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Journal
of Agricultural
and
Applied
Economics,
32,2(August
2000):
197-202
©
2000
Southern Agricultural Economics
Association
Agriculture
in
the
WTO:
A
European
Union
Perspective
Tassos
Haniotis
The failure
of
the
Seattle
Ministerial
to
launch
a
new
Round
of
Multilateral
Trade
Negotia-
tions
raised
a
series
of
essential
questions
con-
cerning
the
future
of
the World
Trade
Orga-
nization
(WTO).
This
is
only
natural,
considering
the
expectations that
were
raised
before
the
Ministerial,
the
unprecedented
ex-
tent
of
public discontent
(albeit
of
various,
of-
ten
opposing
tendencies),
and the
at-this-stage
uncertain
follow-up.
A
detailed
discussion
of
these issues
goes
beyond
the
scope
of
this
session,
but
it
is
im-
portant
to
keep
in
mind
that although
negoti-
ations
on
agriculture
(and
on
services)
will
have
to
take
place
based
on
the
in-built
agenda
of
the
Uruguay Round
Agreement
(URA),
these
negotiations
will
not
take
place
in
a
vac-
uum.
Rather,
they
would
have
to
start
with
the
outcome
of
the
Seattle
Ministerial
as a
back-
ground
and
with
the
need
to
draw
some
con-
crete
conclusions from
its
experience. In this
respect
it is
interesting
to
briefly
mention
the
European Union
general
priorities
for
the next
WTO
round, which
have
not changed
since
Seattle.
Central
in
these
priorities
is
the
preference
for
a
comprehensive
trade
round
with
a
time-
bound
framework.
Such
a
round
would
allow
for
the
necessary
trade-off
among
sectors
and
interests that would
enable
WTO participants
to
meet
the
commonly
defined
objectives of
further
trade
liberalization
with
substantive
and
balanced
results.
This cannot
be achieved,
however,
without
a
strengthened developmental
role
and
capac-
Agricultural
Counselor,
European
Commission
Dele-
gation
to
the
US.
ity
of
the WTO,
and
it cannot
be
achieved
without
the
WTO addressing wider issues
(such
as
the
relationship
between
trade
and
public
health
or
environment).
Seattle con-
firmed the
necessity
of
dealing
with
these
is-
sues,
although
the
manner by which
this can
be
achieved
is
anything but
agreed
upon.
De-
spite the
inherent
difficulties
of
this
task,
how-
ever,
it
is
essential
to
recognize that meeting
this
objective would strengthen
the
WTO
mul-
tilateral system
in
the
long term.
Agricultural
Negotiations
The
EU expects
agriculture negotiations
to
strike
a
balance
between
fundamental
trade
re-
form
(by
reduction
of
both
border
protection
and
domestic
and
export
support)
and
issues
that
reflect
a
follow-up
on
decisions
taken
in
1994.
In
this
view,
the
long-term
objective
of
creating
a
market-oriented
agricultural trading
system should
also
entail
special
treatment
for
developing countries
and
for
dealing with
non-
trade concerns.
The
mandate
of
Article
20
of
the
Uruguay
Round
Agreement
on
Agriculture
(URAA)
provides
the
point
of
departure
for
achieving
the above objective.
Disagreements
about
the
speed
or
extent
of
reform
are
natural
in the
beginning
of
negotiations (although
the
effort
to
turn
the
agenda
into
an
end-result
often
complicates
things).
However
one
views
Ar-
ticle
20,
it
is
clear that
it
sets
a
long-term
ob-
jective
of
substantial,
progressive
reductions
in
support
and
protection,
resulting
in
funda-
mental reform,
while
at
the same
time address-
ing
the
above-mentioned wider
issues based
on
the same
mandate.
Journal of
Agricultural
and
Applied
Economics,
August
2000
Domestic
Support
should
therefore
be in
the
general
interest
of
all
members.
The
URAA
provided
specific
instruments that
classified measures
of
domestic support
ac-
cording
to
the
level
of
trade
distortion
that
they introduce,
and specified the level
of
re-
duction
that
should
apply to
measures
grouped
in
the
most trade-distorting
category
of
farm
policies. These measures fall
under
the three
"boxes"
of
the
URAA.
Non-trade distorting policies
(such
as
en-
vironmental
or
research
payments)
are
not
subject
to any
limitations
or
reduction
and
are
classified
in the
green
box.
