Sunday, October 23, 2005

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The EU needs to turn the key

Alan Beattie and Victor Mallet report in the Financial Times that the EU's previous trade commissioner -- and current Director-General of the World Trade Organization -- is trying to pressure the current trade commissoner to get the EU's act together on the Doha round:

The European Union is under pressure to improve its offer on farm tariff cuts within 10 days, or risk the cancellation of December's Hong Kong trade summit, according to trade officials.

Officials in Europe say that Pascal Lamy, WTO director-general, has warned them there is no point going ahead with the meeting in December without a more ambitious proposal.

The other leading partners in the negotiations - the US and the Group of 20 developing countries - have also identified the EU's position as the main sticking point. "A clear and rising degree of concern has been expressed to us," said one European Commission official.

The official confirmed that Mr Lamy had suggested that the next week to 10 days was the make-or-break point for the Doha round of talks. The WTO declined to comment.

Cancelling a ministerial meeting, which take place every other year, would require the consent of all 148 members of the WTO and would be an admission that the round had come to a halt.

The EU, which initially offered what the US says is a 24.5 per cent cut in farm tariffs, is working on a second and final offer which it hopes to present later this week, proposing cuts likely to average around 40 per cent.

But such a plan would fall short of what the US says is the minimum acceptable offer - to match the G20's plan for an average 54 per cent cut....

Mr Mandelson wants an offer to at least match the cuts agreed in the previous "Uruguay round" of trade talks, which reduced farm tariffs by an average of 36 per cent. "If there is another bid, it will be a final and non-negotiable one, and will be dependent on progress in the goods and services parts of the talks," the Commission official said. John Tsang, the Hong Kong commerce secretary due to host December's ministerial, told the Financial Times that the process was "at crisis point".

"This agriculture deadlock could really derail the whole project," Mr Tsang said, adding that the EU call for liberalisation in goods and services at the same time was pointless. "We all know agriculture is the key, the EU holds the key, and now is the time to turn the key."

The situation is clearly causing Peter Mandelson to get hot under the collar.

Why exactly is the EU acting so obdurate on this issue? Well, it's mostly the French, and according to Thomas Fuller of the International Herald Tribune, it's the power of terroir (link via Virginia Postrel)

posted by Dan on 10.23.05 at 09:49 PM


I'm a bit skeptical of the rhetoric presented by the US, the G20, and developing countries in general. While it would be awesome for the EU to cut its overall farm subsidies by a significant amount, I think the main barrier to further development of the world economy are tariffs in other areas. I mean, don't developing countries have much higher tariffs than the developed ones? And also, won't a few countries that are dependent agricultural importers suffer from the loss of farm subsidies? Right now farm subsidies depress and distort the equilibrium price - won't importers need to pay more in the future?

But either way, I hope this crisis of sorts passes and we do take a chunk out of the EU subsidies. Just my two cents.

- JX, 17, student.

posted by: Joshua Xiong on 10.23.05 at 09:49 PM [permalink]

Taking your questions in order:

1. They are in many cases, but this is irrelevant to the current crisis in the Doha round. Liberalization of ag. trade is crucial to several developing countries that have little else but farm products to trade, and for several others with large farming sectors. Further reduction of trade barriers and subsidies in other areas is what the developing world would be trading for cuts in farm subsidies and protection. The Americans, because some parts of their ag sector are heavily protected and others would benefit from cuts in protection elsewhere, are to some extent on both sides of the fence here.

2. No, if I understand the question correctly. Farm subsidies can depress market prices, but for many developing countries what this means is that market prices are sufficient for their own farmers to be profitable (this is apart from the case of commodities like sugar where markets are barred to producers by non-tariff barriers). For developing countries with large rural populations this is a major drawback of ag. protection in the developed world. An exception might be chronically poor countries dependent on food aid and unable to develop more than a minimal farm sector of their own for physical reasons (e.g. inadequate arable land, lack of rainfall, etc.)

3. Yes. And no. If the United States dropped its protection of sugar, for example, the market price for sugar producing countries such as Brazil and Australia would go up. The market price for sugar consumers in the United States, however, would go down, as sugar is protected primarily through import quotas and producer prices guaranteed by the government. Ag. protection raises consumer prices in developed countries, unless the government chooses (through export subsidies and direct payments to farmers) to shift the cost of protecting farmers from consumers to taxpayers. Japan places most of the burden of protecting its farmers on consumers, the United States (for the most part) on taxpayers. Europe places heavy burdens on both.

posted by: Zathras on 10.23.05 at 09:49 PM [permalink]

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