EU Trade Commissioner Peter Mandelson

Today the EU has tabled new proposals on agriculture and other areas of the Doha Round trade talks to its negotiating partners in the ‘Five Interested Parties’ (FIPs).

The European Union says that it recognises that agricultural negotiations have now entered a critical phase and these proposals represent a comprehensive, substantive and credible contribution. The EU proposals bridge the different proposals tabled by other WTO Members. These proposals must unlock immediate progress in other areas of the Doha negotiations, particularly, trade in industrial products and services, which are crucial to the European economy. The EU proposals are fully conditional on satisfactory movement in other areas of the negotiation. The cuts offered are within the European Commission’s mandate.

The EU says that its proposals will allow WTO Members to converge on the middle ground in agriculture negotiations. The cuts proposed go further than the EU’s original offer and significantly further than the cuts agreed in the Uruguay Round. More importantly, the average cut is higher and is more uniformly applied in the various levels of tariffs. In the Uruguay Round, the highest tariffs received the lowest cuts. The EU’s new proposal ensures that the higher the original tariff, the higher the reduction. The proposal is fully within the current negotiating mandate given to the Commission. However it is at the outer limit of that mandate.

EU Trade Commissioner Peter Mandelson said: “The EU’s offer is substantial, offering new market access in agriculture and driving down trade-distorting farm subsidies. We want to move in a way that is tolerable for the EU’s reforming agricultural sector, and does not eliminate the preferential access Europe already offers to some of the world’s poorest countries. Europe’s major partners need to understand that this offer is conditional on immediate movement in negotiations on trade in industrial goods and services as well as in other areas of the agricultural negotiation. These areas are important to Europe, and to developing countries and provide the only route to a balanced Doha outcome.”

EU Agriculture Commissioner Mariann Fischer Boel said: “The EU has radically reformed its agricultural policy. Today’s new proposals on tariffs respect our commitment to offer substantial improvements in market access, without putting those reforms into question. This is a bold move which will mean big new challenges but also opportunities for EU farmers. We need to get something in return: real, meaningful reforms in other developed countries, international recognition of our Geographical Indications, real curbs on other countries’ trade-distorting export programmes, and far-reaching offers in other parts of the negotiation. The Doha Round is about much more than just agriculture, and others must give as well as take.”

The Offer

Conditional on satisfactory movement in other areas, the EU offer proposes:

• A 60% reduction in the EU’s highest tariffs. A range of tariff cuts between 35% and 60% for lower tariffs. A cut in our average agriculture tariff of 46% - from 22.8% to 12.2%.
• A maximum agricultural tariff of 100% - as demanded by developing countries;
• A reduction in the number of sensitive products designated by the EU;
• Reductions in tariffs even for sensitive products – and wider Tariff Rate Quotas (TRQs) for all sensitive products – meaning more market access;
• A 70% reduction in trade distorting agricultural subsidies – as agreed in the EU’s 2003 CAP reform, and tighter disciplines on Blue Box spending;
• The total elimination of all agricultural export support by an agreed date, if others discipline their export support;
• Differential treatment for developing countries: higher tariff bands, lower tariff cuts and a maximum tariff of 150%. No tariff cuts for the 50 Least Developed Countries (LDCs)

The Conditionalities

EU proposals in market access are strictly conditional on further clarification from other developed countries on the elimination of their forms of export support. US commitments on Food Aid and Export Credits are not yet sufficient. Australia, Canada and New Zealand need to provide further commitment on the reform of their State Trading enterprises. The EU also seeks real disciplines on the most trade-distorting US farm payments (Counter Cyclical Payments).