Blue box
payments
are
payments
made
in
conjunction with
supply
control,
but
not
subject
to
limitations
if
linked
to
fixed
area,
yield
or animals. Finally, the
am-
ber
box includes
trade-distorting
payments
that
are
subject
to
20
percent
reduction
by
2000.
Naturally,
the
next agreement would
have
to
answer
the
question
of
whether
any
of
the
specific
instruments provided
in the
Agree-
ment
itself
need
to
be
adapted.
The EU does
not
feel
that
a
major review
of
the
specific
instruments provided
in the
URAA
is
neces-
sary
or desirable.
This
position
does
not
rule
out
some
updating
of
the blue
and
green
box-
es,
but
it stresses
the
continuation
of
the
pres-
ent distinction
of
policies according
to
their
degree
of
trade-distortion
as
the
essential
ele-
ment
in
determining
adherence to the
desired
move
away
from support
linked
to
prices
or
products
towards
more
transparent
and non-
distorting
support
policies.
The EU
also
feels
that
two
other elements
of
the
URAA
must
be
included
in
a
new
agreement. The
first
concerns
the
need,
rec-
ognized
by the
peace
clause,
to
provide
legal
security
for
the
outcome
of
the
negotiation,
just
as
it
did
in the
Uruguay Round
agricul-
tural negotiation. The second refers
to the
Spe-
cial
Safeguard
Clause,
which represents
a
key
constituent
of
agricultural
liberalization
agreed
in
the
last
Round,
having enabled
abnormally
low
price
offers
or
import
surges
to be
dealt
with
without
frequent
recourse
to
more
dis-
ruptive
action
under
the
general
Safeguard
Clause.
A
similar
provision
for
the
future
Recent
Developments
in
Domestic
Support
On
domestic support,
both
the
US
and
EU
have
followed
a
similar pattern
of
respecting
their commitments during
the
first
half
of
the
implementation
period.
Commitments
on
do-
mestic support
stemming from
the
Uruguay
Agreement
on
Agriculture (URA)
reflect the
history
of
previous farm policies
of
both
the
EU
and
the
US.
As
a
result,
US
policies
tend
to
be
geared towards
more
"green
box"
type
of
measures (food
donation
programs,
etc.)
in
domestic
support,
and
heavier
dependence
on
export
credits
on
the
export
side.
EU
policies
have
a
more balanced
distribution
among
the
various
levels
of
domestic
support
(green,
blue
or
amber
box),
and
depend heavily
on
export
subsidies.
But
the
most important
element
from
the
agreement
is
the fact
that,
irrespec-
tive
of
the
initial
level
of
support
or trade
dis-
tortion, these
policies
fell
under
the same
rules
and
disciplines that
led
them
towards
trade
lib-
eralization.
However,
recent
developments
on
both
sides
move
in
opposite
directions.
Both
sides
faced
the
same
negative farm
price develop-
ments.
Yet
EU
policies have
shifted towards
less
price-related policies
(which
distort
trade
more) towards
more direct
aid
(blue
box)
mea-
sures. In
addition,
domestic
budgetary
con-
straints have kept, and
will
continue
to
keep,
EU
farm
budgetary
expenditures declining
(in
real terms).
The manner
by
which European agriculture
evolved
in
recent
years,
and
is
expected
to
evolve
over
the
next
years,
towards more
mar-
ket
orientation
without
compromising
the mul-
tifunctionality
to
which
Europeans
are
deeply
attached,
is
probably
best
evaluated
if
one
looks
at
budgetary
expenditures
of
the
CAP.
Although
clearly
direct payments have
in-
creased
(this
was
after
all
the
intention
of
the
reform), they
have become more predictable,
transparent
and
fixed (Table
1).
This
is
in
sharp
contrast
to
the
previous experience
of
the
CAP.
To
the
surprise
of
the
close
observer
of
198
Haniotis:
Agriculture
in
the
WTO:
A
European
Union
Perspective
Table
1.
EU
and
US
Budgetary
Outlays for
Farm Commodity
Programs
1996
1997 1998 1999
2000e
EU
(billion ECU/EUR)
Market
support
24.959 25.653 25.628 25.907
25.756
Direct
payments
6.591
7.074 6.446
6.418 6.149
Export programs
5.705
5.884
4.827
5.498
5.409
Other
programs
1.852
2.065
1.847
2.617
3.587
Total
EU
39.107
40.676
38.748
40.440
40.901
US
(billion
US
dollars)
Market
support 0.666
0.697 2.759
8.385
15.765
Direct
payments
5.141
6.320
5.672 5.476
5.049
Export
programs
-0.353
0.159 0.252
0.488 0.774
Other
programs
-0.808
0.080
1.460
4.874
5.373
Total US
4.646
7.256
10.143 19.223
26.961
1
ECU/EUR =
US$:
1.252
1.131
1.123 1.067
n/a
Source:
European
Commission,
USDA.
