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This week also the World Bank published a research study which says that abolition of tariffs, subsidies and domestic support programs would boost global welfare by nearly $300 billion per year by 2015. Close to two-thirds of these gains would come from agricultural trade reform, because agriculture is so much more distorted than other sectors. Within agriculture, market access barriers are the key. Deep reductions in agricultural tariffs would deliver 12 times the gains that would be achieved by abolishing export subsidies and trade-distorting domestic support to agriculture,” said Will Martin, Lead Economist in the Bank’s trade research group and the study’s co-editor. “Making agricultural markets more accessible is the most fundamental reform that needs to emerge from the The study also emphasizes that cuts to tariffs can be deceptive because the reductions are in bound tariffs, which are legal ceilings or limits, and not to the tariffs actually applied. To bring the average global applied agricultural tariff down by one-third, the study recommends cuts of at least 75 percent in the highest bound tariffs. The opposition of the EU to deep cuts to its tariffs gives major Developing Countries such as India, which has average farm tariffs of 114 percent, an excuse to keep their markets closed. In Ireland, the impending collapse of the trade talks was a non-issue. The Government which has been happy to leave France take the lead in preventing the European Union from making a credible response to the tariff reduction proposals of the United States, had nothing to say. Opposition politicians also had nothing to say and IBEC, the principal business lobby group, in a country where 90% of manufacturing exports are made by foreign firms, had nothing to say. Many high profile economists have also remained silent. Irish rock stars Bono and Bob Geldof who led a campaign last summer to pressure the leaders of the G8 countries to agree to writing off the debts of poor countries, also were AWOL even though the long term impact of the trade talks will be much more critical than the write-off of debts that were never going to be paid. In London this week, Chinese Commerce Minister Bo Xilai signed an agreement on Chinese textile exports to the US with US Trade Representative Rob Portman. Bo used an old Chinese saying that the "crying baby gets the milk first." Bo could have been talking about the Irish Farmers' Association (IFA) and its leader John Dillon, who demonstrated outside the European Commission's office in Dublin and called for EU Trade Commissioner Peter Mandelson, who was dubbed as Tony Blair's "lapdog," to be sacked. The Trappists of Vested Interest have handed the public megaphone to the representatives of big farming. John Dillon said "Under Mandelson, Europe will become the dumping ground of the world food market where there will be no control over quality, no tagging and no food traceability." He warned that the consequences of such a policy would be greater exposure to Food and Mouth disease, Swine Fever, Avian Flu. "What we will get is over 30 months beef, produced by slave labour and full of hormones." While Dillon bad-mouths the quality of beef from places like Brazil, he would hardly welcome similar sweeping attacks when we have disease outbreaks in our own herds. Besides, why are steak restaurants in the principal cities of Europe generally branded as Brazilian, Argentinean, Uruguayan rather than Irish? On Thursday, the IFA President met Peter Mandelson in Brussels and accused him of a sell out that would devastate Ireland's family farm structure, with incomes falling by 36%. He said the IFA calculated an output loss of €1.2 billion per annum that would result in 50,000 job losses between farmers, the food industry and the supply side of agriculture. Dillon commented that "Commissioner Mandelson was cold and clinical and had no regard for rural Ireland." As detailed below, wealthy Ireland is the highest per capita beneficiariy of the EU's Common Agricultural Policy. DOHA TRADE ROUND The Make Poverty History campaign had its high point last July when concerts and street demonstrations focused the attention of the leaders of the Group of Eight (G8) rich industrial countries and the Russian Federation on the need to wipe out up to $55 billion of poor nations' debts. Eighteen countries - 14 in Africa and four in South and Central America - are due to have their debts to the IMF and the World Bank cancelled when the deal comes into effect. For IMF debt, that will be the end of the year. For the World Bank it will be in July 2006, the start of the international lender's new financial year. While the agreement on debt relief was an achievement for the UK Presidency of the G8, the outcome of the current talks on the reform of the international trade system, is likely to have a greater long term impact on poor countries. Every two years the WTO holds a major summit called a ministerial meeting. In 2005 this will be in Hong Kong in December. Previous meetings took place in Cancún (Mexico) in 2003, Doha (Qatar) in 2001 and Seattle (USA) in 1999. The November 2001 declaration of the Fourth Ministerial Conference in Doha, Qatar, provides the mandate for negotiations on a range of subjects and other work, including issues concerning the implementation of the present agreements. The negotiations include those on agriculture and services, which began in early 2000. A number of other issues were added. The declaration set 1 January 2005 as the date for completing all but two of the negotiations. The Fifth Ministerial Conference in Cancún, Mexico, in September 2003, was intended as a stock-taking meeting where members would agree on how to complete the rest of the negotiations. But the meeting was soured by discord on agricultural issues, including cotton, and ended in deadlock on the “Singapore issues”. Real progress on the Singapore issues and agriculture was not evident until the early hours of 1 August 2004 with a set of decisions in the General Council (sometimes called the July 2004 package). The original 1 January 2005 deadline was missed. After that, members unofficially aimed to finish the negotiations by the end of 2006. The Doha Round has a deadline of December 2006 because President Bush's negotiating authority from the US Congress expires in mid-2007 and it would not likely be renewed. In July 2005, WTO members agreed on a framework for agricultural negotiations on eliminating export subsidies, reducing domestic support and opening market access. EXPORT COMPETITION
For the United States, the framework agreement's requirement for ending agricultural export subsidies "by a credible end date" was a crucial achievement.
