CAP
REFORM: A LONG-TERM PERSPECTIVE FOR SUSTAINABLE DEVELOPMENT
Dr. Franz Fischler
EU Agriculture,
Rural Development
and Fisheries
Commissioner
Organized by CELI (Congressional Economic Leadership Institute)
Washington, DC
February 5, 2003
Ladies and Gentlemen,
Agricultural world trade has doubled in the last 10 years and, in the WTO
(World Trade Organization), we are about to hammer out more far-reaching international
rules for our sector than ever before. It is with great pleasure, therefore, that
I accepted your invitation to discuss our respective farm policies here today.
I would like to outline briefly the direction of European
agricultural policy compared to that of US policy. I shall then summarize our
proposals for the WTO negotiations, compared to yours. Finally, I wish to
say a few words on the way forward in those negotiations.
I am very much aware of the
passion that the EU’s Common Agricultural Policy—or the “CAP” as we call
it—still raises on this side of the Atlantic as it, incidentally, does on
ours. Not a week goes by but I see reports blaming our policy for one or
other problem on the market. I am surprised that we have not yet been blamed
for the drought this year!
And this is in spite of the
fact that our policy has been gradually but consistently changing. When I
was here in 2001, I spoke of the changes since 1992, as a result of two
major reforms, and which resulted in a
clear move away from the most trade- and production-distorting measures of
support.
With the new reforms which I proposed
two weeks ago, we are pursuing the policy of support of our farmers while
further reducing trade distortion and production distortion. Consistency
is one of the defining characteristics of our policy.
I should first mention that, regarding our overall resources,
late last year a decision was taken whereby the EU
budget for agriculture will increase by a maximum of 1% per year between 2006
and 2013. In other words, a decline in real terms even though our farmer
numbers will increase by over 50% to 11 million in 2004 due to
EU enlargement. Compare this with your decision to convert the ad hoc
payments of recent years into the permanent budget available for agricultural
support.
It is in this context that
our latest reform proposals have been made. So we start with our financial
constraints, and within that framework we aim to improve the efficiency of
our instruments. Our primary objectives are to make farmers more
competitive, promote more market-oriented and sustainable farming and to
revitalize the countryside.
One of the more important
elements of the package is a total decoupling of direct aid from production.
This will allow farmers to respond better to market signals and will be
virtually non-distorting in trade terms. The OECD has just calculated that
the trade distortion effect of decoupled farm aid is less than 7%
that of US output payments.
I am sure that our objectives will remind you of yours when
you introduced the FAIR Act! It is not, however, a proposal to give farmers hand-outs
for doing nothing. Quite the contrary; the payments will be conditional upon compliance
with strict binding standards in environmental protection, food safety, animal
health and welfare and occupational safety. These agricultural functions and contributions
are very important concerns in European society and will not be delivered through
market forces alone.
We also propose to increase the emphasis on rural development
and to reduce market support further (rice, minus 50%; cereals, minus 5%; milk,
minus 28%).
If these proposals are agreed, trade-distorting domestic
support will be further reduced and export subsidization will also fall further
from its current level, which is only 5% of export value compared to about 25%
in the early 90s. But let me be clear: these results are not our primary objective.
We are primarily adapting our policy to meet the concerns of our citizens including
the protection of the environment, quality and food safety, budgetary discipline
and so on. The fact that our reform is consistent with the direction of the reform
called for by the WTO's Agreement on Agriculture is an additional advantage.
This is in rather stark contrast to the policy developments
in the US, where you started by increasing the finance available and then turned
back the clock in terms of policy instruments with your recent
Farm Bill. You will remember the pride you took in the innovative aspects
of the FAIR Act, with its fixed and gradually declining payments which reduced
the counter-cyclical trend of previous policies and which was expected to result
in significant budget savings as well as minimizing trade distortion. You will
also recall that in 1997, USDA estimated that your AMS, that is, the part of domestic
support which must be reduced under the Uruguay Round commitments, would fall
to $2.4 billion by 1999 and $1.2 billion by 2000.
What happened? Well, as you know all too well, emergency
packages were introduced annually and last year US policy reintroduced the most
trade-distorting support. Meanwhile the expected $2.4 billion AMS for 1999 swelled
to some $15 billion.
In short, US farm policy is tending more and more to encourage
production increases, depress prices and substantially insulate the farmer from
the realities of the market place just as we used to do in Europe. My latest proposals
continue our move in the opposite direction.
Now let me come to my second point, the WTO negotiations.
The
Council of Ministers last week unanimously endorsed our proposal for modalities
in the WTO agricultural negotiations. When we make proposals to the WTO, we base
them on our policy and agree them with our Member States. Unlike the US, we cannot
come out with proposals which are in contradiction with our policy direction.
Also here, consistency prevents us from big, dramatic gestures as a negotiating
tactic. But it means that, when we talk the talk, we can walk the walk—we can
deliver what we offer.
Our proposal clearly demonstrates the EU’s commitment to
ensuring the success of the
Doha Development Round in that it is ambitious, pragmatic and takes full account
of the interests of the single most important group of countries in the
negotiations—the developing countries.
