WTO Ministerial Section • Volume 7 • Number 24 • 3rd July 2003

EU Ministers reach deal on CAP reform, trading partners respond cautiously

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After a 16-hour negotiating marathon concluding more than a year of heated internal debate, EU farm ministers finally agreed on a compromise deal outlining the future of the European Common Agricultural Policy (CAP) on 26 June in Luxembourg. While trading partners, such as the US, New Zealand and Brazil have cautiously welcomed the EU’s decision, many civil society groups rejected the reform plan as being half-hearted and not going far enough to curb over- production in Europe or to halt dumping of agricultural products on developing countries.

Original Fischler decoupling proposal watered down

The European Commission in its original proposal had suggested fully de- coupling agricultural subsidies as of 2004. However, the compromise reached allows EU member states to maintain a limited link between subsidies and production under defined conditions so as to avoid the abandonment of production. Supporters of de-coupling have blamed the linking of subsidies and output for Europe’s notorious ‘wine lakes and butter mountains’, while opponents believe that de-coupling would expose European farmers to market forces and put many of them out of business (see BRIDGES Trade BioRes, 7 February 2003).

Most of the old premiums paid under the CAP will be merged into a ’single farm payment’ that will be independent from production and that will be linked to compliance with environmental, food safety and animal welfare standards (cross-compliance). The single farm payment will enter into force in 2005, although member states can apply for a transitional period until 2007 at the latest. Funds saved through cutting support to big producers will be shifted to the rural development pillar of the CAP (modulation). However, overall EU support paid to the farming sector is not likely to decrease significantly. Rather, the changes will allow most subsidies to be shifted to the ‘green box’ under the WTO Agreement of Agriculture. Green box subsidies are exempt from reductions as they are considered to be non trade-distorting or minimally trade-distorting.

EU Agriculture Commissioner Franz Fischler described the ministers’ decision as "the beginning of a new era". He said, "we are saying goodbye to the old subsidy system which significantly distorts international trade and harms developing countries," and added that the EU would now be in a much stronger position in the current Doha Round negotiations. However, he also stressed that the EU could only use its increased negotiating capital if the Union received something in exchange. "Unilateral disarmament is not on," he warned. "The ball is now in the camp of other countries, such as the US, whose agricultural policies continue to be highly trade-distorting and have even become increasingly so," he stated, referring to the 2002 US farm bill, which is estimated to increase subsidies to the agricultural sector by 80 percent to the tune of at least USD 82 billion over the next decade.

Lukewarm support by trading partners…

While most trading partners cautiously welcomed the reform package, they were reluctant to speculate what impacts the EU decision would have on the ongoing negotiations. Carlos Perez del Castillo, Chair of the WTO General Council, described the reformed CAP as "a step in the right direction," noting that deeper analysis was needed to determine the effects it would have on the WTO agriculture talks. Australian Trade Minister Mark Vaile welcomed the move as a small but positive step. Fellow Cairns Group member Brazil called the EU farm minister’s decision "a sign of flexibility," whereas Canada’s Trade Minister found the deal "encouraging" and expressed his hope that it could lead to progress in the Doha Round negotiations. WTO Director-General Supachai Panitchpakdi welcomed the agreement, saying it could help break the current deadlock in the agriculture negotiations.

The US called on the EU to translate the reform package into new and ambitious negotiating proposals at the WTO. "It is crucial that the EU press forward with significant trade reform promptly," US Trade Representative Robert Zoellick stated. Only then could the US "work with the EU and others to advance the WTO negotiations at the next ministerial meeting in Cancun in September," Zoellick added. According to an EU spokesman, Fischler did not see a need to get a new negotiating mandate for the WTO negotiations, although he said he would explore this issue further with EU member states.

…while several civil society groups condemn CAP reform deal

In their reactions to the freshly released compromise agreement, numerous European and international environment, development and consumer groups expressed their deep dissatisfaction with the decision made by EU agriculture ministers. The groups said the deal would bring no benefits to developing countries. "These proposals confirm our worst fears," said Phil Bloomer, Head of Advocacy at Oxfam GB. "European agriculture will still be subsidised to the tune of GBP 30 billion [USD 50 billion], creating vast surpluses that will be dumped on poor countries". Barry Coates, Director of the World Development Movement, noted that the reform package "falls short of what is needed to stop the agricultural dumping that destroys the livelihoods of small farmers in the poorest countries". Consumers International accused the EU of contradicting its commitment to development issues, describing the deal as "anti-development, anti-trade and anti-consumer".

Brazilian sugar producers also came out against the deal, noting that the sugar sector was left out of the CAP reform. Eduardo Pereira de Carvalho of the Sao Paulo Cane Agroindustry Union said, "for us [sugar producers] it doesn’t signify anything, though it may be the symbolic start of EU farm reform". Brazil has complained to the WTO against the EU’s subsidised sugar exports (see BRIDGES Weekly, 2 October 2002).

Additional Resources

For further information on the CAP reform, see the DG Agriculture website at http://europa.eu.int/comm/agriculture/mtr/index_en.htm.

ICTSD reporting; "WTO chief says EU farm deal to help trade talks," REUTERS, 26 June 2003; "Lamy: EU to bargain hard for Ag concessions in Doha talks," DOW JONES, 26 June 2003; "US says EU farm reform needs second act," REUTERS, 26 June 2003; "Australia, NZ: Eu farm policy may revive world trade talks," AP, 27 June 2003; "Brazil says EU farm reform may aid WTO talks," REUTERS, 26 June 2003; Canada says EU reform deal could spur WTO progress," REUTERS, 26 June 2003; "EU fundamentally reforms its farm policy to accomplish sustainable farming in Europe, EU PRESS RELEASE, 26 June 2003; "INTERVIEW-Brazilian producers impatient for EU sugar reform," REUTERS, 27 June 2003.