Translated by Pierre TARDIEU

Without trying to blame one party or the other it would be interesting to analyse the strategy of the European Union in order to evaluate whether it did everything in its power to reach the objectives originally set for the Doha round.

From Doha to Geneva : good intentions and little action

The Doha round, launched in 2001 in the capital city of Qatar, aimed at contributing to the liberalisation of international trade while significantly improving the position of developing countries. The Doha round was meant to compensate the effects of the Uruguay round which essentially benefited the largest trading blocs at the expense of their weaker partners. The demonstrations that took place in Seattle had acted as a trigger and prompted the most developed nations to acknowledge that the development of international trade could no longer be done without taking into account the poorest members of the WTO. This resulted in the creation of the Doha development agenda. Since the launch of the negotiations, significant results have been reached. The most significant accomplishment was the decision in Geneva in 2004 to completely eliminate subsidies for the export of agricultural goods, coupled with a promise to cut other subsidies and tariffs on agricultural products. The discussions that took place the following year in Hong Kong were less fruitful but did lead to an agreement between developed countries on a deadline for the elimination of all subsidies for agriculture (2013, the first year of the EU’s next budgetary framework). In addition, they agreed on the opening of their markets without tariffs or quantitative restrictions for the least developed countries. However the EU and American negotiators were unable to agree on a general framework for agricultural tariffs and subsidies.

The EU and the Common Agricultural Policy under accusation

The negotiations were meant to deal with both agricultural and non agricultural products but they essentially focused on the question of agriculture which lead to accusations of protectionism against the EU which is notorious for its protectionist stances on this matter. The talks could only proceed if the EU agreed on important concessions on its tariffs which were considered excessive by its trading partners. EU Commissioner Peter Mandelson eventually made a proposal to cut EU tariffs by 51.1% (far beyond the original proposal of a 34% cut). This proposal included some exceptions for so-called sensitive products but was much closer to the demand of the G20 countries (a group of developing countries including India and Brazil) which wanted a 54% cut. As for subsidies, pressure was mounting against the United States. Indeed the Americans were being accused of putting forward a deal allowing them to actually increase the amount of internal subsidies (from 19.7 billion dollars in 2005 to 22.7 billion) by exploiting the complex classification of subsidies allowed under WTO rules.

These figures are lower that that of the EU (88 billion dollars in subsidies) but they are not comparable. The first element is that the EU has 10 million farmers in total while that number is only 2 million in the United States. In addition, European subsidies cause proportionally much less distortions on the market thanks to the successive reform of the Common Agricultural Policy. Indeed, the 1992 and 1999 reforms conducted to the replacement of “direct aids” by “guaranteed prices” and the 2003 reform led to the decoupling of aids and production. The EU therefore had a margin for manoeuvre which allowed it to bring to the table a cut in trade-distorting subsidies by 70% (the equivalent of the amount of decoupled aids after the 2003 reform) and gear the attention of the other member of the WTO on the United States by demanding efforts on their part to undertake a significant reform of their own agricultural policy.

WTO Classification of subsidies

The WTO classifies subsidies (internal aid) by categories or “boxes”. The actual content of these boxes and the maximum amount of subsidies authorised is the result of intense negotiations which took place during the last multilateral talks. Each box (category of subsidy) has its own colour.

Agricultural subsidies are split between three boxes. Orange box : these internal aids theoretically have distorting effects on production and exchanges. According to the agreement relative to agriculture, these subsidies are all the internal aids to exports excluding those of the blue and green boxes. Measures designed to guarantee prices and direct aids coupled with production are in the orange box. Blue box : these internal aid measures are similar to those of the orange box but incite farmers to limit their production. Green box : Subsidies which have no distorting effects on trade. They are generally direct public aids that are decoupled with production and prices.

