Agricultural Talks in the Doha Round

Mariann Fischer Boel
EU Agriculture & Rural Development Commissioner

at the
National Press Club
Sponsored By:
Commodity Club & Food Group
Washington, DC
September 15, 2005

Ladies and gentlemen,

It’s a real pleasure to be with you today.

I’m very grateful to the Commodity Club and the Food Group for giving me the chance to talk to so many experts on agriculture.

This is a good moment for us to listen to each other – when the US is thinking about renewing its farm legislation, and of course when all WTO members are working towards success in the agricultural talks in the Doha Round.

When the media discuss the roles of the European Union and the US in the Doha talks, I see they often use the image of two elephants making a lot of noise while the smaller animals run for cover.

If we take this image in a negative sense, I think it’s misleading. But in more positive senses, could it hold a grain of truth? According to a number of tests, it just might.

Two animals of the same species will probably understand each other’s needs and concerns fairly well. And I think that’s true of the EU and the US. Both have great farming traditions. Agriculture is deep in our souls.

Also, we seem to speak different but similar dialects of a strange technical language.

I’m not sure that the language of “production flexibility contracts,” “loan deficiency payments” and “counter-cyclical payments” is widely understood in the world.

But to me, these phrases sound as if they come from the same root language as the “single farm payments,” “cross-compliance” and “modulation” that we talk about in the EU.

(By the way, if the European dialect of this language is still unfamiliar to you, don’t worry: I’ll explain some key terms later!)

So the tests confirm what we thought. When it comes to agriculture, the EU and the US are of the same species. We have important things to say to each other. And that’s why I’m here today.

Perceptions of the EU and agriculture: a flawed script

The Doha Round is one of the most important projects of our times. Globalisation is a topic often on our lips. But the fact is that millions of people in the world do not share in the benefits that global trade can bring – or worse, they have to live with its darker side.

Under the Doha Development Agenda, we have a chance to put this right and to strike a blow against global poverty.

It’s good that the world’s media are taking an interest. I think a large proportion of the reading public of the world knows that a WTO round is taking place and has some idea of what’s at stake.

However, leaving aside stock images of “elephants” or any other animals, in the media we are often seeing standard “scripts” to describe what’s happening.

And in one of these, the European Union is always cast as the “bad guy.” According to this script, it’s the EU that is blocking progress in the Doha Round for the sake of protecting huge, illogical, trade-distorting payments to its greedy farmers.

So European farmers are endangering the negotiations and threatening to impose further decades of poverty on under-developed countries, we are told.

One of the things I’d like to do today is to show the serious flaws in this script. It doesn’t take account of the logical foundations of the EU’s farm policy – or, more importantly, of how this has changed and where it is headed for the future.

So let me offer you a more accurate script.

The Common Agricultural Policy: the original rationale

Let’s start with some brief history.

In the late nineteenth and early twentieth centuries, the countries of Europe had a range of policies to regulate agricultural production and trade. Some were more protectionist and some were more liberal, but most were pushed towards protectionism by market depression and then by two world wars.

Let’s move forward to 1957, when six countries formed the European Economic Community – which was the core of what is now the European Union. These countries were France, Germany, Italy, the Netherlands, Belgium and Luxembourg.

They decided to put in place an agricultural policy which aimed at boosting production and ensuring a good standard of living for farmers – through a common market with guaranteed high prices. The policy became known as the Common Agricultural Policy, or CAP.

From today’s perspective, this approach may seem inward-looking. But it was a response to the crisis which followed the Second World War.

In much of Europe, food shortages had become serious, and damaged national agricultural systems needed help to rebuild themselves. The alternative was hunger, social disorder in rural areas and an exodus from farmland to cities which were already short of housing and jobs.

The solution of a protected market with guaranteed prices worked well for some years. Eventually, though, constant gains in production without corresponding increases in consumption began to pile up surpluses in the 1970s and the 1980s.

This was the period when the CAP was getting itself a bad name. But let’s be clear that it acquired that bad reputation because, having begun from a rational starting point, it hadn’t changed with the times.

Let’s also be clear that, since that dark period, it has changed – substantially.

In the 1980s, the EU started limiting milk production with quotas and introduced caps on intervention buying. Then, in 1992, we cut guaranteed prices on farm goods in return for compensatory direct payments to farmers - who were also obliged to “set aside” portions of their arable land.

These steps began to tackle oversupply and made subsidy much more transparent.

However, more work has been necessary. Consumers have been demanding quality rather than quantity. There is a growing pressure to make sure that farm policy respects the needs of our environment – without swallowing too much public money. And WTO rounds are imposing discipline from outside.

A new model for supporting farmers

As I say, more has been necessary - and we have done more. In 2003 and 2004 we agreed to rebuild the CAP to make it strong enough to survive in a new, harsher climate.

The most fundamental change lies in cutting the link between subsidy and production.

We are doing this by introducing the “single farm payment” to farmers. (I referred to this concept earlier in my little run-down of EU-US farm vocabulary.) Instead of being determined by current production, single farm payments are based on historical subsidy receipts and current land area. No production of any kind is needed.

This may sound like “easy money.” But there are strings attached. To receive the single farm payment, farmers have to measure up to stern standards of environmentally sound land management and public and animal health. This is the “cross-compliance” that I mentioned.

The intention is that farmers will have a new focus when making production decisions. They will look at the market to see what it wants, rather than check each year with officials in London and Brussels to see what combination of subsidies will pay the most.

Instead of being a prop for unwanted output, public money will pay for the public goods and services we want – pleasant fields, clean air and water, a reliable level of food safety.

Furthermore, as of this year we’re slicing a proportion off direct payments to medium-sized and large farm businesses and adding them to our budget for rural development.

We’re doing this because the needs of the European Union’s rural areas cannot all be met by an effective farming sector. If we truly want our countryside to flourish – to provide the living space, the leisure opportunities, the employment, that lie within its potential – then we have to think beyond agriculture.

Our new blueprint for rural development in 2007-2013 has this principle at its heart. I don’t have time to explain it in detail today. But I can tell you that it is a modern and balanced approach. It gives a prominent role to farming, but also seeks to nurture others kinds of rural business; and it weighs up the needs of “development” against the environmental dangers of “over-development.”

Impact on the Doha Round

What I have described has obvious importance for the European Union. What does it mean for the Doha Round?

You could be forgiven for thinking at times that the answer is “absolutely nothing.” Because the script that I referred to earlier is doing its work. The EU is still cast as the villain and its contribution to the Doha talks is played down.

Let me suggest a very different script to you. By agreeing reforms to the CAP before the Doha discussions got fully underway, the EU has been able to accept or propose things which would have been unthinkable a few years ago.

On the other hand, this is a negotiation, so in each case we want things in return.

I’ll explain these points now with regard to the three “pillars” of the agricultural discussions: domestic support, export competition and market access.

In respect of domestic support, the EU can go along with a huge cut in trade-distorting subsidy. This is possible because our new-style single farm payment now fits into the Green Box of least-trade-distorting support.

This is not a matter of taking a jar of honey and relabelling it as jam. As I have argued today, the nature of subsidy in the EU has changed fundamentally, and this should be recognised. Let me put it another way: definitions of the Green Box must not now come under attack. We believe the current concept is valid.

Cuts to the Blue Box are, of course, a problem for the US, and the EU is looking for a little more ambition from Washington here. I’ve welcomed the chance to examine this point with members of your Administration during my visit.

On export competition, we have also made a strenuous effort - by offering to phase out our agricultural export refunds. This offer from us marks a genuine sacrifice. And it is a cornerstone of the progress made so far on agriculture in this round. It kick-started the negotiations in 2004 when these had come to a standstill.

But the offer has conditions. Export support comes in many forms, and we need to see movement on all of these – from all WTO members.

We welcome the principle of food aid. But we believe there’s a danger that food aid in kind can slip into a mechanism for disposing of surpluses. Direct financial assistance would usually be more appropriate, in our view.

We also have concerns about repayment periods and other aspects of export credits. And, of course, state trading enterprises often have subsidy elements which we should eliminate.

On market access, we have been as engaged as anyone in the search for the best formula for cutting tariffs. This is a more difficult area for the EU – most WTO members have a “difficult area” – but we are, of course, ready to see tariffs fall.

We’ve certainly been in negotiating mode on this. We originally wanted to cut tariffs according to the Uruguay Round formula. The US wanted the Swiss Formula. We’re now talking about middle ground, and we’re ready to compromise if our trade partners will meet us half-way. Again, this week’s visit has been useful for looking at this issue.

On the other hand, we need a realistic and balanced outcome on market access. It’s accepted that there will be a meaningful opening of agricultural markets. But it’s also legitimate for WTO members to seek to temper tariff cuts for sectors of particular economic or social sensitivity.

And of course, balance is vital for the Doha Round as a whole – between the three pillars in agriculture and then between all sectors.

Agriculture may be a big element in the talks but it’s not the only piece in the jigsaw. The EU, like many other WTO members, has important interests in industrial goods, services, government procurement and trade facilitation. These cannot be seen as an afterthought.

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I hope I’m giving you a sense that the EU has not been dragging its feet in the Doha Round. We’ve been up at the front, putting things of real value on the table. This is the reality that has been partly disguised by some accounts of the negotiations.

Before I finish talking about trade, I’d like to comment briefly on an issue which is not covered by the Doha Round but is a hot topic between the US and the EU. That’s genetically modified products.

There’s enough material in that subject to take up several speeches, not several sentences.

All I’ll say today is that in this area, too, the position of the European Union is not always well understood.

If the EU has agreed to open up its agricultural markets, that includes GM products. We have no anti-GM agenda. And we are not trying to smuggle in protectionism through the back door, under cover of concerns about food safety and the environment.

GM products are welcome in the EU if they pass the strict assessment procedures which we have now put in place. Those tests are based on science, not on politics.

Nevertheless, in terms of farming, what we’re aiming for in the EU is co-existence of conventional and GM crops. GM products have their place. But they must also leave room for non-GM cultures. The watchword here is choice – the right of consumers to buy a range of goods, all of them certified as safe according to tough but fair standards.

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Ladies and gentlemen, I’m coming to the end of my jungle call from one elephant to another – from the European Union to the United States.

I hope I’ve convinced you that European farm policy, and its relationship to the Doha Round, are not quite what they are sometimes portrayed to be.

The language of farm policy can be confusing, but the disputes that sometimes surround it can be even more so.

The EU and the US must cut through all this and keep working together to make sure that the Doha Round remains a negotiation and does not sink to the level of a war of words.

Otherwise, the smaller animals in the jungle really could be trampled underfoot, with disastrous consequences.

Thank you for your attention, and I welcome any questions you may have.