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I have been encountering continuing problems with the Tripod servers and this is causing some difficulty in updating pages, Wyn Grant.
In May 1999 the European Union Center at the University of Washington, Seattle, held a conference on Liberalizing Agricultural Trade? attended by leading specialists from North America and Europe. This page is a summary report of the conference which was co-organised by Wyn Grant and John Keeler with considerable help from the staff of the EU Center.
Visa problems prevented the participation of leading German agricultural economist Stefan Tangermann. But his trenchant paper stimulated great interest.
Tangermann commented that the history of the treatment of agriculture in the GATT could be written as a history of trade conflicts between the US and the European Community. The original CAP regime of variable import levies and export restitution had been tacitly accepted in exchange for zero or low tariff bindings on EC imports of products such as oilseeds and corn gluten feed.
Relations between the US and the EU had been characterised by every possible form of antagonism in agriculture. At the same time there had been an effort to keep the extent of acrimony in agriculture under control and to prevent it from exerting too much stress on bilateral relations in other areas. Somewhat ironically, agricultural policies across the Atlantic had become more similar over time, particularly since the MacSharry reforms in the EU.
Barriers to market access in agriculture were now more transparent, there were ceilings on export subsidisation, and domestic support for farming was governed by international rules. However, agricultural trade was far from being completely liberalized. Market access was still restricted by high tariffs on both sides of the Atlantic and export subsidization had been reduced to only 79% of its pre-Uruguay volume. Controversies were now shifting to a new battleground, that of technical standards and matters covered by the SPS Agreement. Tangermann noted that rather high prices in the years after the conclusion of the UR, particularly for cereals and dairy, had helped to contain the more traditional trade conflicts.
Tangermann explored the possibilities of a bilateral elimination of agricultural tariffs in a US-EU free trade arrangement, but concluded it would be likely to result in very significant trade diversion and hence would meet substantial opposition from the rest of the world.
Reviewing recent controversies over GM food, Tangermann doubted that European consumers were more risk averse than their American counterparts. However, some of them appeared to be concerned about less well defined risks, to both their own health and the environment, potentially involved in the application of modern technologies to food production. It would be wrong to assume that the more cautious approach in Europe was aimed at producer protection rather than real consumer concerns.
Looking at the segregation option, Tangermann noted that estimates of the costs of identity protection for various non-GMO costs where much of the respective output is already of a non-GMO nature had arrived at a range of 5 to 15 per cent of the farmgate price in most cases. What was neede was an approach that took account of European perceptions without leading to unpredictable trade barriers. One option might be an independent institution with the task of looking at health issues relating to food.
Robert Paarlberg from Wellesley College gave an authoritative overview of US farm policy, posing in his title the question of whether the 1996 Farm Bill would survive to 2002. He noted that the background to the FAIR Act was a spike in farm commodity prices in 1995-6. Farm groups knew that under these tight market conditions their cash payments would have shrunk to nothing and hence signed up to decoupling. However, the authority for paid idling of large areas of cropland remained in place, alongside import restrictions for dairy products, sugar and peanuts and a renewal of export subsidies.
Paarlberg drew attention to the productivity gains from 'precision farming' through the use of GPS and computers. Applications of water, fertilisers and pesticides were increasingly efficient. He commented, 'The highly competitive farmers that emerge from these transformation processes will increasingly prefer to use market instruments (forward contracting and hedging, futures markets, yield futures and options, and hybrid cash contracts) rather than government interventions to manage risks.'
A central theme of the paper was that changes in party control in Congress, particularly in the House, often produce changes in US farm policy direction. This link was lost sight of in the forty years of Democratic Party domination after 1954. The main agricultural constituency of the Republicans came from the input supply, processing, transport and export industries. If Democrats gained control of Congress in 2000, they would be likely to move towards more traditional 'safety net' programs, perhaps with a formal recoupling of payments to market conditions.