We have proposed substantial reductions: of 55% in trade-distorting
subsidies; of 45% on export subsidy expenditure; of 36% on tariffs. I am aware
that your Administration has made more radical proposals, which however appear
to have little chance of success in Geneva, since extreme proposals only provoke
extreme counter-reactions. But let me dare to ask you this: would Congress be
prepared to accept a reduction of trade-distorting domestic support to EUR 10
billion if those measures currently notified under the de minimis rule
were included? The gigantic loophole which the de minimis exemption represents
must be closed, at least for developed countries. In its present form, the US
is notifying some $15 billion in trade-distorting support while excluding $8 billion
from the calculation as de minimis—and this compared to a ceiling of $19.1
billion. Without that loophole you would already have exceeded your commitment
in 1999.
On export subsidies, we are prepared to cut further but only
if all forms of export subsidy are disciplined. The Uruguay Round saw only that
form of export subsidy used by the EU disciplined. There will be no unilateral
disarmament by the EU this time round. Export credits, predatory pricing of State
Trading Enterprises and dumping of surpluses under the cover of food aid must
all be brought under discipline. It is not acceptable that when the US has surplus
stocks of skimmed milk powder they offer it as food aid, irrespective of need.
Food aid is intended to help those in need, not act as a dumping ground: to fulfill
this purpose it must be targeted, in fully grant form, and respond to what is
required. I should perhaps add that if food aid is supplied from the region around
the needy area, it both benefits the region more broadly and is most likely the
appropriate product for the local requirement. I mention this because in response
to the recent crisis in Zambia, while the US was pushing Zambia to accept a product
which it did not want—GMO maize—we donated money which was used to source maize
in South Africa, Malawi and Tanzania.
We are very conscious that it is the developing countries
for whom the round has been named the Doha Development Agenda and it is
this group of countries which can best determine whether these negotiations are
a success or not, rather than the positions of the EU, US or Cairns. It is in
recognition of their concerns that our proposal has a strong focus on their interests.
In particular, we have made proposals to increase access for developing country
produce and to give them additional flexibility in implementing commitments. In
short, the EU proposal offers developing countries much more than just nice words.
Finally, the question of non-trade concerns must be addressed.
The EU is not the only one who has non-trade concerns: there are many members
of the WTO who hold strong views in support of the need to take account of these.
Basically we are talking about a recognition that sustainable
agriculture means much more than quantity of output. The WTO must also address
the interests of consumers, the environment, rural development and food safety.
It is not in anyone’s interest that the WTO be seen as a body which promotes trade
liberalization at any price. There must be a balance between this objective and
other interests of concern to society.
Some people seem to be concerned that our objective in promoting
non-trade concerns is in some way a ruse to give farmers more money. I already
mentioned the freeze on agricultural expenditure until 2013: there is no
more money. Others think it is a form of hidden protectionism. Our standing as
the largest importer of agricultural products in the world and the largest importer
from developing countries, our proposal for further tariff reductions and our
specific proposals to address non-trade concerns should set these suspicions to
rest.
I will not analyze the US proposals in detail but in terms
of comparison let me repeat: our proposals are consistent with our policies and
consistent with the declared objectives of the Doha Development Round. Moreover,
they do not only ask others to make efforts; we are ready to put our money where
our mouth is. The US proposals, on the other hand, do not fulfill these criteria:
on domestic support; the proposals are directly contradictory to the direction
of the Farm Bill. On market access the US asks far greater efforts from the developing
countries than from the US itself. On export subsidization the focus is essentially
on export refunds, whereas little is offered on export credits, of which the US
is the main user, nor on the question of reducing the abuse of food aid as a surplus
disposal tool. Little is offered [to] the developing world. And finally, non-trade
concerns are essentially ignored. That proposal is not consistent with the Doha
Declaration. That declaration requires equal readiness to give and take. The element
of give is inadequate in the US proposal.
Ladies and Gentlemen,
As the two largest importers and exporters of food and agricultural
products in the world, we have both an interest and responsibility to ensure the
success of the agricultural negotiations. We have responsibilities to the developing
world and we should try and find ways together to meet those obligations. Both
the US and EU will also want to continue to support farmers and rural areas for
the foreseeable future, and we should seek common ground in order to be able to
do so without making others pay.
Together we have the objective of meeting the established
deadlines and achieving a comprehensive WTO Agreement. In order to do this, participants
must move from their extreme positions and focus on that which is politically
achievable. We are keen to cooperate with the US in these negotiations. Our cooperation
is of course not a guarantee of success. But if we do not cooperate, the outlook
for Cancun is not optimistic.
A cacophony of voices in Geneva—the US, Cairns, the EU and
others—may be a good political game plan in the short term. But a beauty contest
is no recipe for leadership. Instead, we must work together to ensure that Cancun
is a successful milestone on the way to a success for the Doha Development Agenda.
Thank you for your attention.
Commissioner Fischler’s Homepage:
www.europa.eu.int/fischler
Press Releases and Speeches:
www.europa.eu.int/comm/agriculture/press/index_en.htm
Agriculture Homepage:
www.europa.eu.int/comm/agriculture/index_en.htm
