Inaugural Meeting of the International Political Economy Society

Inaugural Meeting of the International Political Economy Society Princeton University, 17 -18 November 2006 Curbing Agricultural Exceptionalism: The EU’s Response to External Challenge Carsten Daugbjerg & Alan Swinbank The Universities of Aarhus & Reading

Paper outline • I. Introduction • II. Curbing Agricultural Exceptionalism? • III. A Single Undertaking and CAP Reform – The Single Undertaking and the oilseeds dispute – GATT, the Heysel Debacle and the Mac. Sharry Reform • IV. Dispute Settlement and the Consensus to Reject Rule • V. Concluding Remarks

Agricultural Exceptionalism? • The idea that agriculture is different from other sectors of the economy – more susceptible to climate and disease; low income elasticity of demand for farm products resulting in depressed earnings; etc. • and that it ‘contributes to broader national interests and goals’ – food security; public goods; the multifunctionality of agriculture

… in GATT 1947? • GATT 1947 covered trade in all goods • but Articles XI and XVI, and the US waiver of 1956, limited its applicability to agriculture • Plus, very few tariff bindings on agricultural products • and a reluctance to accept dispute panel rulings • meant that agricultural protectionism (including the EU’s common agricultural policy (CAP)) flourished

… curbed, but not eliminated, in the WTO? • Agreement on Agriculture overrides GATT XI and XVI • Tariffication of non-tariff barriers, and tariff bindings • Quantitative (but not particularly restrictive) limits on domestic support and export subsidies • A commitment to pursue further liberalisation, tempered by recognition of non-trade concerns

But, as Tangermann claims: ‘The Uruguay Round … has also affected the nature of the policy debate in agriculture. The WTO has become a relevant factor in agricultural policy making’

Two major changes in GATT/WTO institutions enabled actors to curb agricultural exceptionalism • The Uruguay Round was a Single Undertaking – Leading to new WTO rules on agriculture, and in the EU to the Mac. Sharry Reforms of 1992 • The WTO introduced a quasi-judicial dispute settlement process – Which, we claim, does impact on EU farm policy

A Single Undertaking • Pre-1986: “GATT à la carte” • Punta del Este Declaration: “The launching, the conduct and the implementation of the negotiations shall be treated as parts of a single undertaking” – nothing is agreed until everything is agreed • This was very important for the Europeans, but it did mean agriculture had to be on the table too – but little evidence to suggest that EU Farm Ministers recognised this until late in the day

Launching the new round as a Single Undertaking did not, however, guarantee it would be closed in the same fashion • How could the developing world be persuaded to sign-up to TRIPS, TRIMS, etc? • If they didn’t, under GATT rules the benefits of these agreements had to be extended to nonsignatories because of the MFN rule

According to Steinberg, by October 1990 the US and the EU had agreed an ‘exit tactic’ • To withdraw from GATT 1947 and their current MFN commitments • And to create a new multilateral trade organisation (the WTO) and re-enact GATT as GATT 1994 • The strategy worked: GATT membership switched en block to the WTO • But, in adopting this strategy, the EU had implicitly accepted that agriculture would be part of the Single Undertaking

Oilseeds Sorry: read the paper!

Lead-up to the EU’s GATT Offer of November 1990 and the Mac. Sharry Reform: 1 • In July 1990 EU Farm Commissioner Mac. Sharry said: “there can be no question of setting aside the achievements of the CAP or to put them at risk in the pursuit of dubious text book economic theories of comparative advantage and international specialisation. … The CAP exists because of the importance given to agriculture and to the rural society of Europe” • but, three weeks late, at Dromoland Castle, he proposed a 30% cut in ‘global subsidies’ to agriculture • and we now know he was already planning ‘his’ CAP reform

