The EC contrasts the low level of EU tariffs with the very high bound tariffs of developing countries for agricultural products. They are more than 100 per cent on average in India, for example, and more than 80 per cent in Bangladesh. The Commission accepts that their effectively applied tariffs are lower than the bound rates, but notes that negotiations are conducted on the basis of bound tariff levels.

Even so, the EC recognises that food security is a structural problem in many developing countries, as a result of poverty and lack of resources. It has therefore proposed the creation of a food security box that will allow developing countries to open up their markets at a slower pace than developed countries; protect their markets for sensitive food products, and have greater flexibility in supporting their agricultural sectors for food security and development needs.

The Farm Commissioner also challenges the assumption that export subsidies extended by EU to its farmers have resulted in a decline in commodity prices. He points out that EU export subsidies have fallen from 25 per cent of the value of farm exports in 1992 to 5 per cent in 2001. Mr Fischler also cites a study conducted by the Organisation for Economic Cooperation and Development (OECD), according to which the changes in world crop and meat prices will be no more than 1-2 per cent if export subsidies are eliminated.

The long-term decline in commodity prices is primarily due to reduced transport costs, increased productivity and excess world production capacity, rather than subsidies, according to the EC. The decline has occurred in non-agricultural commodities also, and in commodities which are unsubsidised. Coffee prices have fallen the most sharply in recent years, although this is a product which is not subsidised by any developed country.

The ECs proposals will be the subject of much acrimonious debate among the 15 EU countries in the coming months. The EU has a special responsibility, together with the US, to take the lead in liberalising world trade in agricultural products. The Greek presidency has an opportunity to push its EU partners in this direction.