CAP Reform: What Relevance for the WTO Negotiations
Jean-Marc Trarieux
Agricultural Attaché
Delegation of the European Commission to the US
2004 National Farmers Union Convention
World Trade Policy Workshop
Billings, Montana
7 March 2004
PowerPoint Presentation
Ladies and Gentlemen,
I appreciate the opportunity to speak to you today. 2004 is a great year for
the European Union, with an
enlargement on 1 May from 15 to 25 Member
States. That is 10 new members, 8 of whom were not so long ago in the
“eastern block,” of which 3 were inside the old Soviet Union. There can be
no better illustration of the contribution of the European Union to assuring
peace and prosperity in all of Europe. In the new Member States,
agriculture plays a far larger part in the
national economy and employment than in the current EU.
At the same time as we make final preparations for enlargement, the farm
policy of the EU, the
Common Agricultural Policy, or CAP, is in
the process of major change, following the new reform decided in June 2003.
This reform involves a major shift of emphasis in the EU’s agriculture
policy. For the sectors concerned, including grains and livestock, we shift
the focus to quality rather than quantity. At the same time we introduce
greater competitivity, reinforce rural development and allow farmers greater
freedom to produce in accordance with the market signals.
Let me run through the changes and then I’ll say a word on the implications
for the
WTO talks.
Decoupling
The most significant change is the decoupling of aid from production. At
present farmers receive direct payments as a function of what and how much
they produced in a particular historic reference period, but on condition
they produce the identified commodities. In future, they will receive all or
most of their current level of aid, but as a fixed single payment—and wholly
irrespective of what they produce or even whether they produce.
Because of concerns that farmers in some areas may stop production
completely, Member States have the option to maintain a partial link between
aid and production up to a maximum of 25% of the aid.
Modulation
Direct payments, after the first €5,000, will be reduced in steps, by 3% in
2005, 4% in 2006 and 5% in 2007. This will fund an increase in funds for
rural development by about 1 or 2 billion Euros annually.
Cross Compliances
Farmers will have a strong incentive to reach minimum standards of
food safety,
animal and
plant health and animal welfare. In future,
direct payments will be reduced if a farmer fails to meet basic statutory
standards.
In addition, incentives will be available to cover the costs of producers
who go beyond statutory requirements for welfare or environment and to fund
schemes designed to improve the quality of agricultural products.
Prices
In the dairy sector, guaranteed butter prices will be reduced by 25% and
non-fat dry milk by 15%. Rice intervention prices are to be cut by 50% and
strict limits on purchases into intervention will be applied. For rye, price
support (intervention) is completely abolished. In this way, farmers will be
far more exposed to market pressures and demands.
WTO Implications
From the WTO negotiations point of view, the most significant element of the
reform is the decoupling. Decoupling means cutting the link between
production and subsidies, and support given in this way does not distort
trade. The move to single farm payments strengthens the position of the EU
since decoupling changes the significance for the WTO of direct payments.
They will no longer be classified as blue box, but as green box. This latter
(green) box includes those forms of domestic support which are not, or are
only minimally, trade-distorting. You can see on this graph [please see
PowerPoint presentation] a clear shift from
market measures towards producer support, with the 1992 CAP Reform
introducing the direct payments, and the 2003 CAP Reform allowing to
decouple these payments. How much funds will move into the green box we will
only know once Member States decide whether or not to use the facility to
maintain 25% of aid coupled. This graph presents a minimum option based on
the Reform.
The price reductions and possible impact of the reform on production would
have as a consequence a reduced need for export refunds. It would not,
however, allow us to accept their elimination.
The policy reform did not of course address import tariffs, as these are not
normally addressed in domestic reforms.
So, how does the CAP reform strengthen the EU’s hand in the WTO?
Firstly, we can support our political arguments with clear evidence that we
are continuing to practice what we preach. We have introduced a policy that
meets society's broader needs, while significantly cutting back on
trade-distorting support and keeping our market open to trade with third
countries. In fact, the reform has already yielded a dividend: it
facilitated the work to find convergence with the US in the framework
proposal, particularly on domestic support.
What’s next?
The European Union has clearly demonstrated its willingness to re-launch the
WTO talks and that it maintains its priority to multilateral trade talks. In
that context, 2004 should not be a lost year. Despite the fact that it is an
election year on both sides of the Atlantic, progress on the framework can
be achieved.
On the
substance, it must be said that the EU will not accept a framework for
negotiating modalities at any cost. We continue to have 2 main conditions
for agreement:
The first is that trade-distorting support, i.e., amber box, is disciplined
more than blue box support, which is less trade-distorting.
The second is that, in addressing export competition, all forms of export
subsidization must be genuinely tackled, including subsidized export credits
and food aid as a surplus disposal mechanism.
We have
made it clear from the start that we will only move on export competition if
all measures are fully addressed in a parallel fashion.
All in all, the EU is ready to do business, and is actively engaged to
revive the
DDA negotiations.
Thank you for your attention, and I look forward to the discussion.