About 88 percent of agricultural export subsidies paid by WTO members are from the European Union (EU) and about 2 percent from the United States, according to U.S. government agencies.
"The United States has wanted for decades to eliminate export subsidies by some point," said Jim Grueff, assistant deputy administrator for international trade in the U.S. Department of Agriculture. "That's huge for us."
At EU insistence, the framework also requires disciplines on export credits and export credit guarantees of the kind the US Agriculture Department pays.
"This will have an impact on us for sure," Grueff said.
The framework also requires disciplines on the trade-distorting practices of state trading enterprises such as the Canadian Wheat Board.
The board's monopoly power over sales of wheat and barley from 85,000 western Canadian farmers allows it to sell those commodities below U.S. prices in third markets, U.S. farmers complain.
Disciplines on food aid also are to be negotiated because surplus food in wealthy countries, produced in excess because of domestic supports, often ends up being exported to poorer countries experiencing food shortages, displacing commercial sales, lowering prices and thus discouraging domestic production.
Grueff said any new rules should avoid impairing legitimate food aid. DOMESTIC SUPPORT
Under existing WTO commitments, the EU is allowed to spend more than three times as much in domestic support to its farmers as the United States, while Japan is allowed to spend 1-1/2 times as much.
Under the framework agreement, countries must commit to "substantive reduction" in what is called their aggregate measure of support (AMS). Developed Countries have already agreed to reduce overall trade-distorting domestic support from bound levels -- levels they cannot exceed under the existing WTO agreement -- by 20 percent in the first year of implementing any new WTO agreement.
Bound levels of domestic support are usually higher than actual spending levels. U.S. officials have said that because U.S. spending is already so much lower than its bound level it will not be affected by a 20-percent first-year reduction.
Nonetheless, Grueff said, over the entire implementation period "we will certainly have to make some changes."
The WTO categorizes domestic support in what are called the amber, blue and green boxes.
The amber box comprises most of the kinds of support that distort agricultural production and trade. According to the framework requirement for harmonizing domestic supports at a lower level, WTO members with the highest spending will have to make the deepest cuts, with the size of the cuts and timetable for making them to be negotiated.
Included in the amber box is what is called de minimis support, the minimal level of trade-distorting domestic support allowed by the WTO, 5 percent of the value of production for a specific commodity for Developed Countries, 10 percent for Developing Countries. Similarly, total support not specific to any commodity is limited by the same percentages of total production value.
Under the framework, countries are expected to negotiate lower de minimis levels, but it exempts developing countries such as India that spend nearly all their de minimis support for subsistence farmers.
Existing WTO commitments impose no cap on spending in the blue box category, which comprises somewhat less trade-distorting support, because it requires farmers to limit production.
The framework requires capping blue box spending at 5 percent of each WTO member's average value of agricultural production over some historical period to be negotiated.
Although Developing Countries wanted the blue box eliminated, the framework actually extends blue box coverage to allow U.S. counter-cyclical payments to protect farmers from swings in commodity prices.
Negotiators are supposed to develop new criteria to make sure that blue box support is less distorting than amber box support.
