Global Policy Forum

By Philip Bowring

Last week's agreement on a framework for European Union enlargement was an important step forward for Europe. But the conditions that emerged from EU horse-trading are a major blow to world trade, and ultimately to European prosperity.

The all-important side deal between President Jacques Chirac and Chancellor Gerhard Schrí¶der on agricultural subsidies, without which enlargement could have been held up indefinitely, is an outrage. The main beneficiaries of the Common Agricultural Policy have not only successfully held European enlargement to ransom, they are another roadblock to developing-country support for open markets, and hence for European exports.

This deal comes at a time when tensions between developed and developing countries over terrorism and Iraq are spilling into the trade arena.

It is almost a year since the World Trade Organization summit in Doha placed agricultural trade reform at the top of the agenda for a new round of liberalization. Without that, it would have been impossible for key developing nations to have been brought into the Doha consensus.

Yet what has happened since then? In May this year President George W. Bush signed into law a new farm bill which is estimated to increase subsidies by 80 percent over the next decade. That was, rightly, met with howls of anguish - in some cases righteous, in Europe's case hypocritical.

Europe's new pact has been presented as a step toward trade reform by putting a cap on farm subsidies. It is nothing of the sort. It is entrenching the Common Agricultural Policy even deeper after 2006.

Instead of the big cuts that the long promised reform demands, there will be no cuts at all, just a pegging of increases to inflation and some gradual redistribution of the spoils toward the new members. Given the size of EU export subsidies, this is at least as large a setback for the WTO objectives as the new U.S. farm act. The United States is at least committed in principle to phasing out the most damaging aspect of farm support - export subsidies.

In their Brussels bunker, the European elite seem not to recognize how much damage is being done to the world around them by imbalances in liberalization. The globally destabilizing foreign debt problems of Argentina and Brazil are in part caused by the pincer between low prices of agricultural products (40 percent of Brazil's total exports) and freeing of markets for manufactured goods and capital movement.

Western commentators on these countries' economic problems seem almost willful in their determination to avoid examining their own hypocrisy. The ongoing farm subsidy scandal will also be a further burden on Europe's almost stagnant economy. But apparently Europe's leaders are so preoccupied with sectional and national petty interests that they fail to see the damage they are doing to themselves. This is not just the E40 billion in direct subsidies. Not just the E600 a year extra food costs to the average EU household. It is also the lost opportunities of selling higher value-added goods to lower-cost farm producers from Brazil to India, Russia to Australia.

There are of course many causes of Europe's lethargic growth, but this is at least as important as the endlessly debated fiscal constraints of the stability pact or Wim Duisenberg's allegedly miserly monetary policy.

The total economic costs of the Common Agricultural Policy can only increase as other countries become more competitive in world agricultural markets despite OECD export subsidies. Nations which were once major grain importers are exporting it. India is beginning to realize that with a rational price structure it could do well. China as a whole is not as vulnerable to freer farm trade as many imagine.

Closer to home for Europe are other examples. Russia, even shorn of the Ukraine, is now a significant grain exporter for the first time since czarist days. Success is due to reform as much as to clement weather. If Ukraine could reform and fulfill its potential, it would be an even more competitive player.

Add in the cost to an aging Europe of shutting its poor southern Mediterranean neighbors out of farm product markets and, even from 10,000 kilometers away, one can see that in addition to being selfish, myopic and hypocritical, Europe's farm policy is self-destructive. It is hurting its own consumers while making demographically dynamic developing countries which ought to be buying more European airplanes and trucks not only poor but skeptical of the benefits of trade. It is perhaps the biggest single threat to international economic cooperation. European leaders, how dumb can you get?

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.