The Influence of WTO on CAP

Table of Contents

I. INTRODUCTION

II. REGULATION OF EXTERNAL TRADE IN AGRICULTURE
A. IMPORT - COMMUNITY PREFERENCE
1. PRODUCE ENJOYING GUARANTEED PRICES
2. PRODUCE WITH COMMON EXTERNAL PROTECTION
3. MARKET ORGANIZATIONS WITH DIRECT SUBSIDIE S
4. THE LOMÉ CONVENTION
B. EXPORT - REFUNDS

III. INFLUENCE OF THE WTO
A. URUGUAY ROUND, 1986 - 93
1. HISTORY
2. INITIAL NEGOTIATIONS
3. MACSHARRY PLAN
4. THE BLAIR HOUSE AGREEMENT
5. THE FINAL
B. ELEMENTS OF THE WTO AGREEMENT
1. DOMESTIC SUPPORT
2. MARKET ACCESS
3. EXPORT SUBSIDIE S
C. SINGAPORE MEETING, DECEMBER 1996
D. AGENDA 2000
E. GENEVA MEETING, MAY 1998
F. SEATTLE ROUND,

LIST OF ABBREVIATION

BIBLIOGRAPHY

I. Introduction

“As for its effect on relations between the EU and non-EU states, the CAP has fuelled many trading disputes, and was the principal reason for the prolongation of the Uruguay Round negotiations.”¹

The attempt to ensure a fair standard of living for the agricultural community primar- ily through support for Community prices at above world market prices led to the Community being accused by the outside world of protectionism, and to increasing expensive surpluses. The key element of the market and price policy is the agricul- tural market organization, which separates the Community’s internal market from forces of the world market.²This price support system,³based on institutional prices, dominates the CAP.⁴Target prices are hoped farmers will be able to obtain on the open market and are therefore the basic reference point from which the other prices are derived. Intervention prices are prices at which the Intervention agencies will take produce off the market by stepping in and buying it up. Therefore, the Intervention prices acts as a guarantee or minimum price.⁵Reforms have been taking on EU and world level to provide solutions for those problems.

II. Regulation of external trade in agriculture

A. IMPORT - Community preference

The guaranteed price system requires the protection of the EU market from normally lower world prices. “Free access onto the EU market would clearly destroy the whole CAP system. Community preference is therefore required.”⁶The concept of prefer- ence is not a legal principle, infect it is a policy, which was to be found as natural preference of the Member States in Art. 44 EEC but later repealed by the EU Treaty

in 1993.⁷“Community preference, ‘means in effect that producers inside the Commu- nity should always be more favourably placed than competing overseas suppliers’.”⁸

The preference system of the 21 market organizations varies and can basically be distinguished according to 3 organizational principles.⁹ These principles were enhanced by safeguards measures imposed in the event that the normal mechanisms used within the common organization were not sufficient and the Community market experienced, or was threatened with, serious disturbances endangering the objectives of Art. 33.¹⁰

1. Produce enjoying guaranteed prices

For about 70% of produce that does enjoy guaranteed prices (most cereals, dairy pro- duce, beef, lamb) the system is such as to prevent imports entering the EU at prices below the agreed target prices. This is mostly done through import levies, i.e. taxes which correspond to the difference between the lower world market price and a Threshold or Entry prices, which is the Target prices minus an allowance for transport and unloading costs, to ensure that Target prices cannot be undercut.¹¹“Import levies did not constitute a custom duty; rather it was a charge regulating external trade con- nected with the common price policy.”¹²Hence, Threshold prices constitute the basis of the external trade regime.¹³The levies become part of the EU’s own resources.¹⁴

2. Produce with common external protection

For about 20% of produce that has a market regime but not one based on guaranteed prices (wines other than table wine, some fruit and vegetables, some cereals, eggs and poultry). As a rule external protection is provided by means of custom duties. If the offer prices drop below certain thresholds, an additional levy is imposed.¹⁵

3. Market organizations with direct subsidies

“Until the reform of the common agricultural policy there was a distinction between supplementary and flat-rate subsidies. The formers were supposed to secure an ade- quate income without raising consumer prices. Oilseeds and pulses are imported duty- free. Until the reform, the processors received a subsidy for the amount bought from Community production, and since the reform it is the producers that receive this. For olives, tobacco and durum wheat the producers receive a subsidy in addition to market prices being supported by external protection and intervention measures. Flat-rate subsidies are given for products that are only produced in the Community in small quantities. These includes flax and hemp, cotton, silkworms, hops, seed and dry feed.”¹⁶

