European Affairs

The WTO negotiations are of crucial importance because they will set the ground rules for all the world's agricultural policies. We believe that it would be best for everyone if the WTO negotiations on agriculture were fitted into a wider multilateral trade round.

Before and during the WTO Ministerial meeting in Seattle in late 1999, the European delegation tried to forge an agreement to launch such a round and we were disappointed that these attempts did not succeed. But our efforts continue.

This does not mean, however, that we did not take seriously the obligation to start negotiations on agriculture in 2000, with or without a round. These negotiations did, in fact start in March, and a realistic and action-oriented work program was agreed for the year until 2001.

This successful outcome, on which the United States and the EU closely cooperated, means that progress can be achieved in the WTO. But while starting the negotiations was possible, it will be much harder to find a mutually satisfactory conclusion based on a balance of interests between 136 countries, when only one sector is involved.

To have a chance of success, agriculture must be included in a wider round, and the negotiations should have a five-point agenda:

  • Market access. The EU is the world's biggest agricultural importer and the second largest exporter, after the United States. It has a major interest in negotiating the lowering of trade barriers. We expect to obtain improved market opportunities for our exporters in exchange for granting increased access to the European market.

We shall also want to see progress on non-tariff issues, including protection for consumers against misleading labeling, especially for high-quality products, in step with tariff reductions.

  • Domestic support. The EU has started a reform process in which we have been moving away from a high price support system toward a more market orientated system, with compensation to producers not linked to current output. This requires the continuation of the system of Blue and Green Boxes, which list the internationally acceptable aids that are partially (blue) or totally (green) decoupled from production.
  • Export competition. The EU is prepared to move toward more equal terms of competition, but we insist that this reform be broader than a simple reduction in export subsidies. All instruments affecting export competition such as U.S. marketing loans and export credits should be brought fully into the negotiations and treated on an equal basis.
  • Special and differential treatment for developing countries. As a demonstration of our commitment in this area, the EU is ready to move, in partnership with other developed countries, toward offering duty-free access to our markets for almost all the products of the least-developed countries.
  • Non-trade concerns. A round cannot be comprehensive if it does not address concerns of the general public, including the impact of globalization on health, the environment, rural development, and bio-diversity.

Europe wants to retain a "multifunctional" agriculture, implying recognition that farmers do many other things than simply produce food. They also help to keep the landscape in good shape, for instance, and guarantee rural jobs so that the countryside can continue to be inhabited.

This concept is rejected by the 14-member Cairns Group of major agricultural exporting countries, and it has become rather contentious in our discussions with the United States. But Dan Glickman, the former U.S. Secretary of Agriculture, also spoke of "multifaceted" agriculture.

What we mean by referring to "multifunctional" agriculture is that, in a more open trading environment, consumers will have access to food from all over the world. But they will still expect their own farmers to deliver valuable non-commercial goods, such as an attractive environment and a vibrant rural society. In addition, when their food is coming from all around the world, consumers will want to be very sure that it is safe.

This does not imply that locally produced food is necessarily safer than imported food. But the globalization of food markets does imply an increased need for a prudent approach to food safety.

We could perhaps afford to take risks when the consequence of a mistake was confined to a single local population. When food is traded globally, the need for prudence is greater.

The need for consumer confidence in regulatory authorities is also higher, meaning that these authorities must be careful not to endanger that confidence by taking undue risks. This is particularly true with regard to new technologies.

For the EU, a new WTO agreement has to include a green box, a blue box, as well as a peace clause ensuring that European policies will not be legally challenged while they are being reformed.

American farmers have much in common with European farmers. They should appreciate that the Common Agricultural Policy has undergone substantial reform, and that remaining differences between U.S. and European policies are usually justified by very different geographic and demographic conditions.

Since 1992, the EU has moved away from market support and toward direct income support. The share of market support, including export subsidies, is due to fall from 91 percent of total EU farm support in 1989-91 to 21 percent in 2006. Direct aids to farm incomes, which are less disruptive to markets, are moving up from nine percent to 79 percent of total farm support over the same period.

In particular, export subsidies plummeted from 55 percent of the total value of agricultural production in 1992 to nine percent in 1998. They now account for only two percent of European farm output.

American and European farmers are attached to a number of the same sacred cows, such as dairy products, sugar and tobacco, but their support systems differ because the contexts are different.

U.S. agricultural policy would be more like the Common Agricultural Policy if the United States had Europe's much higher numbers of farmers and population density. The EU has 7.5 million farmers, a number that will increase to 18 million when the next round of EU enlargement is completed, against only two million American farmers.

The EU has 322 million acres of farmland, with an average farm size of 40 acres, against 900 million acres and an average size of 473 acres in the United States. If the U.S. figures were comparable to those of the EU, can anyone imagine that Congress would still spend only 0.6 percent of America's gross domestic product on agriculture, as it does today?

As we prepare for a new round, we must both do further work on farm support systems that do not distort trade, including various insurance systems where the U.S. has a head start. We need also to remember that, for most countries, agriculture has always been a sensitive sector that cannot be treated like any other. The new round will not change that.

The EU has accelerated the pace of its enlargement by opening entry negotiations with ten countries of Central and Eastern Europe. Originally, it was envisaged that enlargement would take place in two waves, with Poland, Hungary, Slovenia, the Czech Republic and Estonia in the first wave and Slovakia, Bulgaria, Romania, Latvia and Lithuania in the second.

A more fluid process is now under discussion, in which candidate countries may be admitted when they are ready to join, as soon as their entry negotiations are completed.

A glance at population statistics gives some measure of the problem. In the present EU, agriculture accounted for around five percent of employment in 1996. In the countries previously expected to join in the first wave, the figure is 18 percent, and in the second wave 27.9 percent. In all ten countries together, farm jobs represent 22.5 percent of the total.

While these averages conceal wide differences between individual countries, it is clear that a major restructuring will have to take place throughout Central and Eastern Europe if we are to avoid having two EUs, one agrarian and one non-agrarian.

In the current EU, GDP per head is around $20,100 a year. In the countries of the first wave, it is around $4,200, in the second wave $2,000. The figures may be distorted by exchange rates, but even allowing for that, they show a huge gap.

A number of policy goals will have to be met if enlargement is to proceed:

  • We cannot abandon our rural areas. They will be more, not less, important after enlargement.
  • A high-price policy would be unfair to the poorer, non-farming sectors of society.
  • We must give added emphasis to agricultural restructuring and rural development.

In 1992, and again in 1999, decisions were taken to slash support prices and replace them partly by compensation not linked to output. We have been building up measures to encourage forestation, environmental improvements and early retirement for farmers. We have been funding special rural development measures in our poorest areas.

An agenda for further reform, adopted in 1999, establishes target dates for more steps along the same path. It should preserve what we value in our agriculture, what is called "the European model." It is fit for the EU's enlargement, and should facilitate negotiations in the WTO with our trading partners.


This article was published in European Affairs: Volume number II, Issue number I in the Winter of 2001.