International trade negotiations have been the most effective driver of CAP reform for over fiften years. I haven’t commented on progress in the Doha Round for some time because prospects have looked so bleak since the collapse of the G-4 talks at Potsdam. But there does seem to be a glimmer of hope.
The Potsdam talks were ominously held at the Cecilienhof complex where the 1945 conference took place that carved up Europe after the end of the Second World War (I visited there when it was still in East Germany). This time it wasn’t Stalin, Truman and Churchille/Attlee round the table, but the US, EU, India and Brazil: how the world has changed.
The talks broke up acrimoniously early after Brazilian Trade Minister Celso Amorin and his Indian counterpart Lamal Nath accused the US and EU of failing to live up to the commitment of a ‘development round’. For their part the EU and US accused Brazil of inflexibility and even backtracking, particularly on tariffs for industrial goods.
On agriculture there were some signs of flexibility on the US side particularly in relation to trade distorting domestic support. There were also hints that the EU might be prepared to off bigger cuts for those products with tariffs over 90 per cent, although the EU insists that the discussion was more about the combination of tariff cuts and protection for so-called sensitive products.
Farm negotiations chair Crawford Falconer has tabled a draft document, but what it leaves open is the question of ‘special product’ provisions which permit developing countries to shield particular commodities from cuts in tariff agreements. They are a particular bugbear for the US who say they undercut liberalisation.
An agreement is not going to come anytime soon. Election pressures are increasing in the US and the next president may be elected on a protectionist platform, Hilary Clinton having seemingly abandoned her husband’s commitment to free trade.
It is interesting to consider what may have changed on the commodity price outlook since the Doha Round agriculture negotiations first ran into the sand twelve months ago and how this might alter the room for manoeuver for the EU and the US.
It could be expected tha an increase in commodity prices (see Wyn’s earlier post on the link to the biofuels boom) would be expected to give some more breathing space for the EU to reduce its tariffs and for the US to cut its counter-cyclical subsidy payments. But the EU’s most sensitive sectors (dairy, beef and poultry) are actually being hit on the input side as feed costs rise, even though there are seeing prices staying firm. The reality is that some now well-established sectors of the European farm economy have always been the products of subsidies. The most obvious example is the Irish beef sector, though there are others besides.
For the dairy sector, higher prices have reduced the need for export subsidies – this will allow the EU to meet its commitment to end agricultral dumping and also produce significant savings in the farm budget, which are likely to be earmarked for transitional payments for the dairy sector as milk quotas are phased out.
Overall, the upward direction of world commodity prices should increase the chances of a Doha deal. Unfortunately it sometimes seems that at this point in the end game, politics has taken over, and Wyn is certainly correct to say that on both the Atlantic that globalisation and market opening are no longer seen as the unqualified ‘good thing’ that they were in the 1990s.