Can Doha deliver on Agriculture?

Phil Bennion thinks that the time is right for a trade deal including agriculture. - The following article appeared in The Liberator in January this year.

When the Doha round of the WTO broke down last year the European Union, and particularly Trade Commissioner Peter Mandelson, were allocated much of the blame by media pundits. Unsurprisingly, many Liberal Democrats swallowed the press line without scrutiny as their antipathy to the CAP far outweighed their pro-European instincts. In reality the blame was fairly evenly distributed, although the US position on agriculture was more problematic than that of the EU, and the final breaking point was reluctance by developing nations to encompass new rules on investment and competition. Mandelson probably had one last move available on tariffs, but making it would have signalled him as a weak negotiator and reduced the chance of a good all round deal. He was right to dig his heels in. The EU is likely to demand less in this respect as talks resume (imminent at the time of writing), and there seems to be a new sense of determination in both the EU and the US to come to an agreement on agriculture.

Phil talking to a Shropshire Farmer about his enterprise.

The Doha round was never going to be straightforward. The EU had, and still has, ambitious aspirations for the incorporation of environmental criteria into trade rules and an agenda for the liberalisation of services worldwide. There is still a strong belief in many EU countries that our agriculture and industry will be hard pressed to survive if our competitors operate with fewer environmental constraints than ourselves. There would be little point in production moving to areas of the world where production systems allowed more environmental damage than in the EU. This is a legitimate argument, but it is unsurprising that our co-negotiators simply saw this as a protectionist ruse. Conversely, in services, the EU has a comparative advantage and has the free trade high ground, with developing nations arguing that they need a protectionist regime to foster indigenous suppliers. In the USA the Bush administration was at least consistent in that it viewed the WTO in much the same way as it viewed the UN; as a constraint on its sovereignty. It signalled its contempt for the system, not only in the well-publicised steel tariffs, but also in a farm bill that took several steps backwards.

Mandelson and the EU lost the battle in the press for a number of reasons. The US has habitually euphemised its subsidies by calling its export subsidies Food Aid and its price support mechanism Market Loans (these are only partially repaid on sale of the crop and are a subsidy as well as an interest free loan). The world press often takes a US-centric line, largely due to the globalising effects of the Murdoch empire on English language news coverage. This is irrespective of whether a particular newspaper takes a eurosceptic line. In the UK the eurosceptic press may have taken the American line as a natural anti-European reaction, but this could not be said of the Financial Times, which is overtly pro European. I put this down to journalists' resistance to changing their views when the facts change.

The Clinton government had started from a radical position on farm support with its "Freedom to Farm" legislation, which ratcheted down farm support over a 7-year period and decoupled it completely from production. This was to become the inspiration for the recent CAP reforms in the EU, although the latter are far less drastic. It also cast a mindset that assumed the US was taking a lead in reforming agricultural subsidies. The consensus in most of the discussions I was party to within the National Farmers' Union (NFU) at the time was that the American reform was in the right direction, but too severe. So it proved. Within three years American farmers were losing money and the federal government stepped in with ad hoc "counter-cyclical payments" to bale out the farmers. These ad hoc payments were repeated each year and finally formalised in the 2002 Farm Bill. "Counter-cyclical" payments are agreed to be the most trade distorting of all as they basically act as price guarantees. Price guarantees mean that the farmer can produce flat out and sell below the cost of production, knowing that the government would make up the difference to a target price. The first, and the worst, was the soya regime. The European farming unions tried to persuade the EU Commission to take the case to the WTO, but the Commission were reluctant because the US had to that time held back on forcing the issue over GMs and hormones in beef, where the EU was technically in breach of WTO rules, albeit with popular support.

At the same time as the US had taken two steps back, the EU had taken a step forward with its 2003 CAP reform and a plan to reform the sugar regime for the 2007 season. The EU had also signed the "Everything but Arms" agreement with the African, Caribbean and Pacific group of less developed nations whereby they had agreed a virtual elimination of tariffs by 2015. Despite these changes as the Doha round got underway, the press retained its view that the American agenda was for Free Trade and that the European agenda was protectionist.

So what has changed to give cause for optimism? Surprisingly, one thing is that the process is now running out of time. President Bush only has a few months left before he loses his delegated powers over trade. Such is the pork barrel nature of US congressional politics that it is widely considered impossible to get a trade deal through the houses. It has to happen under delegated powers before July. But if Bush has obstructed progress until now, why would he change his approach? Partly this is due to a shift in opinion in the US on international institutions. The debacle in Iraq has led many to conclude that it would have been better to operate through the UN. The belated admission by the Bush government that Climate Change is a reality has led to almost all of the next batch of presidential hopefuls, Republican and Democrat, indicating the US will engage on an international level. More specifically, US Agriculture Secretary Mike Johanns indicated that it was untenable that counter-cyclical payments would continue when the current Farm Bill expires after the 2007 harvest year.

On this side of the Atlantic with Germany taking over the chair of the EU Council, Angela Merkel made an explicit overture to the Americans to get Doha back on track, followed within a week by Jose Manuel Barroso and Peter Mandelson meeting President Bush. There is still a question of whether the French and their allies will block a substantial move on agriculture, but I believe that there is a better than even chance of a deal. The French defence of the CAP has always been more a case of defending the net cash balance for France plc, rather than deference to the farming vote. In the UK farmers expect the Single Farm Payment to be radically reduced and linked to Public Goods after the current deal expires in 2013 and also expect intervention, tariffs and export subsidies to disappear. NFU President Peter Kendall recently described export subsidies as immoral. There is also greater optimism that the market place will deliver on prices as the new market for biofuels and economic and population growth in the developing world have eliminated structural surpluses. The weak link in the EU-US joint initiative could be the service sector where the Americans still show some reluctance to progress.

The two countries negotiating respectively for the Cairns group of commodity exporters and for the developing world are Brasil and India. Brasil has much to gain from a broader WTO deal including agriculture. Market access is the biggest likely give away from the US and EU and that is the principle demand of the Cairns group. They will probably resist over industrial tariffs and a global market in services, but they will probably have too much to gain to block the deal. The EU wants environmental conditions, but may be able to negotiate this bilaterally through an assurance system. This Brasilians have millions of hectares of disused farmland at the moment and should be able to live for some time without felling more rainforest. India may be the stumbling block. Agriculture in India is protected by tariffs and farm holdings are limited by a post independence land reform to around 60 hectares. Their high growth rate in industry and particularly information technology as western economies outsource indicates that market access should be their main concern. Ironically, agriculture could be the issue that prevents India from completing a WTO deal, not because the EU and US won't go far enough, but because they are willing to go so far that India's protected agriculture will be exposed to foreign competition.

I would put the odds at slightly better than even that a deal can be concluded. The deal will not please everyone and nobody will get everything they want. The press will no doubt label any such deal a fudge and a sell out, but it will probably remove some barriers to trade, introduce some notion of environmental criteria and ease the global creation and distribution of wealth. We should not knock it.

Dr Phil Bennion

Member of Federal Policy Committee

Member of International Relations Committee

Candidate in 1999 and 2004 European Parliamentary Elections.

Arable farmer.