The Economist | July 5, 2003
FOR months, the European Union has been the whipping boy of the Doha round of trade talks. The EU's inability to reform the Common Agricultural Policy (CAP), its gargantuan farm-subsidy system, was seen by almost everybody as the main reason why a ministerial summit to be held in Cancun, Mexico, in September might fail. No longer, or so claim European officials and ministers. The EU trumpeted a package of reforms announced on June 26th as "a new era for European agriculture", with a farm policy that is "trade friendly" and where Europe has a "strong hand in the negotiations."
This is almost certainly hubris. Luis Portugal, an agricultural economist at the OECD, says: "It's not a revolution, or even a very big reform." He points out that the EU has not yet touched sugar, cotton or tobacco, commodities where the EU's protection is especially harmful to poor countries. Mr Portugal and others are yet to work out its effects on trade. Its impact on the Doha talks is equally uncertain. As one ambassador to the World Trade Organisation in Geneva says, EU-speak must be translated into WTO-speak. That means sorting out how much extra room the EU's negotiators now have in the three main areas of farm-trade talks: reducing trade-distorting subsidies, cutting export subsidies and improving market access.
Originally, agreement in all three areas was due by March 31st. America made a bold proposal last year: much lower tariffs and trade-distorting subsidies, so that those with the biggest subsidies and highest tariffs would have to cut most; and the elimination of export subsidies. Europe, however, came up with a more timid offer and flatly rejected the principle of harmonisation. A compromise proposed by Stuart Harbinson, chairman of the WTO's agriculture negotiating committee, was not ambitious enough for the Americans and other farm exporters, but too bold for the Europeans and the Japanese.
In their reform, the Europeans seem to have given themselves room to reduce trade-distorting subsidies, perhaps by the 60% suggested by Mr Harbinson. They may also now be able to cut export subsidies, although the scope for this has been limited by their decision not to cut support prices for cereals. The trouble, however, is that the CAP reform was focused on domestic support, not trade: even if the reform leads to subsidy cuts, it says nothing new about tariffs or improving market access. For America and other big farm exporters, that is a big problem.
Market access, exporters are quick to explain, is the real key to freeing farm trade and helping poor countries. Robert Zoellick, America's top trade negotiator, also faces a cruder political calculus. He can persuade America's farmers to accept a cut in subsidies (which were increased generously last year) only if they see a big increase in opportunities to export. In Europe the issue is complicated not just by the CAP but also by the EU's policy on genetically modified crops (see next story). But Mr Zoellick has difficulties elsewhere too. Developing countries with big rural populations, such as India and Indonesia, are loth to open their markets.
Even if Europe's proposals make little difference to the substance of the disagreements, they may change the political mood. By delivering reform, however compromised, and by reducing the trade distortions caused by the CAP, the EU seems to have won some goodwill in Geneva. Yet this could be squandered if the Europeans start using their limited reforms to demand too much from others. A weak, overplayed hand
Guess what? Already Franz Fischler, the EU's agriculture commissioner, has declared: "Unilateral disarmament is not on." Pascal Lamy, the trade commissioner, wants tighter rules for export credits and food aid, which Europeans claim the Americans use as disguised export subsidies; tougher rules on agricultural export monopolies, used by countries such as Canada; and, most important, protection for products from special geographic areas, such as Feta cheese, Kalamata olives or Parma ham. Other countries are furious about this last demand, which they regard as a new kind of protectionism.
Europe's farm deal may therefore go only a small way to closing the huge chasm in the agriculture negotiations. And farm trade is not the only item on the Cancun agenda. Market access for industrial goods is another thorny topic. Here too, the Americans decry others' lack of ambition. This time their gripe is not with Europe, but with developing countries. These claim that the Doha round's focus on development allows them to cut tariffs far more slowly than Mr Zoellick would like. At a recent meeting of trade ministers in Egypt he was blunt. If the Doha round founders on poor countries' intransigence over market access, America will turn to bilateral and regional deals.
Rich and poor are also divided over several new areas, such as competition and investment policy. At the start of the round trade ministers agreed that they would decide how to go about negotiations on these new subjects at Cancun. The Europeans, who are keenest, want wide-ranging talks. Some developing countries, particularly India, are worried about the WTO taking on these subjects, and want only narrow discussions.
Finally, developing countries want Cancun to honour the Doha round's supposed orientation towards their needs. They have specific demands in several areas: they want agreement on dozens of policies granting them "special and differentiated" treatment, and they want the implementation of previous trade agreements to be friendlier to the poor. Although talks among officials in Geneva have been going well, there may yet be troubles in Cancun.
Then there is access to generic medicines to fight diseases such as AIDS, which was supposed to have been agreed upon by the end of 2002. All WTO members agreed on a compromise text--bar America, which yielded to pressure from drugmakers. Most insiders think there will be a deal at Cancun, but only at the last minute.
Agriculture apart, none of these disagreements looks insuperable. However, time is running out. One sign of urgency is that officials in Geneva have had their holidays trimmed to a mere fortnight in August. But despite their sacrifice, the prospects for Cancun are at best uncertain.The Economist:
