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European Affairs
Agricultural Policy in the WTO: Special Report
In Farm Trade, U.S. and EU Differ But Have Much in Common
Excerpts from The European Institute's seminar on Agricultural Policy in the Transatlantic Relationship held in Washington on May 18, 2001.
Agricultural trade is being discussed in Geneva as part of the follow-up to the Uruguay Round, and it will figure prominently in any new round that may be decided at the Ministerial meeting of the World Trade Organization due to be held in Qatar in November. The United States and the European Union, the world's two largest agricultural producers, hold the keys to success in these negotiations, but their positions still diverge sharply on many agricultural issues. The following are selected comments made at a high-level meeting on EU and U.S. agricultural policies organized by The European Institute in Washington:
The View From Europe
Over the last ten years, we have tried to make our agricultural system more competitive internally and in international markets, to make it more environmentally friendly and simpler, to diversify agricultural support because of the diversification of agricultural activities, and to shift to an approach that is oriented more to rural development than to traditional farm production.
The question of the role of the developing countries in the new trade round is really important. We shouldn't forget that the situation has totally changed. Eighty percent of WTO members are developing countries and it is out of the question that there will be a new round without the agreement of the developing world. It is very important that in the preparation phase of the new round we increase our contacts with the developing countries and that we deal with their real concerns.
Franz Fischler, European Commissioner for Agriculture, Rural Development and Fisheries
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For a very long time, I was not at ease in French and European agricultural economic circles, because I was a true believer in the soundness and the wisdom of U.S. farm policy. As a liberal-minded academic, I thought the United States was going in the right direction.
Well, that lasted until 1997, when we discovered that U.S. farm policy was changing.
First came the evil mechanisms of loan deficiency payments (LDPs), marketing loan grants, etc. For the first time since 1933, the loan rate was no longer the effective minimum world price for grains, as prices were depressed by now direct payments - especially LDPs. This was a complete change.
Many U.S. farmers have completely forgotten what a market is. They don't farm the products. They farm the programs. That is exactly what the latest U.S. Farm Act did not want.
The United States has emergency payments of all kinds, which are now so high that they pay for almost all of farmers' fixed costs, according to a number of reliable studies. When payments reach such a high level, they act as an incentive to produce more, even if they are officially meant to be decoupled from production.
Some academics in Europe, and I think also in the United States, can see the real nightmare that U.S. farm policy has become, not only for the U.S. taxpayer, but also for the rest of the world.
The next Farm Bill, which contains "counter-cyclical" measures, risks causing more dumping on world markets than ever before. If Europe and the United States were to work together with the market tools they have - loan rates and intervention prices - especially in the grain sector, there might be some way of collaborating and giving world markets the safety nets they really need.
Philippe Chalmin, Professor, Paris-Dauphine University
We tend to focus on our differences. The fact is that farmers and ranchers want much the same thing on both sides of the Atlantic, and the reasons why policy is developed in America and the EU are very similar. We are dealing with people and communities with similar backgrounds and thinking.
Daniel Glickman, former U.S. Secretary of Agriculture
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With respect to domestic support policies, the United States and the EU are probably closer to each other than either of them is to the other major farm-exporting countries. We both have the money and we spend it on our farmers.
But, when you look at other issues, such as market access and export subsidies, we still have major problems. Clearly, we have common concerns when it comes to the need to protect our farmers, to provide safety nets. But, we still have these side issues. I saw a report that Mr. Fischler had indicated some concern that the United States was dragging its feet in the next round of negotiations on agriculture.
In fact, the United States last year was the first country to introduce a comprehensive proposal on agriculture for the next trade round. This year the United States fought very hard to move ahead to phase two of the negotiations. It seems to me that the negotiations in Geneva are probably farther advanced than they have been at this stage in any previous agricultural negotiations.
I am encouraged that Congress and farm groups that have participated in the negotiations have struggled mightily to make proposals and to consider options that are consistent with our current obligations in the WTO. I think that the expectation in this country is that we will have a new Farm Bill before the end of the negotiations. I think the expiration of the "peace clause," which restrains legal attacks on each others' policies, will probably have some role to play in how quickly we reach an agreement in Geneva.
When the negotiations are over, the United States will be expected to come back and modify domestic programs to make them compatible with the obligations we have negotiated as part of the agreement. And it will be hard.
I am encouraged by Mr. Fischler's approach to the negotiations. He is showing more flexibility on domestic supports and other issues than was the case in the Uruguay Round. But if everybody is adamant that they will only negotiate on the basis of self-interest and that that is as far as they will go at the end of the negotiation, then there is no point in having negotiations. So, everyone must be a little bit more open-minded.
Paul Drazek, dtb associates, llp;Former Special Assistant to the Secretary of Agriculture for International Affairs
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We have already agreed to incremental reform. That is what the Punta del Este declaration stated over a decade ago, when the Uruguay Round was launched. That is what Article 20 in the Agreement on Agriculture stated. We are going to continue the incremental reform. I guess the question now is: are we going to start talking about the new issues?