The refusal of the American position

The United States, however, would not consider making significant concessions on their own subsidies unless the EU agreed on a 66% cut on their tariffs and as much as 90% on certain products. The Americans negotiators were asking a lot of their partners in order to launch internal reforms. This position revealed an aggressive approach on the part of the US which was attempting to obtain practically the elimination of all tariffs and thus a far-reaching liberalization of world markets. Susan C Schwab, the US negotiator punctuated the failure of the Geneva negotiations by stating “ Doha lite has never been an option for the United States”. The EU rejected the American vision for two reasons. The first reason lies in the Common Agricultural Policy. The History of the EU and that of the CAP go hand in hand and the CAP still amounts to 43% of the European budget. A number of member States still back this policy making it virtually impossible for the Council to sign a multilateral trade agreement that would amount to the dismantlement of the CAP. The EU is still an agricultural power ; the sector only amounts to the 2% of the Gross National Income but hires a total of 20 million people (the equivalent of 10 million full time jobs). In addition Europeans see agriculture as much more than a standard economic sector. The economic and social costs of a total liberalization of the market would be very high all the more because the costs of the 2003 Reform have still not been completely evaluated. A progressive approach in the reform of the CAP as adopted in the early 1990 is the only feasible option for the EU. Europe’s negotiating partners are aware of these constraints and should take them into account if they are intent on reaching an agreement.

Marker liberalization and development do not necessarily go hand in hand

The second element explaining the position of the EU lied in the idea that a liberalization of agricultural markets would not be very beneficial to the developing countries and would even be detrimental to the least developed countries. Several studies have indeed demonstrated that the liberalization would primarily benefit the most competitive exporting countries (Australia, New-Zealand, Brazil, Argentina, Thailand) and some importing countries (South Korea, Taiwan, EFTA countries and to a lesser extent EU member States). They also show that the liberalization of the markets could be detrimental to the least developed countries because it would lead to a net loss for their budgets in terms tariffs and would mechanically eliminate their preferential market access to the most wealthy economies by putting them on equal footing with their competitors. Finally these studies underscore the fact that their would be more important gains with the liberalization of the industry and services markets.

Consequently, in the context of a round dedicated to development, the EU used these arguments to back its position and accuse the United States and certain members of the Cairns group of forgetting the original objectives of the Doha round by demanding that the least developed countries open-up their markets as much as the most wealthy countries and by focusing the negotiations on the issue of agricultural products.

These studies have been the object of a memo published on the website of DG Trade. The Commission was very pragmatic in exploiting the arguments of these studies on behalf of the developing countries to defend its refusal of the American proposal. It should be noted that the EU did answer favourably to the demand of the G-20 to cut its agricultural tariffs by 54% and that the country that most vigorously attacked the EU’s position were the biggest exporting powers (the United states and Australia).

The EU has yet to prove that it is well-intentioned

The diverging position of the EU and the United States can be explained by a different visions in terms of the liberalization of trade. The Anglo-Saxon countries whose approach is based on the Washington consensus are adamant on the liberalization of world markets. The EU on the other hand believes that a fast-paced liberalization is not necessarily the suitable response to the immediate challenges liked with development. The position of the EU is therefore consistent with the objectives of the Doha round. The EU is not ready to make a sacrifice for the sake of multilateralism as claimed by The French minister of agriculture Dominique Bussereau. It therefore has no interest in making concession to its competitors which will open its market to countries such as India, Brazil and China without benefiting the least developed countries. The strategy of the EU was legitimate.

The least developed countries had a lot to lose in the absence of an agreement which might have allowed significant improvement for them. These improvements might not be completely lost if the multilateral negotiations resume as requested by G 20 countries. The EU however now seems to be opting for a strategy of bilateral negotiations. That could be a constructive alternative of the EU does not abuse its dominant position as a major trading bloc vis a vis its partners. These bilateral negotiations will be an occasion for the EU to demonstrate its actual dedication to the objectives set at the beginning of the Doha round.

Illustration : Peter Mandelson, European Commissioner for Trade and the Symbol of the WTO (Source : European Commission.)