Lead-up to the EU’s GATT Offer of November 1990 and the Mac. Sharry Reform: 2 • 30% became the basis for the EU’s GATT Offer • But it was too little, too late, to rescue the GATT Ministerial meeting at the Heysel (in Brussels) in December 1990 • EU Farm Ministers now had to confront the fact that the Single Undertaking included an acceptable deal on agriculture • Paving the way for the Mac. Sharry Reforms (May 1992), the Blair House Accord (November 1992), and final acceptance of the agriculture agreement (December 1993)

So, GATT pressures led to the limited Mac. Sharry Reforms • Which reduced support prices for cereals and beef • Switched support from consumers (who paid through high market prices) to taxpayers (who funded the area and livestock payments now received by farmers) • And, we would argue, WTO pressures led to further CAP reform a decade later (the Fischler Reforms)

Dispute Settlement and the consensus to reject rule • Changing the rules still requires negotiation and consensus (as in the Doha Round). But interpreting (and then implementation of) the rules now involves a semi-judicial process in which existing policies can be challenged and found wanting – e. g. Brazil’s challenge to the US regime for upland cotton

How well has the EU responded? • We tabulated all the WTO ‘challenges’ to the CAP • Many requests for consultations did not lead to the establishment of panels • The EU has ‘lost’ some low-profile cases, and made changes to its policies: chicken cuts, geographical indicators • Also the EU’s approval of biotech products – But there will doubtless be more clashes over GM technology • And 3 high-profile cases: beef hormones, bananas and export subsidies on sugar

Bananas • Predated WTO. Heady mixture of old colonial ties and transnationals • We endorse the view that “… it was not an ‘old-style’ trade dispute about protecting the domestic losers from international competition” (Alter & Meunier) • Led to a change in EU banana policy (albeit still problematic) • And to the decision to abandon the Lomé preferences and redefine the EU’s trade relations with the ACPs (African, Caribbean and Pacific States)

Beef Hormones • Again predates the WTO • Suffice to say the EU lost the case • but was unwilling (or unable) to implement the ruling • Why? – Consumer rather than producer interests at stake (food policy rather than farm policy) – Important role for the European Parliament in decision-making

Sugar • Australia, Brazil and Thailand successfully challenged the EU’s export subsidies • The EU changed its policy even though, had the EU known of the problem in 1994, it could have tabled an alternative set of export subsidy constraints – 36% cut in support prices – and quota reductions – bringing exports into line with WTO allowances

Why sugar and not beef? (1) • After all: – Complying with the sugar ruling had greater commercial impact than would have been the case for beef – Concentration in sugar refining is much greater than in the abattoir and meat-cutting industries – And ACP and LDC suppliers of sugar to the EU were adversely affected

Why sugar and not beef? (2) • But: – Institutional Context: Key role for the European Parliament for beef hormones but not for sugar • Food rather than farm policy: Consumer concerns about beef hormones, but no comparable concerns about sugar – Timing: Support for the Doha Round (another Single Undertaking) meant that the EU felt constrained to comply

Conclusions (1) • The Uruguay Round (a Single Undertaking) marked a seminal change in the treatment of agriculture in the GATT/WTO – Curbed (but did not eliminate) agricultural exceptionalism, and in the EU this led to the Mac. Sharry Reforms of 1992 • The quasi-judicial dispute settlement process introduced new constraints to EU farm policy

Conclusions (2) • For sugar the EU was willing and able to comply: – A farm policy issue determined by the Council of Farm Ministers – Crucial to the EU’s commitment to the Single Undertaking in the Doha Round • For beef, the EU was unwilling/unable to comply: – A food policy issue determined jointly by the Council and the European Parliament

Thank you! • Contacts: – cd@ps. au. dk – A. Swinbank@reading. ac. uk • Related papers: – Alan Swinbank & Carsten Daugbjerg, ‘The 2003 CAP Reform: Accommodating WTO Pressures’, Comparative European Politics, 4(1): 47 -64, 2006 – Carsten Daugbjerg & Alan Swinbank, ‘The Politics of CAP Reform: trade negotiations, institutional settings and blame avoidance’, Journal of Common Market Studies, forthcoming, 2007