E-mail this article to
yourself or a friend.
Enter address:


EU's CAP reform? Let us not be fooled

(Thursday, June 26, 2003 -- CropChoice news) -- Aileen Kwa, Geneva: The EU decision on the CAP reformwas announced as negotiators were convening yet another meeting in Geneva to try to break the impasse of the agriculture negotiations in the WTO. But let us not be fooled. The EU is not going to lower it subsidy levels. This deal is about shifting between different support programmes. The French-German deal struck in October 2002 freezes overall EU supports for 2007-2013 at the 2006 level. From now till 2006, the EU will have to deal with incorporating 10 new Members, thus support levels in all likelihood could increase slightly between 2004-2006 from the present Euro 43 billion provided annually.

The supposedly radical reformis to decouplea certain percentage of supports i.e. provide supports which are not contingent on production levels. The theory says that this will make trade less distorting. EU farmers will receive direct payments based on a historical reference period, and delinked from how much they currently produce, what or whether they even produce.

Good theorizing, but does it actually work? Farmers are supposed to produce less, or even not produce at all, since they will receive payments in any case. Has it worked in the past? No. Since the 1990s, the EC has been decoupling part of its subsidies in cereals. EC intervened at prices much closer to the world price, and 50 per cent lower than the previous intervention price, whilst channeling payments to farmers directly. If the theory was right, cereals production should have fallen, since farmers could have produced less (and distorted world prices less) yet received their payments. The CTA (Technical Centre for Agricultural and Rural Cooperation ACP-EU) instead found that EU cereals production increased by 25 per cent instead of contracting because overall subsidy levels had in fact increased. The direct payments given were calculated to more than adequately make up for losses experienced from a lower intervention price.

Why dont EU farmers follow the economic, price and subsidy signals which the decoupling theory presumes they do? Probably because the theory is just too simplistic. There are too many other factors involved. Farming is not just a job, but a part of ones family history possibly for hundreds of years. Producing drastically less, or eventually moving out of the farm altogether is also likely to entail moving to the city and accepting a very different culture and way of life. In reality therefore, most European farmers stick to farming as long as they possibly can. It matters little to the farmer then what labels the government supports come with.

But the implications of this reformhave grave consequences for the developing world, firstly in the area of agriculture, and secondly, in terms of the leverage the EC will make of this at the coming WTO Ministerial Conference to ply open markets of the South not only in agriculture, but also in other sectors.

This CAP reformwill make the price and trade effects of the CAP instruments less transparent. Developing countries will witness more price competitive, though no less subsidized, EU agricultural and processed products on their markets. Compared to export subsidies, where the distortion is at least transparent, it will be much more difficult for EUs trading developing country partners to ascertain the level of supports (and dumping) that are affecting their markets.

Countries which have liberal trade arrangements with the EU are particularly vulnerable, for example, for the over 70 African Caribbean and Pacific (ACP) countries where the EU is presently negotiating reciprocal trade agreements. Competitivelypriced EU products will be flooding those markets. The ACP countries will effectively become the Europes dumping ground.

Furthermore, the reformwill jumpstart further agriculture liberalisation talks in the WTO. An impressive public relations mechanism is now being set into full gear. Developing country Ministers will be told that liberalisation on the part of the Europe is underway and demands will be made from developing countries to significantly lower their tariff levels.

The last round of WTO agricultural liberalisation already had detrimental impacts. This round will further wipe out small farmers and exacerbate the already acute crisis of rural poverty, unemployment and hunger. The proportion of this silent human disaster cannot be underestimated. Whilst only 5 per cent of the population are farmers in the EU, the majority still depend on this sector for their livelihoods in the developing world - 75 per cent in China, 77 per cent in Kenya, 67 per cent in India, and 82 per cent in Senegal.

ECs trade commissioner will also use this opportunity to press for accelerated liberalisation in the services sectors as well as expand the ambit of the WTO, in the interests of EUs corporations, and launch new negotiations on investment, competition, transparency in government procurement and trade facilitation. If the Ministers from the developing world, under strong political and economic pressures cave in, eventually, the South can kiss goodbye to its last bastion of domestic policy space. Despite developing countriesenterprises standing no chance against the multinational giants, eventually, the right to give local enterprises preferential treatment at home over foreign corporations will be chipped away, even on home ground.

Aileen Kwa is a policy analyst with Focus on the Global South based in Geneva. She is author of Power Politics in the WTOand co-author of Behind the Scenes at the WTO: The Real World of International Trade Negotiations. She can be contacted at aileenkwa@yahoo.com