TCS Daily

Subsidies and Scoundrels

By Alan Oxley - September 4, 2003 12:00 AM

There is a saying in politics that the last resort of rascals is to wrap themselves in the flag. The challenge to the EU to open food markets at the WTO conference next week at Cancun comes at an awkward time. It is an open secret that Europe's businesses are losing global competitiveness. On cue, those chaps in Brussels have reached for the flag.


This flag is not the EU circle of gold stars on the blue background. While undoubtedly attractive, even visionary, no one waves that at football internationals. Go Europe? The true passion is not even reserved for the Tricolor or the Union Jack. It is the local icon. Barcelona, Manchester, Munich.


In a piece of political populist brilliance, some crafty guy in the European Commission picked up that there were food equivalents -- Parma ham, Madeira port, Roqueforte cheese, just for starters -- raw material for the perfect foil for some unpleasantness the EU was facing in the WTO.


Two years ago at the WTO conference in Doha, Pascal Lamy -- the ultimate urbane, European internationalist, the Trade Commissioner for the European Commission from France -- signed off an agreement in the WTO to reduce protection of farmers. Not only that, he agreed that within 18 months, the EU would table targets setting out how much the EU would reduce farm protection in the WTO. That deadline came and went at the end of March.


For the record, his US counterpart Bob Zoellick made the same commitment for the US. But he outplayed Pascal. The US offered in the WTO to make deep cuts to farm protection, provided the EU matched the offer.


Over to you Pascal (and Franz. That is Fischler, the EU Commissioner for Agriculture). Both banked on EU members accepting that EU farm protection had to be reduced if the 10 extra countries who were to be added to the EU could be fitted in without increasing the farm budget.


Neither banked on the greater political acuity of their respective national leaders (Chirac and Schroeder). Why take the heat when it can be left to your successor? They blocked any systematic reform of EU farm protection for the next 10 years. Back to you Pascal and Franz.


If you can't cut it, spend it differently. Franz finally persuaded EU farm ministers to agree subsidies would no longer be based on how much they exported, but how much they produced. The change was statistically insignificant. EU farm output might fall by only three percent. The farmers got almost the same money.


This was a big deal for European farm officials, but no one else. The Eurocrats in Brussels knew the reaction in the WTO would be: "This is all you have to offer?" The heat would be on at Cancun and they needed a political foil. One was handy.


Ever since the EU secured agreement from some countries in the last round of trade negotiations in the eighties that they would not use "geographical indicators" -- burgundy, beaujolais, chablis -- on their own wines, some EU members like Italy and Greece had been agitating for icons like Parma ham and Feta cheese to be similarly protected.


This was the perfect foil. Demanding that "Parma Ham", "Roqueforte cheese" and "Feta cheese" be denied use by others (and suggesting this extend to port terms like "tawny", "vintage" and "ruby") would be immensely popular in Europe and drive competing producers of products using these terms mad. It did. All of them -- Argentina, Australia, Canada, Chile and the US -- did it more cheaply.


Even better, it gave the EU some negotiating coin at Cancun. Look chaps, if you can't go along with want we need on geographical indicators, we won't be able to leave our measly offer on the table. Was this cheap? Yep. But cheap offers work when there is not much at stake.


How will this play out at Cancun? WTO negotiations might occur only every ten years, but some of us with grey hair have seen them before. Take odds that the EU will settle for "discussion" rather than "adoption" of its claim for recognition of these geographical indicators. Its willingness to change how it pays subsidies will be taken as evidence of good faith to keep negotiating on agriculture. (Washington itself is not ready to deal).


So expect WTO members to agree at Cancun that negotiations on agriculture in the WTO will resume. (Until they stall the next time, probably mid-2004. Who negotiates in Washington on trade in a presidential election year?)


Those who should feel diddled by this result will be the sheep farmers in France and Greece and the pork producers in Italy. But they probably won't be, because those clever chaps in Brussels will have gotten their issue on the table. In European politics, that is considered a victory. No wonder Europe is losing competitiveness.


Alan Oxley was Ambassador for Australia in the previous round of international trade negotiations (the Uruguay Round) which started in the late 80s.


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