Note:
Fiscal year data
(starting
Oct
1 in
the
US,
Oct
15
in
the
EU).
US
outlays
are
CCC
expenditures
(negative
figures
represent
net
savings).
EU
other programs
are
only rural
development
programs.
farm
policy issues,
it
is
also
in sharp
contrast
to
developments
on
this side
of
the
Atlantic.
In
the
US,
two
successive
farm
relief
pack-
ages,
coupled
with
the
increase
in
loan
pro-
gram
costs
and
the
extension
of
the
previous
dairy
policy
support,
have
even
put into
ques-
tion
the
ability
of
the
US
to
stay
within
GATT
constraints
on
domestic
support
for
crop-year
1999.
What
is
interesting
in the
US
case
is
that
the
framework
of
Agricultural
Market
Transi-
tion Act
(AMTA)
payments
was
used
to com-
pensate producers for
losses
linked
to
a
drop
in
current
market
prices.
This
policy
mecha-
nism
was
supposed
to
be
decoupled
(from
both current
production
and
prices),
and
clas-
sified
under
the
"green
box"
(although
this
classification
was
contested
by
the
EU
because
of
certain restrictions
in
production).
Here again
existing rules
allow
for
a
very
clear
distinction between
trade
distorting
and
non-trade distorting
policies. It
is
questionable
that these
rules
were
developed
in
order
to
al-
low this
mechanism
to
respond
to
unfavorable
market
conditions.
As
measured
in
terms
of
dollars
perfarmer
(the
recipient,
after
all,
of
domestic support)
EU
commodity
program direct payments
(which
account
for
over
90
percent
of
the
EU
farm
budget) have stayed
rather
flat
(around
$5000 per
farmer). The same
US
payments,
on
the
other
hand,
have increased
from
$2000
in
1996
to
over $12,000
in fiscal
2000.
It
is
important
to
keep
these developments
in
perspective
because it
is
not
only
the
ab-
solute
level
of
domestic support that could
be
seen
from
various different
angles and
thus
come
under
different
interpretations,
that
counts.
What
is
also
essential from
a
policy
point
of
view
is
the consistency
of
policy
re-
form both
in
terms
of
extent
and direction.
EU
Agricultural
Policy
Orientation
The
EU
position
to
request that
WTO rules
address the
multi-functional
role
of
agriculture
is
often
portrayed
as a
"protectionist
trick"
that
would
allow
the
EU
to
justify
subsidizing
its
farming
sector.
This
point
ignores
the
fact
that
no
matter
how each
WTO
member
choos-
es
to define
its
domestic support
policies
these
would have
to
be
judged
based
on
the
same
clearly
defined
criteria.
Only
a
debate
on
the
specific
impact
of
specific
measures,
not
on
semantics,
would
provide
a
clear
idea
of
how
each
WTO
member
fulfils
the
mutually
agreed
commitments.
If
this approach
is
taken, then the
debate
on
the
European model
of
agriculture
(models
would
be the
most
appropriate
term
given
the
diversity
of
EU agriculture)
would
have
to
be
199
Journal
of
Agricultural
and
Applied
Economics,
August
2000
put
in
a
different
perspective. This
"model"
has
been
defined
by
the
EU
Council
in
such
an
explicit
manner
that it
leaves
little
space
for
misunderstandings.
It
basically
describes
a
general
set
of
objectives:
*
a
competitive
agricultural sector
which
can
gradually
face
up
to
world markets
without
being over-subsidized
*
production
methods
which
are
sound
and
en-
vironmentally
friendly,
able to
supply qual-
ity
products that
the
public
wants
*
diversity
in the
forms
of
agriculture, which
maintain
visual amenities
and
support rural
communities
*
simplicity
in
agricultural
policy, and sharing
of
responsibilities
between
the
European
Commission
and EU
member-states
*
justification
of
(farm)
support
through
the
provision
of
services
that
the
public
expects
farmers
to
provide
All
of
the
above
objectives
fall
clearly
within
the
scope
of
Article
20
of
the URAA,
and reflect
generally
accepted
policy
targets
(where
the
specific
choice
of
policy
instrument
can
be
classified
based
on
URAA
rules).