4. The Lomé convention

The EU is involved in a wide and complicated rage of agreements with trading partners. “The agreements ca be thought of as constituting a hierarchy of preferences in which the EU and the other signatory(ies) of agreements are, moving from the bottom to the top of the hierarchy, bound together in increasingly complex and, for the most part, increasingly open market access and other arrangements.”¹⁷

The 1975 Lomé convention aimed to provide former British colonies (ACP) with the same privileges as had been granted to former French colonies under the Yaoundé convention, so that they could continue to export to their traditional markets.¹⁸Mem- bers of the Lomé convention are granted duty free access for all industrial products and most of the agricultural products.¹⁹The Lomé convention has been renegotiated on a number of occasions, increasing the number of 46 privileged countries under Lomé I to 69 in Lomé IV.²⁰However, the Lomé convention expires in 2000, and there is growing pressure on the EU from the WTO and the EU’s other main trading partners to introduce substantial reforms to the preferential trade aspect of the policy.²¹

Other trading agreements include for instance CEECs who applied for EU Membership and Non-EU Member of the European Economic Area (EEA): Iceland, Norway and Liechtenstein.²²

B. EXPORT - Refunds

“Apart from a brief interlude in 1974-75, EU agricultural prices have consistently been above world prices, which has meant that it has not been possible to export sur- pluses without suffering a financial loss.”²³Refunds, calculated in the same way as Import levies, are provided to exporters to ensure that no loss is incurred on trans- action.²⁴

III. Influence of the WTO

A. Uruguay Round, 1986 - 93

1. History

“Until the Uruguay Round, agriculture had always been treated as special case.”²⁵The exclusion of agricultural products and policies from the discipline that characterised the GATT treatment of industrial products was an act of political will by the major Contracting Parties. But the true costs of the agricultural policies pursued by the main contracting Parties were no longer supportable. Protecting the EU market from cheaper world produce has distorted the international division of labour and the ra- tional utilisation of resources.²⁶International pressures, especially from the United States, to open up the EU agricultural market were building.Therefore, the political will to effect a fundamental change in the nature of GATT treatment of agriculture, absent in the previous Rounds of multilateral negotiations, was clearly present during the Uruguay Round.

In relation to agriculture, the Uruguay Round Declaration stated: “Contracting Parties agree that there is an urgent need to bring more discipline and predictability to world agricultural trade by correcting and preventing restrictions and distortions […] so as to reduce the uncertainty, imbalances and instability in world agricultural markets. Negotiations shall aim to achieve greater liberalisation of trade in agriculture and bring all measures affecting import access and export competition under strengthened and more operationally effective GATT rules and disciplines, taking into account the general principles governing the negotiations, by:

- Improving market access through, inter alia, the reduction of import barriers;
- Improving the competitive environment by increasing discipline on the use of all direct and indirect subsidies and other measures affecting directly or indirectly agricultural trade, including the phased reduction of their negative effects and dealing with their causes;
- Minimising the adverse effects that sanitary and phytosanitary regulations and barriers can have on trade in agriculture, taking into account the relevant international agreements.”

The Agreement on agriculture is the beginning of a an adjustment process for the agricultural policies of Contracting Parties, which is in essence an attempt to reduce the cost of domestic agricultural policies and their projectionist effects.

2. Initial Negotiations

“The inclusion of agriculture in the Uruguay Round had put the EC on the defensive even before the multilateral negotiations opened in September 1986, with the Council insisting that ‘the fundamental objectives and mechanisms both internal and external of the CAP shall not be placed in question.’”²⁷The problem was a protracted dis- agreement between the EC and most of its major trading partners, notably the USA and the Cairns Group (an informal association of 14 agricultural free-traders led by Australia) over the liberalization of trade in agricultural products, which included limits on domestic export subsidies. In 1987 the USA demanded the complete elimi- nation of all trade-distorting measures within ten years. Third world countries insisted on progress on agricultural trade liberalization in return for concession in other sec- tors. With the Commission as the EC’s negotiator, the EC acted with a single voice.²⁸ Germany, France and Ireland were successful in temporarily blocking the Council from even agreeing to a compromise negotiating formula put forward by the Commis- sion. But without the support of the EC, the largest trade bloc, the WTO could not function.²⁹As a result the EC was a central cause of a delay of the negotiations be- yond the original 1990 deadline set in December 1988 mid-term review in Montreal.