Likewise, negotiators are expected to review criteria for green box support, spending supposed to cause no or minimal distortions to agricultural trade and production. Developing countries had wanted green box spending caps instead. The review must consider the legitimacy of spending for nontrade concerns such as the environment and rural development. MARKET ACCESS
Since the Uruguay Round agreement that created the WTO, countries have had to eliminate nontariff barriers to trade or else convert them into tariffs. In cases where the calculated tariff was extraordinarily high, a country had to agree to a tariff-rate quota where imports below the quota are subject a lower rate and those above to the higher rate.
While US agricultural tariffs average 12 percent, those in most other countries are much higher, with the worldwide average at 62 percent: EU, 31 percent; Japan, 51 percent; South Korea, 66 percent; India, 114 percent.
Like domestic supports, higher tariffs are supposed to be reduced more than lower tariffs, both for developed and developing countries under the framework. US and EU October 2005 Proposals for Tariff Cuts Last month US Trade Representative Portman proposed cutting domestic farm subsidies and import tariffs to give the Doha talks new momentum. However, the US, Brazil and Australia have made clear that this had to be matched by an ambitious offer by the European Union to cut agricultural tariffs. The EU has offerred to cut farm tariffs by an average of 38 per cent, more than the 36 per cent average agreed in the 1986-93 Uruguay round, but well below the 54 per cent called for by the Group of 20 Developing Countries and the 55-90 per cent cuts demanded by the US. In addition, the EU wants to give special treatment to 8 per cent of its tariff lines – about 160 products – which could result in no significant market opening. Only about 50 tariff lines account for 90 per cent of all EU farm imports. The US and other countries have called on the EU to reduce the list of sensitive products such as beef and poultry to only 1 per cent of the total and have also set 54 per cent as the minimum average tariff cut that the EU should offer. “We will never be able to proceed if the EU doesn’t quickly show substantially more flexibility on market access,” Portman said. “Without very quick progress on this issue, the outcome of the ministerial meeting and the entire Doha Round may be at risk.” The EU says that 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 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. As noted above, the World Bank supports a cut of 75% in the highest tariffs. Given the opposition of France to any concessions and the threat of a veto, supported by Ireland, the European Commission has little leeway as it insists that poorer countries do more on industrial tariffs and services. Peter Mandelson said that there is a need from the more advanced Developing Countries to show a new willingness to make a commitment in principle to cut their industrial tariffs from the rates they currently apply. He said that one statistic is striking: 70% of the tariffs currently paid by Developing Countries are to other Developing Countries. Japan proposed this week that Developed Countries reduce import tariffs on non-agricultural products to no more than 10%. Japan imposes import tariffs averaging 2.3% on non-agricultural goods, compared with 3.2% in the US, 3.9% in the EU, 30.8% in Brazil and 34.3% in India, according to figures from Japan's trade ministry based on WTO estimates. FRANCE AND IRELAND'S POSITIONThe position of France and Ireland is that the reforms of the EU's Common Agricultural Policy, which came into effect in 2003 should not be altered and concessions were made at that time. The World Bank says that 92 per cent of the benefit to Developing Countries from liberalising agricultural trade comes not from reducing subsidies but from cutting tariffs. The 2003 CAP reform "decoupled" payments from production but protective barriers for dairy, poultry and beef farmers continued. If it was possible to find an honest member of the French or Irish Government, he or she would agree that no one expected the US to make radical tariff reduction proposals. It doesn't help either that the level of anti-Americanism is so rife currently among the intellectual chatterring classes in Europe that many are blind to the significant alignment of the US with Developing Countries. IRELAND AND THE COMMON AGRICULTURAL POLICY Last September, the United Nations' Human Development Report 2005 said: In Europe, farm subsidies have reached $51 billion, and although this sector accounts for less than two percent of the work force, it absorbs more than 40 percent of the European Union budget. In the European Union more than three-quarters of CAP support goes to the biggest 10% of subsidy recipients. The new CAP system of direct payments (farm dole) provides Irish beef baron Larry Goodman with more than €500,00 annually for watching the grass on his estate grow, Some 3,000 Irish farmers are receiving farm dole of more than €40,000 annually and German, Dutch and British taxpayers are footing the bill. The CAP reforms have been shown to primarily benefit big farmers. Last September, the EU issued a detailed report on its 2004 Budget, which shows that Ireland's net receipts from the EU Budget rose by €34 million to €1.594 billion. The Irish at €396 per capita in net receipts from the EU, were the highest in the EU15 while the Dutch headed the net payers at €125 per head. Greeks benefited by €377 per capita, Portugal by €298 and Spain by €200. Germany paid $87 per capita into the EU Budget. Ireland's EU bonanza in 2004 amounted to 1.3% of GNI (Gross National Income) compared with 1.38% in 2003. Ireland's per capita income from the EU's Common Agricultural Policy (CAP) was €453 compared with France's €157. France got €9.42 billion in funds from CAP while Ireland received €1.83 billion. In the first comprehensive study of the effect of CAP on Europe’s regions, a team from the Universities of Aberdeen and Newcastle upon Tyne has found that, even after the CAP reforms agreed in 2003-04, rich, core regions in Germany, the UK, France and the Netherlands are collectively taking a greater slice than poorer, peripheral regions in Spain, Italy, Poland and southern and central Europe.
