More grand strategies

The EU is said to be ready to offer a discriminatory ‘regional’ trade deal to the countries of Mercosur (the Latin American regional group) that includes expanded access to European markets for farm goods in return for reduced pressure on Europe’s agricultural policies in the WTO negotiations. bq. The move is designed to weaken pressure on the EU to lower its farm trade barriers by, in effect, buying off Argentina, Brazil, Paraguay and Uruguay with the offer of preferential trade concessions. These countries have been among the fiercest adversaries of Brussels in the global trade talks. (“Financial Times”:http://www.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1079420322140&p=1012571727102) It’s difficult to believe that an agreement along these lines would pass muster under GATT Article XXIV, which requires the full liberalization of “substantially all trade”. But Article XXIV is now mostly honoured in the breech The FT’s assumption that such a discriminatory deal would ‘anger other agricultural exporters’ looks safe enough on the surface. The EU has recently faced a number of complaints from developing countries (e.g. Thailand) on the impacts that its preferences have on their commercial access to the EU market. These developing country complaints are more difficult for the EU to dismiss than complaints from e.g. Austrlia, NZ, the USA or Canada. If it offered such a bargain to the Mercosur countries in the hope that this would reduce overall presssure on its agricultural policies in the WTO the EU might be terribly disappointed. It might just as easily raise the pitch of criticism from countries in Asia and Africa. But it’s not so clear how the other ‘southern hemisphere’ agricultural exporters would view such a deal. Its unwise to make assumptions about the impact of discriminatory access arrangements for food products without looking closely at market patterns. To the extent that a deal between the EU and Mercosur absorbed some of Brazil’s soy exports, or Argentina’s beef exports, or Uruguay’s dairy exports, reducing supply on international markets outside the EU, exporters such as Australia and NZ who have very limited shares of the EU market could well find themselves much better off. World market prices would rise due to the disappearance of the competitive Mercosur product, more than compensating them for any displacement of their sales to the EU.

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