The Uruguay Round made little progress by the mid-term review 1988 due to the quite contrary positions of the parties. Despite the lack of progress, the review reaf- firmed the commitment to the objectives set forth in the Uruguay Round Declaration. After several battles in the Commission and in the Council - each institution was di- vided internally on the merits of further CAP reform, especially under international duress - the EC eventually tabled an offer to reduce farm subsidies by 30 % over ten years from 1986, a far cry from its trading partners’ moderated demand for cuts of 90 % in export subsidies and 75 % in other farm support over ten years from 1991/92. Moreover, the EC insisted that any agreement to reduce farm subsidies and other sup- ports would have to permit “rebalancing” - that is, allowing the EC partially to offset cuts in some areas with increases in others, provided the overall trend in supports was downward. As expected, the Brussels talks broke down largely because of the EC’s refusal to make a more substantial offer on agriculture.

3. MacSharry Plan

Under this circumstances Ireland’s first-ever agricultural commissioner Raymond MacSharry launched the Reflection Paper on the Development and Future of as a de- sire to reach global trade agreement under the auspices of the GATT and concerns about the CAP’s unaffordability.³⁰The MacSharry reform plan was proposed, with the highest level pressure on agriculture ministers to approve the reform package. However, the reflection paper led to unfavourable reactions. But on Mai 21, 1992, over a year later, the Agriculture Council albeit in a modified form. It contained:

- Price cuts in certain sectors § Direct income support for farmers § Set-aside scheme
- Accompanying measures

Because price cuts would translate into lower (if any) export subsidies within four or five years (depending on world price levels), the MacSharry Plan gave an urgently needed boost into the moribund Uruguay Round.

4. The Blair House Agreement

In November 1992, a breakthrough was eventually achieved with the so-called Blair House agreement, when the Commission agreed in bilateral negotiations with the United States to reduce EC agricultural exports by 36 % and subsidies by 21 %. The Blair House Agreement was incorporated into the final act with minor changes.³¹

5. The Final

With this powerful veto threat, the EC was able to extract some important concessions from the USA in the area of farming subsidies. In December 1993 the GATT agree- ment was finally signed, with the EU trade ministers and heads of state promising to reform the CAP as part of the deal (Patterson, 1997). Without a reform of subsidies to European agriculture, a ground-breaking agreement on global trade liberalization could not be achieved. The Uruguay Round stipulates that new negotiations to con- tinue the process of liberalizing the agricultural sector should start by the end of 1999.³²The Uruguay Round culminated with the establishment of the WTO and was formally concluded by the Marrakech Declaration of 15. April 1994, adopted by the 124 governments and the Community that had participated in the negotiations.

B. Elements of the WTO agreement

“Despite the sometimes exaggerated claims made for the agreement on agriculture, ‘it does not represent a significant reduction in border protection or a major increase in access to protected markets’”.³³The main points were as follows.³⁴

1. Domestic support

- A reduction of domestic interventions in agriculture by 20 %, measured by an aggregate degree of support over a six-year implementation period, starting in 1995 and taking 1986 - 88 as base period.
- Establishes three categories of temporarily permissible price supports in domestic markets.
- Direct payments to farmers under production-limiting programmes are not to be subject to the commitment to reduce support, as long as they are based on fixed area and yields or on livestock numbers.

2. Market access

- All non-tariff barriers (e.g. quotas and import levies) were converted into tariffs on an equivalent basis (import custom and duties).³⁵

- E.g. Fixed customs duty replaced the system of custom duties and variable import levies in the market of beef and veal.³⁶
- E.g. Abolition of the import levies for cereals.³⁷
- A reduction of the average tariff by 36 % over the implementation period; each tariff line will be reduced by at least 15 %.
- From 1995 there is to be minimum market access equal to 3 % of average domes- tic consumption in the base period, which is to be increased to 5 % of average domestic consumption by 2000. Adequate tariff reductions are to be made at the rate of the minimum market access.
- Restrictions would be placed on safeguard clauses specifying the circumstances under which countries are allowed to impose additional duties to prevent unde- sired market and price distortion due to imports.³⁸

3. Export subsidies

- In contrast to non-tariff barriers, such subsidies or refunds were not been abolished but would be subject to both monetary and quantitative restrictions.³⁹
- A reduction of export subsidy expenditures by 36 % and a reduction of the volume of subsidized exports by 24 % over the implementation period.

C. Singapore Meeting, December 1996

At a ministerial meeting in Singapore the WTO decided to launch the preparatory stage of the 1999 negotiations with a process of analysis and an exchange of information. The EU is active in this and other work of the Committee on Agriculture.

D. Agenda 2000

In July 1997, agriculture commissioner, Franz Fischler, unveiled proposals for further CAP reform, as part of the Commissions “Agenda 2000” budget package to prepare for EU enlargement to central and eastern Europe. On one hand the plan proposed to extend the MacSharry reforms: By extending price cuts in the cereals and beef sectors and introducing new price cuts in the milk, olive oil and wine sector. On the other hand the plan proposed the transformation of the CAP from a policy of price support to one of income support. It also proposed to strengthen the non-welfare objectives to the policy

- Environmental protection
- Food safety (following the mad-cow disease)
- Animal welfare (following public protests about the transport of live animals). § Furthermore, its impetus was the upcoming WTO negotiations.

