Cap Reform

Don’t imagine that the EU decision on changes to the Common Agricultural Policy mean a new deal for world agriculture markets. To really open up world food markets and help the world’s poorest people achieve better incomes and greater food security we need a new approach to the WTO agriculture negotiations but history says the EU won’t give it to us. European Agriculture Commissioner Franz Fischler claims this week’s decision will be a break-through for the world trade talks. That’s just spin. Australian farmers, for example, will see no benefit from this week’s EU decision on changes to the CAP because it does not directly change Europe’s restrictive import tariff-quotas or destructive export subsidies. Farmers in the world’s poorest countries will still find their prices depressed by EU export subsidies and European consumers will go on paying too much for sugar, dairy, meat and cereals. As the French farm ministry said, the EU decisions make no changes to the CAP’s ‘fundamental principles’. Experience tells us that allowing the EU’s farm policy czars to set our ambitions for opening up world food markets doesn’t lead to real change. It’s like allowing the fox to run the hen house. Just look at what happened the last time leading up to the 1994 WTO agreement. The world waited two years after the planned end of the negotiations in 1990 for the EU to signal how far it would move and then watched from the sidelines as the EU and the USA crafted a flawed deal that found their mutual ‘comfort zone’. The big breakthroughs in the agreement were in fact secured years earlier during the 1988 ‘half way’ meeting of the trade round when the Australian-led Cairns Group called a halt to all negotiations unless the EC put its export subsidies on the table for the first time and the USA started talking about practical ways of cutting market access barriers. Within weeks the focus of the talks changed; it was the performance that was delayed. What has changed most dramatically in the WTO since then is is the greatly increased influence of developing countries who make up more than 100 of the 146 members of WTO. Their interests are nominally the focus of the Doha round of negotiations and they have the power to call the tune on an agriculture agreement that is in their interests, if they act together as a group. Up to now, they haven’t found the incentive to do that because of the skewed distribution of gains from opening up world food markets. Cuts to agricultural protection will have more impact on poor countries’ economies than any other WTO trade agreement because farming is such a big employer, but not all of the impacts on them will be positive. Economic modelers in the World Bank and in think-tanks in Europe, Australia and North America have shown that prices for meat, sugar, wheat, dairy, rice and other products that developing countries produce, but also import, will shoot up when world trade is reformed. The net gains are huge—at least billion a year says the IMF, for full liberalization—and on average everyone is better off. Problem: although everyone gains something, some of the poorest developing countries will see their import bills rise faster than their income gains from higher prices for their own production and exports. They worry, too, about their food security in a new higher-priced world market. Solution: there is ample room for the winners to compensate the losers, still leaving everyone better off. The economic models show that the income gains to EU and USA from real trade liberalization are hundreds of times greater than these losses to poor countries: as much as 400 times according Denmark’s Research Institute of Food Economics which modeled the modest compromise trade liberalization proposal put forward by Stuart Harbinson, the Chairman of the WTO agriculture negotiations. It seems obvious that there’s the making of a much bigger global opportunity than the EU has in mind if the deal can be structured in a business-like way. Sadly, none of the negotiators is yet thinking outside the same old box. The developing countries as a group must be the focus of the deal and a broker is needed to consolidate their interest in the liberalizing world food markets by setting up a mechanism for the winners (mostly rich countries) to compensate the losers (some of the world’s poorest countries). The WTO and World Bank acting together can supply the mechanism. Can the Australian government be the broker?

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