Tony Blair is urging EU member states to reform the CAP, saying that more money needs to be directed away from farming production towards technology and research to boost Europe’s economy. He also says that the EU must act before 2013 - the end-year of the current CAP deal. In the new book, CAP and the Regions: The Territorial Impact of the Common Agricultural Policy, Professor Mark Shucksmith (now at Newcastle University’s School of Architecture, Planning and Landscape), Emeritus Professor Ken Thomson, College of Physical Sciences and Dr Deb Roberts of Aberdeen University’s Business School, base their conclusions on various official data sources on EU funding.
Currently, CAP subsidies are awarded from two pots, called Pillar One and Pillar Two. Pillar One, worth €90bn per year (€191 per man, woman and child), is made up of direct subsidies paid to farmers and the economic cost of ‘market price support’ - consumers paying higher prices for farm products. This overwhelmingly favours the prosperous, core regions, with large farms producing grain, milk and beef, rather than poorer, peripheral regions with smaller farms and products such as olive oil and wine. This is mainly because these measures are more used by the rich countries of North West Europe, who are more able to exploit the relevant Regulation. BERTIE AHERN AND CAP In a broadcast interview last September, the Taoiseach, Bertie Ahern, accused the UK Prime Minister Tony Blair of brazen deception, self-interest and dishonesty, for demanding cuts in EU farm spending. Ahern made a defence of the Common Agricultural Policy (CAP) at an agricultural show in Piltown, Co Kilkenny. He made no reference to Ireland as the richest country in the EU (Luxembourg has nominally the highest per capita income because many people who work there live outside its borders), having its agricultural industry paid for by Dutch taxpayers among others. Ahern said that he was personally annoyed with the Prime Minister's presentation which was neither true nor factual. He also criticised Mr Blair for seeking to re-open a reform agreement that was made in 2002. However, Ahern made no reference to the fact that it was President Chirac of France who had demanded an end to the UK CAP refund system that had been agreed in 1984 as a way of compensating the UK for the lion's share of CAP that France had. Ahern said that given the diversity of climate and soil types in the EU, from the North of Finland to the Mediterranean islands, from the Baltic States to the Iberian Peninsula, the construction and management of a common agricultural policy which embraces such diversity is truly remarkable. This achievement is due to a belief in European integration and a desire to compromise for the sake of that integration. The CAP is, indeed, a truly European policy. "To abolish or undermine it would weaken the entire European project at a time when Europe needs strengthening, not weakening," he said. The speech was published in late September in the Financial Times as an article and the OECD said that facts quoted by Ahern were wrong. Bertie Ahern's well paid advisers used OECD "facts" claiming that the US provided as much in farm supports as the EU. In a letter to the FT, the OECD said that 2003 farm support in the US stood at $36bn or 15 per cent of farm receipts, while in the EU it was $118bn (€104bn) or 36 per cent of farm receipts. ECONOMIC CONSEQUENCES OF THE DOHA ROUND FOR IRELAND Last month end, Alan Matthews and Keith Walsh, Department of Economics & Institute for International Integration Studies, Trinity College Dublin, produced a report Economic Consequences of the Doha Round For Ireland, that was commissioned by Forfás, the Irish State enterprise policy advice agency. Matthews and Walsh conclude: For Ireland, the results of further liberalisation are strongly positive. Two of the four simulations individually generate welfare gains, while agricultural trade liberalisation has a slightly negative effect on the overall economy as does improved trade facilitation. The gains from the liberalisation of service trade are particularly strong. This and the increased liberalisation of the industrial trade produce unambiguous gains for Irish welfare. The negative effect from agricultural trade liberalisation arises because gains in allocative efficiency from lower agricultural protection are offset by the loss of net transfers from the EU agricultural budget as export subsidies are eliminated. The small loss in welfare due to trade facilitation is driven by terms of trade effects from improvements in trade facilitation in other countries. Trade facilitation by Ireland itself has a positive impact on welfare. Download Report in PDF Format: IBEC If IBEC, the principal Irish business lobby group, had existed in 1958 when the seminal Economic Development white paper was published, it would have undoubtedly supported its protectionist