Looking at the political consequences of FAIR, Paarlberg said that one possibility could be a weakening of commodity based lobbying organizations. With the replacement of separate programs that provided deficiency payments, it would be more difficult for them to provide specific benefits to their constituents. However, not all the crop-specific lobbying options had disappeared as a consequence of FAIR, e.g., crop-specific loan rates. The overall effect on the political landscape was likely to be marginal.
By 2002 the US and Mexico will be only six years away from the scheduled full elimination of bilateral agricultural trade barriers under NAFTA. Mexico would then become a potential competitive source of sugar in the US market, placing the US sugar program under greater reform pressure.
Paarlberg was sceptical of notions that the FAIR Act was a victory for 'new ideas' or 'new paradigms'. What happened was a one off opportunity to capture a baseline of government spending for farmers in a high market price setting. Outlays exceeded those that would have occurred if the 1990 farm bill had simply been extended. 'Farm policy in 2002 is likely to remain what it has been since 1933, a battle primarily among interests andinstitutions, with ideas playing only a secondary or tertiary supporting role.
After reviewing a range of alternative scenarios, Paarlberg concluded that 'The most probable United States policy outcome in 2002 ... is a new farm bill not so different from the 1996 farm bill.' The stream of fixed payments would be topped up by 'emergency' supplements. $570 million in additional payments had been tagged on to the Kosovo military expenditure bill. One intriguing observation made by Paarlberg was to question whether crop insurance programs could be a subsidy if they were large and subsidsied enough.
With experience of both government and academic life, Jim Rollo from the University of Sussex set out to account for the disappointing outcome from the Berlin summit, having commented earlier that we were living with Bismarck's agricultural policy. In seeking to explain why the heads of government were more protectionist than the agricultural ministers, he highlighted four factors:
Rollo thought that export subsidy discipline was the key area of concern for the Commission. A TAFTA in agriculture was not a runner. Compared with 3.5 per cent tariffs in manufacturing, agricultural tariffs could be as high as 270 per cent whereas the peak in manufacturing was 30 per cent. Even on a good day, 40% of world export subsidies were in agriculture.
Rollo noted that world without GMOs would mean higher prices which would be good for the EU. The CAP was based on an implicit deal that Germany would fund the agricultural budget of France to allow it to expand to third countries.
Turning to enlargement, Rollo commented that it might not be legal to exclude East European countries from arable aid payments. The ECJ might have to make a ruling. The Kosovo episode might speed the enlargement process.Wyn Grant, Marshall Monnet-Fellow at the EU Center at UW, presented a paper on biotechnology as a source of tensions in US-EU trade relations. For a political scientist the importance of the GMO issue went beyond the important trade issues arising from it. It allowed us to examine broader issues about the political economy of globalization. Can the substantial economic and political power of multinational companies be countervailed by non-governmental organizations raising the consciousness of citizens by framing highly technical issues in emotive terms?
The issues arising from genetically modified seeds could produce a trade conflict between the US and the EU which exceeded in intensity and duration those over bananas and beef hormones. In its simplest form what one had was a conflict between predominantly American multinational companies with good political contacts in the US and a European public opinion which is very sensitized to what are regarded as issues of food safety in the wake of the BSE episode. Public opinion in Europe has been very effectively mobilized by environmental groups which have been able to establish emotive terms such as 'Frankenstein foods' as common terms in the debate.
Grant reviewed the debate on the benefits and risks of genetically modified seeds, but the core of the paper was an attempt to explore the reasons behind the different consumer reactions to GMOs in Europe and the US. The main explanations reviewed were:
Grant reviewed options for segregation and labelling, but concluded that neither approach was as simple or straightforward a solution as might first appear to be the case. It was difficult to find an unpolarised position on GM crops. However, it might even be in the interests of the companies concerned to adopt a cautious and gradual approach to the commercial introduction of GM crops into Europe. There should be careful monitoring of the ecological consequences of their use in a full scale farm environment. The broader issue was one of the politically prudent management of international trade liberalization. From an American perspective, the problem may seem to be one for Europe to sort out, but in fact it required effective joint management. The price of failure was renewed tensions over agricultural trade and greater difficulty in reaching agreements to promote liberalization in the Millennium Round.