In
fact,
the
debate about the
European model
of
agriculture
is
nothing
more than
a
reflection
of
the
fact
that
within
the
EU
the
relevant
agri-
cultural policy
question
is
not
if
but
how
to
support
agriculture
(a
point
that
is
becoming
again
increasingly relevant
in the
US).
This
debate
focused
on
the
specific
policy
tools
applied within
the
EU
and
their potential
impact
domestically
(efficiency
in
achieving
objectives, distribution
impacts,
budgetary
im-
plications)
and
internationally (compatibility
with
WTO
rules,
trade
impact).
The
EU
was
faced
with
a
basic choice
between
two
ap-
proaches:
making increasingly rigorous
supply
management
the
core
of
the
CAP market
pol-
icy or
adapting
the
policy
to
make
the
EU
ag-
riculture
more
competitive.
There may
be
divergent
views about
the
urgency
or
scope
of
adaptation
required.
But
after
the
Berlin
accord
on
Agenda
2000
it
is
clear
that
in the
long
run
only this
second
al-
ternative,
aiming
at
improved
competitiveness,
offers
a
realistic
prospect
of
development
for
the
European agricultural
economy.
In
both
major
reforms
of
the
Common
Agricultural
Policy
within
less
than
a
decade
(1992
and
1999),
the
EU
moved
in
the same
direction,
making
a
significant
shift
from price support
and
supply control
to
a
more targeted
and
less
distorting agricultural
and
rural
policy.
This
direction
of
reform
has
been developing
a
con-
sistent
and
predictable policy
line
with
no
ad
hoc
adaptations
to
market
shocks.
There
is
a
clear
commitment
to
move
to a
market-oriented
agricultural policy
and
the
further elimination
of
trade-distorting
mea-
sures.
If
the
period
of
reform
as
a
whole
is
taken, support
prices
for
cereals
will
have
fall-
en
by
45
percent
and
beef
by
35
percent,
and
amber
box
commitments
are
likely
to
have
fallen
by
more
than
half
alongside
other
re-
ductions
in
trade-distorting
measures.
The
Effects
of
Shifting
from
Price Support
to
Direct
Payments
To
date the
experience
of
the
shift
from
price
support
to
direct payments
in the
reformed
sectors has
been
globally
positive.
Market
bal-
ances
have
been much
improved,
agricultural
incomes
have
developed
favorably,
a
more
ra-
tional
use
of
fertilizers
and
other
chemical
in-
puts
has
been
observed
and
consumers
have
benefited
from
lower
prices.
Part
of
the
sup-
port
burden
has
shifted
from
consumers
to tax-
payers, while
budget
expenditure
has
become
more stable
and
predictable
(the
volume
of
di-
rect
payments being
set)
and
support
to
farm-
ers
has
become
more transparent.
Reducing price support
has
brought
farm-
ers
more
in
touch
with the market.
They
are
now
basing
input
and
output
decisions
more
on
market
signals
(and
less
on
intervention
at
a
guaranteed
price),
while
at
the same
time
direct payments
provide
a
stable basic income.
However,
this
increased market
orientation
needs
to
be
balanced
by
direct
payments
and
additional opportunities
for
on-farm
and
off-
farm
sources
of
income
if
the
EU
agricultural
sector
and
rural
areas
are
to
adapt
to
these
new
challenges. An
abrupt
elimination
of
support
would threaten
the
economic
and
social
sta-
bility
of
many
intermediate
and
peripheral
200
Haniotis:
Agriculture
in
the
WTO:
A
European
Union
Perspective
regions, where
agricultural
activity
is
still im-
portant, and
could
entail serious
environmen-
tal risk.
Direct
payments therefore
provide
a
cush-
ion
which
allows
the
farm
sector
to
adjust
to
a
new,
more
market-oriented environment
without major
disruptions. These payments
have
played
an
important
role in encouraging
European
farmers
to
adapt
to
new conditions.
The
continuation
of
the
blue box,
under
which
these payments
are
classified,
is
thus
essential
for
the
EU.
Export
Competition
Issues
This
area
of
the
URAA
is
often
portrayed
as
one
referring
only
to
export
subsidies,
with
emphasis
on the fact
that almost
85
percent
of
all
agricultural exports
subsidies
are
attributed
to
the
EU.
There
is
nothing
new
or
unexpected
in
this
fact.