E. Geneva Meeting, May 1998

As in the preparatory stage of the Uruguay Round over ten years ago, the EU is on the defensive while preparing for the WTO agricultural negotiations. The Cairns Group has put the EU on notice that it will press for the abolition of farm subsidies and other trade distortions. Together with the United States, the Cairns Group used the occasion of the WTO meeting in Geneva, on the fiftieth anniversary of the post-war global trading system, to blast EU protectionism and call for opening up the EU agricultural market place.⁴⁰

F. Seattle Round

Seattle did not succeed in launching a Round. However, in accordance to Franz Fischler, the agriculture commissioner, the failure was not based on a stare EU position in the area of agriculture.⁴¹

IV. Conclusion

“The EC was primarily interested in the management of world trade, whereas the US was willing to let the prices be freely determined by market forces.”⁴²The EU was able to its market support system. One big impact of the WTO agreement was the Banana dispute with the USA.⁴³But the pressure on the EU is growing as the Lomé convention expires this year, CEEC’s have to be prepared to join the EU and further market liberalization negotiations are due to be settled in the next WTO Round.

List of Abbreviation

illustration not visible in this excerpt

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McMahon, Josef Law of the Common Agricultural Policy, Edinburgh Gate 2000

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[...]

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¹Nugent, p. 428.

²Commission, Europe from A to Z, p. 23.

³The first common organization was the market of cereals established under Reg. 19/1962. The cereal market regimes acted as a model for other common organizations. The current basic regulation setting out key structures and key rules is Reg. 1762/92 as amended by Reg. 1253/99.

⁴Nugent, p. 421.

⁵This has been changed or is at least on the way to change, e.g. the cereal regime had changed by Reg. 1579/86 Intervention prices will act as a form of safety net for prices as there are now certain quantity and quality requirements. McMahon, p. 48.

⁶Nugent, p. 425.

⁷McMahon, p. 96.

⁸Grant, p. 68 citing Fennell, 1979, p. 14.

⁹Nugent, p. 425.

¹⁰McMahon, p. 98.

¹¹Commission, Europe from A to Z, p. 23.

¹²Case 17/67 1967 ECR 441; McMahon, p. 98.

¹³McMahon, p. 48.

¹⁴Nugent, p. 425.

¹⁵Commission, Europe from A to Z, p. 24; Nugent, p. 425.

¹⁶Commission, The custom policy of the European Union, p. 24.

¹⁷Nugent, p. 442.

¹⁸Grant, p. 73.

¹⁹Commission, The custom policy of the European Union, p. 14.

²⁰Lomé IV is published in O.J. L 229/3 of 17. Aug. 1991.

²¹Hix, p. 340.

²²Hix, p, 339.

²³Nugent, p. 421.

²⁴Nugent, p. 422.

²⁵McMahon in Ruttley & MacVay, p. 67.

²⁶Nugent, p. 428.

²⁷Dinan, p. 341.

²⁸Art. 133 (ex Art. 113) EC.

²⁹Nugent, p. 440. (EU member states) approved the plan,

³⁰COM (91)100, February 1, 1991.

³¹Commission, The custom policy of the European Union, p. 26.

³²Nugent, p. 424.

³³Grant, p. 82 citing Hathaway and Ingco, Agricultural Liberalization and the Uruguay Round, Washington, DC 1995, p. 31).

³⁴Commission, The custom policy of the European Union, p. 26 f.; McMahon in Ruttley & MacVay, p. 72 f.

³⁵McMahon, p. 97.

³⁶Reg. 1203/95; Reg. 500/96.

³⁷Reg. 3290/94 on the adjustment and transitional measures required in the agricultural sector in order to implement the agreements concluded during the Uruguay Round of multilateral trade negotiations, Annex 1.

³⁸McMahon, p. 97.

³⁹McMahon, p. 97.

⁴⁰Dinan, p. 346.

⁴¹http://europa.eu.int/rapid/start/cgi/guesten.ksh?p_action.gettxt=gt&doc=IP/00/295%7C0%7CRAPID &lg=EN

⁴²Grant, p. 80 citing Dupont & Sicarini, Narrowing the Farm Gap. The Bargaining over Agricultural Policies in the Uruguay Round, New York 1994, pp. 14-15.

⁴³McMahon, pp. 158-162.