The EU proposals are also strictly conditional on the acceptance by our negotiating partners of a number of proposals in the negotiating areas of the DDA outside of agriculture:

• In trade in industrial goods, the EU wants agreement before Hong Kong on a progressive formula that cuts into applied tariffs;
• In services, the EU wants to see negotiations complemented by ambitious mandatory country targets for services sectors to be liberalised – agreed at Hong Kong;
• An international register protecting Geographical Indications (GIs) in all WTO Member States.
• In WTO Rules negotiations, the EU wants the WTO to negotiate between now and Hong Kong a list of issues to be resolved including all major impediments to international trade created by abusive recourse to antidumping
• In development, the EU wants assurance that there will be a range of proposals ready for Hong Kong including a Trade Related Assistance package, and agreement that all developed countries should extend tariff and quota free access to all Least Developed Countries no later than the overall conclusion of the DDA.

Questions and Answers from the European Commission

The G20 want the highest agricultural tariffs cut by 75%. The US has proposed cuts of 90% Why have you not matched these offers?

The American proposal to cut agricultural tariffs by 90% is implausible. A 90% cut in tariffs for highly protected sectors would be devastating – the impact on some farm sectors in Europe and elsewhere would be a serious loss of jobs and livelihoods.

When the EU cuts its MFN tariff rate it reduces the level of preferential access it currently offers to many developing countries in the African, Caribbean and Pacific regions. A 90% tariff cut would all but wipe out this preferential access – without the crucial transition periods these economies need to adjust to liberalised trade. EU estimates suggest that tariff cuts at the levels proposed by the US would wipe out preferential arrangements for 6.4 billion of the 9.4 billion euros of agricultural trade with Europe from the ACP countries.

No sector has ever been exposed to such steep cuts in any multilateral trade round and to ask Europe and others to undertake such a cut in a single Round is not a realistic negotiating position.

Even the 75% cut proposed by the G20 would have a hugely damaging effect on preferential access and farm livelihoods in Europe and elsewhere.

Europe has proposed a 60% cut in our highest tariffs and a tariff cap of 100% that will put serious downward pressure on agricultural tariffs in the developed world. This is a very deep cut – reducing the EU’s highest tariffs by more than half. In cutting our average agricultural tariff by 46% it goes much further than the cuts agreed in the Uruguay Round. It provides substantial new market access for importers while exposing European farmers and farmers in ACP countries that export to Europe to a steep but carefully graduated reduction in their protection.

Would developing countries be subject to the same cuts?

No. The European Union has always advocated differential treatment for developing countries. Under the EU proposal, tariff cuts for developing countries would be set at 2/3 of the level of those for developed countries, and the tariff bands would be 1/3 higher. The maximum tariff for developing countries would be 150% rather than 100%. The European Union proposes a Round for Free for the 50 Least Developed Countries (LDCs): these countries will be asked to make no cuts.

What about agricultural subsidies? You have offered a 70% reduction but Oxfam says this is not a cut in current spending.

The EU is proposing to cut trade distorting agricultural subsidies by 70%, and to reduce De Minimus box spending by 80%. It has already offered to eliminate all export subsidies assuming others do the same.

This cut is deep and real – but it is true that it is based on changes that the EU has already undertaken under the 2003 CAP reform. 90% of EU farm spending has already been ‘decoupled’ from production: we are now offering to bind those cuts in Geneva.

When Oxfam talks about ‘not making real cuts’ they are basing this on a picture of the EU’s subsidies landscape that is five years out of date, and has been overtaken by internal reform. Should we be criticised for setting reform in motion which we are now in a position to put into this Round? Of course not.

The EU has been accused of blocking wider access to its agricultural markets for developing countries. How do you respond?

The EU will take no lessons from anyone on market access for the developing world. The EU is already the most open market in the world for agricultural exports from the developing world. Through its Everything But Arms system the EU provides tariff and quota free access to all agricultural imports from the 50 Least Developed Countries (LDCs). The EU absorbs more agricultural imports from the LDCs than the rest of the developed world combined. The EU takes 70% of agricultural exports from the LDCs – the US takes just 17%. Almost all agricultural imports from the 80 African, Caribbean and Pacific (ACP) countries enter the EU duty free or at reduced rates of duty.

We are offering to add to that through deep tariff cuts and a reduction and adaptation of our use of sensitive products to protect some EU farm sectors – and in agreeing to do this we can force others in the developed world to do the same. The EU has consistently called on the US, Canada and Japan to provide an equivalent to the quota and tariff free access provided by the EU’s Everything But Arms system.

