European farming crucial for solving WTO trade talks

Date: 02/06/05

Negotiations on market access for agricultural products resumed at the World Trade Organization (WTO) in Geneva this week over what is one of the most important dossiers for liberalising world trade.

The Hong Kong summit in December is meant to be an important staging post en route to the objective of a new world trade agreement, the Doha Round, by the end of 2006. There will be no agreement in Hong Kong without substantial progress on agriculture.

The EU is under pressure to open up its markets to food exporting countries - a price that it deems worth paying for the sake of greater liberalisation of trade in other goods and services.

Some advances are being made on agriculture. There was a mini-breakthrough at the beginning of this month when the EU, the US, Australia, Brazil and India agreed on a method of calculating what the existing tariffs in force are, to make them comparable, using so-called ad valorem equivalents. At the time, the European Commissioner Mariann Fischer Boel hailed the agreement as "a significant breakthrough". Its importance may have been exaggerated but it was a necessary precondition for making progress in the section of the negotiations devoted to market access, which is largely about reducing import tariffs.

It has already been agreed in principle that higher tariffs will have to come down more than lower tariffs. But the WTO members have yet to agree on the mechanisms for reduction. The first step would be to divide up each country's tariffs into bands or tariffs. The EU is talking about a three-tier system. Brazil is rumoured to be proposing five tiers. Then there will be discussions about where to set the boundaries of the tiers, however many there are. And then within each tier, to decide on what reduction in tariffs should be made.

This framework will be further complicated because each WTO member will be allowed to make certain allowances for "sensitive products". Sugar, for instance, might be designated a sensitive product for the EU. But if the allowances made for sensitive products are generous, then would-be agricultural exporters like Argentina will want deeper cuts in the standard tariffs.

A second topic in negotiations is export competition, which broadly covers export subsidies, export credits, state trading enterprises and subsidised food aid.

The EU made significant concessions last year, promising, albeit conditionally, that it would end export subsidies. In turn that has triggered concessions from other members, particularly the US, so that it looks as if there will be an agreement to end non-commercial export credits after export subsidies are ended.

The third element in the farm talks is the permitted level of domestic subsidy. The reforms that the EU has made to its Common Agricultural Policy have put it in a stronger negotiating position than would otherwise have been the case. The decoupling of farm aid from production means that the bulk of its support will no longer be classified in the 'amber box' as the most distorting to trade. But there will still be some bruising disputes over whether amber box subsidies can be redistributed and over whether domestic subsidy, whether decoupled or not, should be more strictly limited.

In addition to these three battlefields, the EU and others, including Switzerland, Norway, Japan and Korea, have flagged up their intention to discuss non-trade concerns - food security, rural development and environmental protection.

On top of that, the EU has opened up a new front in its battle to protect geographical indicators, such as Champagne and Roquefort. Mainly, these are matters for the WTO's intellectual property talks, but the EU has declared that in the agriculture talks it would like to negotiate the recovery of "usurped terms".

All of which means that there is plenty of potential for disagreement and failure in the agriculture talks. A change of gear is expected after the summer, as the negotiations will increasingly move from technical possibilities to political choices. If the positive momentum is maintained, then in the second half of this year the EU will face decisions that would entail the further dismantling of the Common Agricultural Policy in its traditional form.

Article looks at the ongoing negotiations in preparation for the WTO Doha round's upcoming Ministerial in Hong Kong, December 2005, where agriculture was to be high on the agenda.