WTO Ministerial Section • Volume 7 • Number 22 • 18th June 2003
Agreement on EU Cap Reform Expected by End-June
On 17 June, EU farm ministers resumed talks to hammer out a final compromise deal on the future of the European Common Agricultural Policy (CAP). The talks followed the collapse of negotiations a week earlier due to France and Germany taking a joint stance against plans EU Agriculture Commissioner Franz Fischler’s plans to fully cut the link between — or de-couple — EU farm subsidies from agricultural production (see BRIDGES Weekly, 17 July 2002). Nevertheless, sources reported some optimism with regard to the possibility of reaching a final agreement by 19 June. "It is possible for us to get a reform package that everyone can live with," said UK Department of Environment, Food and Rural Affairs Secretary Margaret Beckett. However, the new joint Franco-German approach may jeopardise the prospects of WTO Members bringing the sluggish Doha Round negotiations back on track in September at Cancun, with officials of the Cairns Group of agricultural exporters indicating that they could not agree on a multilateral farm deal along the lines of a watered-down Fischler proposal.
Germany, France agree on CAP reform benchmarks
European agriculture ministers originally met on 11 June to overcome the many prevailing differences in EU member state positions on how to reform EU farm policy, inter alia by de-linking so-called Blue Box subsidies (payments under production-limiting programmes) from production factors. This ongoing CAP reform has pitted pro-reform states such as the UK, Germany and Scandinavian nations against others such as France, Spain and Ireland who have been showing stiff resistance to Fischler’s de-coupling proposal.
However, the picture changed after the two main political powers in the Union, France and Germany, reportedly reached an informal agreement on 10 June that set out the benchmarks of reforms they could mutually accept. According to EU officials, this Franco-German understanding clearly rejected Fischler’s proposal to fully de-link EU agriculture support from production, while, leaving open the extent to which partial decoupling could take place, as well as the question of when this process would be launched. Nevertheless, it was reported that France would favour an approach along the lines of Stuart Harbinson’s modalities proposal — i.e. decoupling Blue Box subsidies by half — (see BRIDGES Weekly, 13 February 2003), whereas Germany has not officially mentioned any numbers it could support.
In a joint press conference held by French President Jacques Chirac and German Chancellor Gerhard Schroeder following a meeting on 10 June, Schroeder stressed that the compromise reached between the two nations was a recognition of the special role agriculture played in France, on the one hand, and Germany’s overall industrial interests on the other. In other words, Germany — the main financial contributor to the CAP — would agree on less drastic changes in EU farm policy in support of France, the largest beneficiary from the EU farm budget. In return, according to EU officials, Paris would support Berlin in its attempts to prevent the most recent plans for an EU takeover code (the takeover code has been under negotiations in the EU for 12 years, with Germany resisting change because of fears that German companies would become too vulnerable to foreign takeovers).
Further elements of the Franco-German deal
Besides the understanding that production-linked farm subsidies should only be partially decoupled, France and Germany also agreed that there should be no reduction in price support for cereals and dairy — even beyond 2006 — a position which is said to limit the European Commission’s flexibility to negotiate reductions of export subsidies for these products. On the issue of modulation — i.e. shifting funding from the market support pillar of the CAP to its rural development pillar — both countries agreed to support a "reasonable" increase in rural development funding. In this respect, it has been reported that Germany is proposing an increase of three percent in second pillar funding, with the question of whether the additional funds available for rural development through subsidy reduction would be spent all over the Union, or only within the member state actually providing the money, still to be determined.
The European ministers are hoping to finalise talks on CAP reform on time for the 19-21 EU Summit in Thessaloniki, Greece.
ICTSD reporting; "EU talks drag on but chance for ag subsidies deal seen," AP, 17 June 2003; "EU to resume marathon farm reform talks," AFP, 16 June 2003; "France, Germany deal blow to EU agricultural reform," WALLSTREET JOURNAL, 13 June 2003; "Paris and Berlin in EU reform deal," FT, 12 June 2003.