Implications for the European Union of the May 2008 Draft Agricultural Modalities
by Sébastien Jean, Tim Josling and David Laborde; Co-published with the International Food and Agriculture Trade Policy Council (IPC) and International Food Policy Research Institute (IFPRI)
The EU has been playing a more active role in setting the agenda for the agricultural component of the Doha Round than it did in the Uruguay Round and in earlier GATT rounds. The Commission, negotiating on behalf of Member States, has tried to avoid the defensive position that gave it little room to suggest changes in the rules that it would favour. In particular it wanted to avoid being isolated as the main defender of protectionist agricultural programs, and risk being blamed for resisting further progress in bringing agricultural trade rules closer to those in the non-agricultural sector.
This new position has indeed had a major impact on the conduct of the negotiations. Although transatlantic tensions still exist, often over issues such as regulations regarding biotech food and the use of place names for trademarks, the past five years has seen a noticeable convergence of EU and US positions on agricultural trade rules. The conflicts that are prolonging the Doha Round agricultural talks are more often between the US and the EU on the one hand and developing countries on the other. Both the US and the EU have agreed that there will be significant cuts in tariffs, subject to partial exclusions for sensitive products, and major reductions in the allowable level of trade-distorting domestic support. The elimination of export subsidies is no longer a significant point of contention, although there are still differences in the area of food aid.
The main reason why the EU can be so much less defensive in its approach to trade talks is in the progress it has made with domestic reform of agricultural policy. The MacSharry reforms of 1992 allowed the EU to agree to disciplines on domestic and export subsidies in the Uruguay Round Agreement on Agriculture (URAA), as well as resolving the oilseed controversy. Cereal prices were cut to bring them closer to world prices and oilseed hectarage was restrained. Payments that were made in compensation for price cuts were placed in the Blue Box, and thus avoided mandated reductions. Support given through administered prices also declined, in part as a result of the use of the difference between these prices and fixed reference prices for the calculation of the subsidy element. So the partially-reformed CAP had no difficulty staying within the bounds of the EU’s schedule of subsidy reductions in the first few years.
Further reforms have had a similar impact, lowering the level of trade-distorting subsidies and making it easier for the EU to contemplate and accept further restrictions on agricultural policies in the WTO. In this connection, the changes in 1999 (the Agenda 2000 reforms) and the subsequent significant changes in 2003 and 2004 under the leadership of Commissioner Fischler have continued and developed the approach taken by MacSharry. Price support has been removed or weakened for many commodities, and payments are now made to farmers on the basis of historical production of a wide range of products with no obligation to produce any particular product to claim payment. This “Single Farm Payment” has made the CAP significantly more consistent with the “tariffs and decoupled payments” model that underlies the URAA.
To what extent would a successful conclusion of the Doha Development Agenda (DDA), along the lines of the modalities in the Revised Draft Modalities paper of May 19, 2008, require further changes in the Common Agricultural Policy? Will those changes be made easier by corresponding disciplines on the domestic programs of other countries? How much increased market access is likely to be generated as a result of cuts in tariffs that would be required of the EU? Can the EU expect to expand its own exports of agricultural products as a result of the tariff cuts of others? Will the termination of the EU’s use of export subsidies to balance its internal market have any significant impact on price levels and on world market conditions? And to what extent will the modification of the export policies of competitors help the EU to move away from export subsidies? What other issues will the EU insist on as it moves towards a package that is acceptable to Member States?
This paper attempts to address these issues, as a way of exploring the domestic and international implications of a Modalities agreement. The first section of the paper gives some background information on the nature of the CAP as it relates to the disciplines introduced in the URAA. This section is useful to give some perspective on the potential impact of the DDA as it relates to the recent development of the CAP. A second section reviews briefly the main “offensive” and “defensive” positions of the EU, so as to be able to evaluate the extent to which the modalities draft addresses these issues. This perspective is relevant to the political reactions that will determine the acceptability of the Modalities. The next three sections discuss in more detail the implications of the domestic support, market access and export competition modalities, and give an interpretation of the WTO disciplines as a constraint on future policy developments. A final section attempts an overall assessment of the impacts of the suggested modalities on the EU and on its negotiating interests.