EU deals blow to subsidy reforms

By BRIAN FALLOW

While Asia-Pacific leaders were in Los Cabos, Mexico, failing to do much to advance trade liberalisation, their European counterparts meeting in Brussels dealt it a blow.

For years the hope, not least in New Zealand, has been that enlarging the European Union would accelerate the glacial pace of reform of the Common Agricultural Policy.

If the generous subsidies available to western European farmers extended to their counterparts in the 10 central and eastern European countries on the brink of accession the cost would be prohibitive, it is claimed.

But a deal stitched up between France and Germany on the eve of the Brussels summit has scuppered hopes of CAP reform any time soon, and reduced Britain, the principal advocate of reform, to impotent fury.

They agreed to cap the EU's agricultural spending (nearly half its total budget) at 2006 levels until 2013. But the deal effectively froze reform proposals until 2006 as well.

The European Commission had proposed measures that would delink agricultural subsidies from production. The focus would be on paying farmers directly as custodians of the countryside.

British Prime Minister Tony Blair told the House of Commons it had been agreed that the limit on agricultural spending would be without prejudice to the World Trade Organisation's Doha round and that fundamental CAP reform "remains on the agenda".

But the cock-a-hoop reaction of the French is telling, and diplomatic observers reportedly see the outcome as game, set and match for President Jacques Chirac, with real reform deferred for years.

The 10 new members of the European Union will have to wait 10 years before they are on an equal footing with the incumbents.

Under the agreement, the EU will give new countries 25 per cent of farm aid enjoyed by current members in 2004. The figure will rise to 40 per cent in 2007, and the eastern states will be on a par with the West by 2013.

Blair said after the Brussels summit: "The world is moving in one direction - that is liberalisation."

But the Philippines President, Gloria Macapagal-Arroyo, at the Apec summit was closer to the mark: "The developed countries preach trade liberalisation, but they practise protectionism".

The Apec leaders' communique welcomed the launch of the Doha round and reaffirmed support for the objective of eliminating all forms of agricultural export subsidies.

But beyond such tepid pieties, the Apec gathering did little to impart fresh impetus to liberalisation.

Such is the context for the announcement that negotiations are to begin on expanding the closer economic partnership (CEP) between Singapore and New Zealand to include Chile.

The economic benefits appear to be marginal. Chile is New Zealand's 46th most important export destination, the Ministry of Foreign Affairs tells us, taking last year $50 million or 0.16 per cent of total exports. It is the 50th most important source of imports ($27 million or 0.09 per cent).

Chile is already moving to a flat tariff of 6 per cent next year anyway.

A CEP would set up a mechanism to help eliminate or reduce non-tariff barriers to trade such as sanitary and phyto-sanitary standards without - the ministry assures us - compromising New Zealand's biosecurity.

Trade in services like education and tourism should also benefit, it says.

Clearly the primary expected gains lie beyond the trade accounts. They include developing connections between New Zealand and Latin America in general, a region Prime Minister Helen Clark is keen on.

But more to the point is the need to demonstrate what a "high quality" bilateral free-trade agreement looks like - that is, one which includes the vexed area of agricultural trade.

A cat's cradle of bilateral trade agreements is emerging around the Pacific and elsewhere but many of them take the soft option of excluding agriculture, despite a WTO requirement that such deals encompass "substantially all" trade between the parties.