The EU develops its critique of the US Farm Bill
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CTA. 2002. The EU develops its critique of the US Farm Bill. Agritrade, October 2002. CTA, Wageningen, The Netherlands.
Permanent link to this item: http://hdl.handle.net/10568/52692
The European Commission has published a...
The European Commission has published a memorandum elaborating its criticism of the US Farm Bill, on July 11th 2002. It argues that the EU's emphasis is on reducing traditional trade-distorting forms of support not farm support per se. Therefore it dismisses the US system of counter-cyclical payments as measures which will 'inevitably lead to overproduction, disrupt world markets and hurt further farmers in developing and other countries'. It sees the USA as progressively increasing, not reducing, trade-distorting forms of support since the Uruguay Round agreement, a course of action inconsistent with the spirit of that agreement. The memorandum criticises the US calculation of the Aggregate Measure of Support, claiming that it omits between US$4 and US$5 billion of price support for sugar and dairy products from the calculation. It furthermore claims that actual expenditures cannot be predicted since the farm Bill itself will have price-depressing effects and thereby increase counter-cyclical expenditures. While the USA is committed to making adjustments 'as far as practicable' to ensure compliance with its WTO targets, the EU questions how binding such commitments will prove. It suspects that the USA may try to reclassify certain payments as 'non- product specific', thereby enabling them to escape WTO constraints. The EU claims that the US Farm Bill will make it more difficult to agree on new targets for reducing trade-distorting forms of support. Although it acknowledges that even after the US Farm Bill, the WTO ceiling on EU farm expenditures is still three times higher than the US WTO ceiling, it maintains that this is not the issue. Compliance with WTO commitments and the direction of expenditures is more important, and EU expenditures are now well below the allowed WTO ceiling (only twice US levels) and are going down while US expenditures are going up. The EU points out that the USA exports far more agricultural produce to the developing world than does the EU, with the EU losing world market share in farm commodity products. This the EU maintains is a consequence of US support policies which have particularly severe effects on rice and cotton markets, both of which are important to vulnerable developing countries. The EU maintains that the path for CAP reform is coherent and consistent with both the letter and spirit of the WTO agreement on agriculture, since it seeks to shift expenditures away from more trade-distorting forms of support to less trade-distorting forms of support. This, it claims, is in stark contrast to US policy reform which is unpredictable, incoherent and 'flies in the face of consensus in WTO'. Comment: It should be noted that much of the debate about the extent of trade-distorting forms of support in the EU and USA hinges on self-definition, and is at times an exercise in 'smoke and mirrors'. From the perspective of ACP developing countries there is clearly a need for much stricter international agreement on what is a more or a less trade-distorting form of agricultural support and what should and should not be allowed under WTO rules, based on the affects the various measures have on actual markets of importance to developing countries and the relative competitive position of developing-country producers and value-added processors. It can be argued that the impact of US policies on the attractiveness of the US market to developing country exporters is in fact indicative of what the EU is trying to promote through the process of CAP reform. The current trajectory of CAP reform is reducing the market price of CAP products and making the EU market less attractive to preferential suppliers, such as those in the ACP, than was previously the case. Equally the process of CAP reform would appear to be designed to make EU exports more price competitive internationally. In many instances current EU criticisms of what the US is trying to do could also (though in a somewhat different context) be applied to the EU's own reform process. For example by introducing a multi-product single farm payment scheme the EU would effectively make its basic system of farm support 'non product specific', thereby escaping WTO constraints on product support. It should also be noted that the EU's declining world market share in farm commodity products is in part a consequence of its success in exporting more value-added food products. The EU's declining position in world agricultural commodity trade needs to be seen in this context.