members. The artchitect of the modern Irish economy, the then Secreatary of the Department of Finance Ken Whitaker, had the support of the Minister of Commerce Sean Lemass, for the blueprint for the move from protectionism to free trade and the modernisation of the economy through the incentivising of multinational companies to establish manufacturing operations in Ireland. In the interval, Ireland has been one of the world's greatest beneficiaries of the reduction and elimination of tariffs on industrial goods. In October, IBEC supported a statement issued by an umbrella group of country business lobby organisations, which said: we continue to believe that an ambitious agreement on agriculture is a critical step to securing a comprehensive and successful outcome of the Round. However, in order to be successful and supported by the global industrial sector, the round must achieve significant gains in real market access for manufactured goods (NAMA), services, trade facilitation and advancement of other aspects of the negotiations, including rules. So why the silence now on the failure to achieve an ambitious agreement on agriculture? The organisation is seriously risking its credibility on the issue of competition generally. Last May, IBEC issued a statement saying that there is clear evidence that the Groceries Order does not lead to higher food prices. This week a minister in a Government that is in its ninth year in power said: “This is an important day for the Irish Consumer. It is a liberating day for competition policy in Some brass neck you may well say! A liberating day for competition policy in BONO AND GELDOF Bob Geldof called last summer for a mass demonstration of one million people in Edinburgh, Scotland to coincide with the opening of the G8 leaders summit who were due to discuss the wiping out of the debts of the world's poorest countries. Bob Geldof, who organized the series of Live 8 concerts around the globe to put pressure on the G8 leaders, called the summit a "qualified triumph." "It is only time that will decide whether this summit is historic or not," he said. "The cheque has been written and signed, now we need to cash it. We need Live 8's 3 billion people to make sure it gets done." U2 singer and activist Bono, who co-founded DATA (Debt AIDS Trade Africa) and performed at Live 8's London concert said: "We've pulled this off. The world spoke, and the politicians listened." Bono said in response to America's October proposals for deep farm product tariff cuts: "This is no time for dancing around and dillydallying on the Doha trade deal. This calls for real political leadership. Finally, an American proposal has injected some much needed momentum. Now, other players must show their cards and up the ante because the stakes could not be higher. We need a trade round which demonstrates to the poorest and marginalized that wealthier nations are serious about sharing opportunity and ensuring that trade benefits the poorest, especially in Africa – where, for example, job losses in apparel are at an all time high." On October 19th, President Bush invited Bono to lunch at the White House. Over an hour and 40 minute meeting, Bono and Bush discussed debt relief, AIDS, malaria and world trade, said presidential spokesman Scott McClellan. McClellan said they also talked about the concerts that U2 was preparing to put on at Washington's MCI Center. "They should be afraid, because they will be held accountable for what happened on their watch," Bono told Rolling Stone magazine. "I'm representing the poorest and the most vulnerable people. On a spiritual level, I have that with me. I'm throwing a punch, and the fist belongs to people who can't be in the room, whose rage, whose anger, whose hurt I represent. The moral force is way beyond mine, it's an argument that has much more weight than I have. So I'm not feeling nervous." So although Bono and Geldof are back to making money and are also continuing to talk about development issues, it's unfortunate that they're not throwing their heaviest punches now when they are so badly needed. The Irish Taoiseach Bertie Ahern who has never had to take a tough political decision, should have his feet held on the fire but with John Dillon and the Irish Farmers' Association doing the crying, French President Jacques Chirac threatening to veto EU concessions, the Irish business lobby group IBEC trying to please members with conflicting interests and the arcane but vital issues of trade sending the rest of the establishment, including the media, to Rip Van Winkleland, Bono's and Geldof's attention is needed now more than ever. Who else will hold jellyfish politicians accountable? RELATED: Tariff reform could deliver annual global gains of $300 billion by 2015, says World Bank study Impending collapse of Doha trade talks welcome news for France and Ireland © Copyright 2007 by Finfacts.com |