It
is
a
reflection
of
the structure
of
previous
EU
farm
policies,
with
the
re-
formed
sectors
(cereals,
beef
and
indirectly
pork
and
poultry)
clearly
indicating
the posi-
tive
impact
of
CAP
reform
on
the
decline
of
EU export
subsidies.
EU
export
subsidies
came
under
strict
rules
and
disciplines, have
declined
significantly, and
are
expected
to
de-
cline
even further
as
a
result
of
the
latest
CAP
reform
(even
before
a
new
WTO agreement
comes
into
place).
The
Community
is
willing
to
continue
to
negotiate
further reduction of
export
subsidies,
but
this
presupposes
that
all
such
support
to
exports
is
treated
on
a
com-
mon
footing.
This
means
that
the
commitment
to
intro-
duce
disciplines
on
agricultural export
credits
(the
major
US
export
policy
tool)
which
formed part
of
the
URAA
(Article
10.2)
must
be
respected.
Other
less
transparent
forms
of
export
support
will
also
need
to
be
satisfac-
torily
addressed. These
include
the
operation
of
single
desk
exporters
and
the
provision
of
food
aid
on
concessional credit terms (another
area
of
major increase in
US
measures
re-
cently,
where
US
wheat
donations accounted
for
5.2
million
metric
tons).
Market
Access
Issues
The
European
Union
is
a
major
food exporter
and
the
largest food
importer
in
the world.
It
thus
intends
to share
in
the
expansion
of
world
trade
in agricultural products.
The
EU
will
seek
to
obtain improvements
in
opportunities
for
its
exporters,
inter
alia
through
greater
clarity in
the
rules
for
the
management
of
tariff
rate
quotas
(TRQs),
including
imports through
single
desk
buyers,
and
the
removal
of
other
unjustified
non-tariff
barriers. The
latter
in-
clude the
protection
of
geographical
indica-
tions
that
ensure
EU
exports
do
not
face
unfair
competition
from
deceitful
practices
such
as
the
use
of
well-established
EU denominations.
The
EU
also
believes that developing
coun-
tries
should get
special
treatment.
For
its
own
part
it
already offers
major
preferences
and
is
prepared
to
extend
duty-free
access to
virtu-
ally
all
imports from the least developed
coun-
tries.
Non-trade
Concerns
A
wide
range
of
issues
under
this
heading
touches
upon
different WTO
agreements: the
Sanitary
and
Phytosanitary Agreement
(SPS),
the
Agreement
on Technical
Barriers
to
Trade
(TBT)
and the
Agreement
on Trade-related
as-
pects
on
Intellectual Property Rights
(TRIPS).
Of
all
these issues,
undoubtedly
the
most
con-
troversial
has
been
the area
of
measures
relat-
ed
to
food
safety
concerns
and
their impact
on
trade.
Recent WTO
case
law
has confirmed
that
non-discriminatory,
science-based
mea-
sures
to
achieve the level
of
safety
determined
by
members
are
in
conformity
with that
agree-
ment.
It
might
be
useful
to
confirm this
in
a
more
general
manner
in order
to
reassure
con-
sumers
that
the
WTO will
not
be
used
to
force
onto
the
market
products
about
whose
safety
there
are
legitimate
concerns.
What
the
EU
experience
of
recent
years
has
demonstrated
is
that consumer
perceptions
on
issues
related
to
food
safety,
which
undoubt-
edly have
a
direct impact
on
trade,
are
not
viewed by
the general
public
as
trade issues
but
as
health
issues.
Thus measures that
aim
at
incorporating
these
concerns
are
not
trade
impeding.
On the contrary,
these measures
are
in the
long
term
trade enhancing.
201
Journal
of
Agricultural
and
Applied
Economics,
August 2000
Conclusion
In
both
major
reforms
of
the
Common
Agri-
cultural
Policy
(1992 and
1999),
the
EU
moved
in
the
same
direction,
making
a
signif-
icant
shift
from
price
support
and supply
con-
trol
to
a
more targeted
and less
distorting
ag-
ricultural
and rural policy. This
direction of
reform
has
been developing
a
consistent
and
predictable
policy
line
with
no
ad
hoc
adap-
tations
to
market
shocks.
If
these
develop-
ments
are
kept
in
perspective, then
there
should
be little
doubt about
the
EU's
clear
commitment
to
move
to
a
market-oriented
ag-
ricultural
policy
and
towards further
reduction
of
trade
distorting
measures.
202