November 6, 2002
One reason free trade-supporting countries like Australia, Singapore and the US pursue bilateral free trade agreements was displayed when the European Union leaders met last week. French President Jacques Chirac and German Chancellor Gerhard Schroeder ganged up on British Prime Minister Tony Blair to derail his hopes of reforming the pernicious Common Agricultural Policy, which squanders 45 billion ($80 billion) on Europe's inefficient farmers.
Mr Blair, who sensibly thought the admission of 10 new member states, including farm-heavy ones like Poland, was a perfect opportunity to bite the bullet on CAP reform, told Mr Chirac what he thought of the deal. Mr Chirac flounced out, claiming offence. The French President had better steel himself for more. Last week's baulk may be only the latest in a series of EU failures to reform the CAP, but it was still depressing. It confirmed that Mr Chirac, a former farms minister, will stop at nothing to protect France's farmers, no matter what the cost to the EU, the developing world or the cause of trade liberalisation.
Last year, Europe forgave French intransigence because of looming elections. But now Mr Chirac is enjoying a balmy post-election honeymoon, flexing his muscles on the world stage thanks to France's permanent seat on the United Nations Security Council and being showered with praise at home.
If he hasn't the will to take on the powerful French farm lobby now, he never will unless he has no choice. The imperatives for CAP reform grow stronger by the year (the system will collapse under its own weight without reform), but the Europeans just tinker at the edges. The US offer in July to limit "bad" production-linked subsidies to 5 per cent of farm output and to cut tariffs under the Doha round of trade talks was a sign that other selfish farm protectionists had seen the writing on the wall. And evidence at the Johannesburg Earth Summit that aid organisations at last understand the link between First World protection and Third World poverty was another sign that the need for reform was only getting more urgent.
The Franco-German deal, presented to Mr Blair and other leaders as a fait accompli, will allow CAP payments to rise with inflation until 2013, as the new member states gradually rise to the CAP drip. This means CAP payments to existing members will fall only slightly. But the reformers wanted big cuts for the next funding period, from 2007.
The European Commission's mid-term CAP review is still likely to propose breaking the link between production and subsidies, which has been responsible for the infamous butter mountains and milk lakes of past years and the worst distortions in world trade. It may also put a ceiling on payments to big farms and shift money into rural development. But this is cold comfort for farm export nations like Australia, or poor countries that had hoped the Doha round might actually give them access to rich countries' markets and fairer prices.
On the plus side, there is a growing range of interest groups that could be mobilised to campaign for change. European consumers, for example, pay about 400 a year more for their food than they should just to prop up inefficient farmers in France and elsewhere. They have also begun to blame the CAP's postwar aim of "production at all costs" for the poor quality of their food and increasing incidence of scandals like BSE and foot-and-mouth disease.
Developing nations are also growing noisier about Europe's hypocritical breast-beating over the world's poor when the cost to the poor of EU protection far exceeds aid donations. Oxfam will campaign heavily in the lead-up to the EU summit in Denmark to have the CAP decision reversed, saying there's little point opening the Doha round otherwise.
European leaders like to lecture the world on the need to address underlying conditions that might make people susceptible to terrorist causes: poverty, inequality and the like. But as Foreign Minister Alexander Downer said in London last week, the inequity and harmful impact of the global trading system must be part of that debate.
Mr Blair was reportedly making points of this sort to Mr Chirac when the French leader got his back up.
The Franco-German deal follows the US Farm Bill, which dramatically increased subsidies and tarnished US President George Bush's free trade credentials. Neither move ends the chances that the Doha round might achieve its aims, but each makes the task far more difficult.
Even so, the US made a genuine proposal to make world farm trade fairer in July. Now it's Europe's turn to do something. In the meantime, those suffering under the global trading system must keep making their case as bluntly as Mr Blair did even at the risk of offending thin-skinned European leaders like Mr Chirac.
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