EU is not the problem in trade talks

Simplistic solutions from Oxfam to the complexities of international trade are unlikely to be positive for familyfarmers in Ireland…

Simplistic solutions from Oxfam to the complexities of international trade are unlikely to be positive for familyfarmers in Ireland or farmers in the poorest countries, writes Con Lucey.

It is simplistic and misleading to divide all countries in the world into "rich" and "poor" as Colin Roche of Oxfam Ireland did in his article in The Irish Times this week.

It is unfair to portray the EU as the problem in the World Trade Talks when the US and the economically advanced developing countries have done little to advance the process.

If there is to be a successful conclusion to the negotiations for all parties, it will require a clear differentiation in treatment between the least developed countries and the more advanced developing countries.

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The latter group can no longer hide under the cloak of the genuinely poorest countries.

The EU offer on agriculture in the WTO has been dismissed by Mr Roche without taking into account the magnitude of the offer. The EU is offering the following in the new round:

A reduction in its import tariffs by an average of 16 per cent. For the products of most importance to Ireland, in the case of beef the offer is for a 60 per cent tariff cut in most cases, and for most dairy products the offer is for a 50 per cent cut.

Elimination of its export subsidies (also known as export refunds). The only condition the EU is attaching is that other developed regions of the world, notably the US, would also eliminate their export subsidies.

EU internal supports for agriculture that are considered to be trade-distorting are to be cut by 70 per cent. Excluded from this category is the new decoupled Single Farm Payment, as this type of direct payment does not act as an incentive to farmers to increase or even maintain their level of production, ie the link between the payment and production is broken.

That the Common Agricultural Policy (Cap) was reformed twice in recent years, in 1999 and 2003, in preparation for the WTO negotiations, shows the seriousness of the EU commitment to negotiate a new trade round for agriculture.

Since Cap reform started in 1993, the EU support prices have been reduced as follows: cereals - 41 per cent; beef - 32 per cent; milk - 21 per cent by 2007; and sugar is to be cut by 39 per cent. Farmers received some compensation in direct payments and these are now decoupled from 2005.

The EU offer contains a commitment on "special and differential treatment for developing countries".

This means that these countries would not have to go as far as the developed countries in opening up their markets and would have more time to do so. However, some countries which wish to be classified as developing, such as Brazil and Argentina, have a huge capacity to export agricultural products very cheaply, based on large ranch-scale production, low wages and weak currencies.

The EU rightly insists that these countries must also contribute to a fair agreement by opening up their own markets.The EU has for many years been sensitive to the needs of the poorest countries.

Proof of the good faith of the EU is that it is providing full duty-free and quota-free access to all exports, agricultural and industrial, from the 49 least developed countries under the "Everything But Arms" initiative.

The EU is the largest market for their exports of agricultural goods. The EU takes 85 per cent of Africa's agricultural exports and 45 per cent of those from Latin America. It is emotive for Mr Roche to say that the EU wants "blood on the floor" in the negotiations with the developing countries.

Farmers in Ireland and in the EU generally are not concerned about competition from the least developed countries.

The concern is about countries such as Brazil and Argentina, which are using the cloak of being developing countries, but have the advantages of scale and low costs, and whose farmers do not have to meet the same standards on animal health, food safety, traceability, and the environment as do our farmers.

In addition to the offer to cut its supports for its own agriculture outlined above, the EU is also proposing a comprehensive development package in Hong Kong for the poorest countries. This includes a number of practical elements.

The EU is proposing that all other developed countries follow its lead by granting full duty-free and quota-free access for all products from the least developed countries.

The EU is seeking agreement that the least developed countries should not be asked to open up their markets in the current negotiations.

The EU is seeking agreement by developed countries on an aid-for-trade package to build up the capacity of these countries to increase their exports.Mr Roche refers to two types of subsidies paid to EU farmers, export refunds and direct payments. The EU is committed to phasing out export refunds.

To suggest that the EU intends to raise export subsidies by €13 billion is mischievous and without foundation.

Decoupled direct payments must be seen in the context of the major changes to the Cap in recent years. Before Cap reform, farmers in the EU, including Ireland, obtained most of their income from the EU marketplace with the assistance of Cap price supports.

These price supports have been substantially reduced in the past 12 years and replaced by direct payments. From this year these payments are decoupled from production to meet the WTO requirements.

While farmers do not have to produce a particular level of output to get the payments, they have to meet a range of rules regarding management of the land, the environment, animal movement etc. There is a land-based payment to farmers for their multifunctional role and this explains why a farmer with 40 hectares is likely to receive about twice as much in direct payments as a farmer with 20 hectares.

When reform in the dairy sector is fully implemented in 2007, probably about 50 per cent of income on specialist dairy farms will come from decoupled direct payments. Most of our family farms would have little or no income from the farm without these "subsidies".

Oxfam has been a consistent critic of the EU sugar regime, ignoring the fact that one of the major beneficiaries were the farmers in the poorest countries because they had preferential access to the high-priced EU sugar market.

Following the recent reform of the sugar regime, production in Ireland is no longer profitable and the industry is closing down.

The winners are not the producers in the poorest countries, who will now be put out of business by the lower cost producers in Brazil.

This should have been a lesson to Oxfam - simplistic solutions to the complexities of international trade may provide newspaper headlines, but are unlikely to be positive for either family farmers in Ireland or struggling farmers in the poorest countries.

Con Lucey is chief economist of the Irish Farmers' Association