William Coleman from McMaster University presented a carefully researched analysis of the political infuence of farmers in five countries. Coleman observed that there had been a decline in the economic displacement in the farmers but not a linear decline in their political power. Changes in their power potential varied over the countries studied. Power potential in the interest intermediation systems had increased in Australia over the past two decades, declined slightly in Germany, moderately in the US and even more in Canada and France.
Reviewing the French case, Coleman drew attention to the role of the Ministry of Finance in espousing more market oriented policies in the 1990s. Despite wholesale opposition to reform from the FNSEA and the Ministry of Agriculture, the French government working through the Ministry of Finance and its European offices was able to build quiet alliances with specialist associations, notably cereal producers, to move ahead on policy change.
The rich analysis in the paper led Coleman to suggest that the secular decline in the importance of agriculture and in the number of farmers in the five countries studied had not necessarily led to similarly sharp reductions in the power capacity of farmers' middle-level political institutions. Farmers were variably placed to defend traditional gains from liberalization pressures arising from internationalization and domestic political conflicts. Canada's farmers in the weakest position to protect policy privileges and subsidies had declined significantly over the past six years. German farmers had maintained their power potential to a higher degree than their counterparts in France.
Stanford University's Tim Josling provided a comprehensive survey of the shifting agenda for the next round of WTO agricultural negotiations. In his general remarks Jolsing noted that the CAP was really a minority policy within the EU: most countries were unhappy with it. Conflicts between the US and EU on agricultural trade over the years had carried on in the context of a benign and positive relationship. There had now been some policy convergence. Trade between the EU and US was growing less than trade with other regions. Europe was really only a market for specific goods even with the changes in the CAP. The issue was really competition on third markets.
Looking at the history, Josling noted that the European view was that world commodity markets should be managed as manifested in the Dairy Agreement and the sugar market. There had been a lot of cooperative market management between Europe and the US. Josling posed the question of whether this time it would be possible to have a Blair House type deal between the EU and the US up front, but admitted that it was not likely to happen.
The overall aim of the next round would clearly involve a continuation of progress made at the Uruguay Round. That implied negotiations on the triad of improved market access, export subsidies and rules for domestic support. Other extensions of the UR agenda would be the administration of Tariff Rate Quotas (TRQs) and issues of state trading. The widespread use of export subsidies was probably the most disruptive element in the operation of world markets. Although the biggest conecptual breakthrough in the UR was the acceptance by countries that domestic policies were a legitimate concern of trade talks, the actual disciplines imposed on these policies were rather weak. The 'blue box' could hopefully be emptied and locked, but the green box contained some policy instruments which encouraged an expansion of output. Josling noted that there was nothing particularly novel about the concept of multifunctionality being emphasised by the EU. The question was, what did it mean for trade policy? The EU wanted a Big Green Box and one could let have some things in that. Green box criteria needed to be confirmed and multifunctional policies should be encouraged to conform to them.
In a thorough examination of controversies associated with the SPS agreement, Josling observed that 'The question as to whether the trade system can tolerate regulations that take into account subjective or irrational consumer demand shifts is one of the most contentious issues in trade policy between the US and the EU.' Josling noted that the SPS Agreement in effect rules out regulations which reflect irrational consumer fears not based on scientific evidence. Josling suggested that one might want to consider the meaning of Article 20(a).
Josling saw the bananas dispute as part of the transition from the old to the new system and trade consulant Bill Bryant also saw it as an old style dispute, zero sum and politicized. Political accommodation had been possible in the trade system in sleepier and more genteel times, but now we were operating in a more legalistic framework. Referring to GMO type controversies, Bryant posed a key question: if we abandon science as the standard and allow electoral sensitivities to be considered, how do we distinguish these from those based on legitimate public interest?