Biotech is certainly a critical issue for the future. And again we can talk about loan deficiency payments and grains and oilseeds, but biotech certainly has a much broader impact. And, frankly, if the WTO can't help us sort out some of the biotech issues, then I think farmers in all countries are going to start asking what purpose it serves.
This is one of our biggest trade issues. If you tell me we can't deal with it in the WTO, then why do we want to be in the WTO? I don't think we are there yet, but I think the longer this frustration goes on with these new issues, the more difficult it will be to come to an agreement - and it's not just the developed world that is concerned.
I think the developing countries, in particular, have a lot of frustrations with some of these health and safety issues and perceived trade barriers. The difficulty is to draw lines between what is a legitimate concern and what is a trade barrier.David Hegwood, O'Mara and Associates;Senior Trade Advisor (designate),U.S. Department of Agriculture
As traditional barriers keep falling, sanitary and phytosanitary measures will become more and more important for market access. At the same time, many poor countries have large rural populations, and the development of agriculture and international exports provides a major opportunity for those countries to develop.
But, they are faced with increasingly hard standards to meet in the markets of high-income countries. So that's basically the challenge.
Another major challenge is that recent studies forecast that world demand for animal products will increase maybe by as much as 50 percent within the next 20 years. That increase will come mostly from developing countries.
It will trigger a very sharp increase in trade for those products and an even greater need for feed grains, and so on. This demand will also trigger increasing industrialization.
New risks and hazards are being identified all the time. Diseases are global, and no country can really pretend it is reasonably protected as long as diseases exist elsewhere in the world.
The importance of these sanitary and phytosanitary issues is not recognized by many countries. It is not recognized by the countries that are donors to the World Bank. The result is that neither the donors nor the developing countries have any real strategy on how to deal with these problems.
It is very important that countries be able to participate in the day-to-day setting of the rules of the game in the various famous standards-setting organizations and processes.
Developing countries have their own problems in meeting these standards. The sanitary and phytosanitary agreement in the Uruguay Round has shown its benefit as a basis for challenging unfair measures in relation to sanitary barriers, but it is itself perceived as unfair by a number of developing countries. There are fundamental disagreements on a number of key issues on the role of science.
Developed countries can do a lot to provide support at country, regional and global levels.
Increased concentration and integration of production is likely to favor large-scale units. It is likely to crowd out the potential benefits from the explosion in demand and in trade that could help small farmers to get out of poverty. We need to identify policies that will mitigate these trends.
Michel Siméon, Lead Economist, The World Bank
I'm a farmer. We've heard the political angle from Europe. And we've heard the academic economic angle. Let me tell you how it is at the sharp end.
As far as soybean production is concerned in the United States, we thought a great deal of the Farm Act of 1996, the so-called FAIR Act - we thought it had enormous merit. But it has been added to and it is no longer fair in any sense of the word. As far as soybean production is concerned, there is no market.
We've already discovered that, in fact, farmers chase the system. They don't chase the market anymore in the United States - so much so that 67 percent of their gross income comes from government support, leaving only a very minor part to come from the marketplace.
There has been an explosion of soybean production in the United States while European farmers have been constrained by the agricultural reforms provided for in the European Union's Agenda 2000. We have respected our maximum guaranteed area in Europe. Our production has been static and American production has exploded.
This is neither fair nor equitable. We need to see the opportunities equally distributed. We have no safety-net mechanism for oilseeds in Europe. We are entirely reliant on the world market price. But the world market price is nothing of the sort because it is distorted by the over-subsidization of American soybean production.
Now, here is an opportunity. In the next WTO round a better solution has to be found for the good of both American and European farmers, but more particularly of world trade.
We need to talk. We need to talk now. We have so much in common as the two major developed trading blocs, which rely on subsidies. And yet so often we set about destroying each other rather than working together to get a new negotiation going.
As for genetically modified organisms, Americans have been arrogant inasmuch as they developed the technology, used it, and believed that if it was good enough for Uncle Sam, it must be good enough for the rest of the world. They did not appreciate the fear and misunderstanding that existed among European consumers.
We farmers would have liked the opportunity to use GM technology, but we have been denied it because we and American companies failed to carry European consumers along to the same degree of acceptance of the technology that you have enjoyed in the United States. It is so important that we talk about these issues. They obviously have to be wound into the next WTO round. The same goes for animal disease controls.
The only way to solve these problems is to talk, very soon. We must try to abandon our entrenched positions so that we are prepared to give on both sides. And that applies to GMOs; it applies to animal welfare; it applies to distorting trade effects on soybeans and all those other issues, which we Europeans all feel are so important.
Rad Thomas, Chairman, Oilseed and Protein Committee, National Farmers Union (UK)
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