Moreover, we are committed to ensuring that the Doha Round produces new market access in trade in industrial goods – where developing countries do 75% of their trade.

Is the EU using sensitive products to counterbalance the level of new market access it is offering?

No – the numbers speak for themselves. The EU is offering to cut the number of sensitive products it designates to 8%.

Most importantly, we have also said that sensitive products will not be exempt from tariff cuts – they will be subject to reduced cuts. Moreover, the EU has offered to increase Tariff Rate Quotas for all products classified as sensitive. Even in sensitive product sectors where it hurts us most, we have offered to create new market access.

The conditions attached to this offer: What are they?

Obviously the offer will only bind the EU as part of a final Doha Round agreement. The EU reserves the right to withdraw this offer at any time. Nothing is agreed until everything is agreed.

Our fundamental condition is that the move by the EU on market access in agriculture must unlock progress in negotiations in services and trade in industrial goods, which have fallen far behind agriculture. The Doha Round cannot be an agriculture-only Round. Progress on trade in services and industrial products is crucial for a balanced and successful Doha Development Round.

There are also important conditions within the agricultural negotiations. Most importantly the EU needs clarification from the US on how it proposes to classify Blue Box subsidies. The EU also needs stronger commitments on ending trade-distorting Food Aid and export credits. The EU wants similar commitments from Australia, New Zealand and Canada on the reform of their State Trading Enterprises.

Why does the EU insist on parallel progress in negotiations on trade in industrial goods and services?

Market Access in industrial goods is a development issue, and a crucial part of a development Round. About 75% of developing country trade is in industrial goods. 70% of the tariffs developing countries pay are paid to other developing countries – most of these in industrial goods. If we want to cut this tariff bill, we need to reduce industrial tariffs.

Services is a development issue. Opening their services markets is a key step for developing countries – without an effective banking, transport, communications sectors there is no development. Investment from Europe can be key to developing these sectors. This is not about Europe’s companies forcing their way into fragile markets: it is about European investment helping these fragile economies build the strength to grow.

Progress on trade in services and industrial products is crucial for a balanced deal for Europe: 85% of Europe’s exports are industrial goods. Europe accounts for 25% of the world’s trade in services and about one fifth of the world’s trade in industrial goods. The EU is the world’s biggest exporter. This is where our comparative advantage lies. We have almost no industrial tariffs left – our average industrial tariff is just 4% - this is our last ‘trade off’ and we expect an ambitious result for Europe’s businesses and exporters.

Is this offer within the Commission’s negotiating mandate from the Council?

Yes. The undertakings the EU has offered on the different pillars of the agricultural negotiations are within the 2003 CAP reform process. They are also conditional on progress both within the agricultural negotiations and in the other areas of the DDA. The Commission's mandate requires the Commission to respect the 2003 CAP reform as the limit of its action and to use the margins of manœuvre provided by the CAP reform only on condition of equvalent agricultural concessions from our WTO partners and to achieve a balanced outcome This is expressed in the Council Decision of June 2003 on the reform of the CAP:

“The CAP reform is Europe’s important contribution to the DDA and constitutes the limits for the Commission’s negotiation brief in the WTO Round. Its substance and timing are aimed at avoiding that reform will be designed and imposed in Cancun and/or Geneva – which could happen if we went there empty handed. The Council stresses that the margin of manoeuvre provided by this reform in the DDA can only be used on condition of equivalent agricultural concessions from our WTO partners.”

On market access, the Commission is guided by the Council’s endorsement of the 2004 July Framework Agreement and its call for “substantial new market access” in agriculture. The current offer provides substantial new market access in agriculture, which is a crucial component of the development goals expressed by the Council, but does not jeopardize the EU farming sector.

The EU offer is strictly conditional on equivalent concessions from our WTO partners in agriculture and in other areas of the Round. It will not remain on the table if there is not satisfactory progress in these areas.

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