„What is the EU’s position on the draft modalities paper tabled by the WTO?“, other questions and answers from the commission.

Q. What is the EU’s position on the draft modalities paper tabled by the WTO?

A. We are supportive of Chairman Perez del Castillo’s process and appreciate the work he has done. There has been progress in some areas. However, the „Perez de Castillo Draft“ is flawed, although not so fundamentally flawed that it cannot be repaired in Cancún. We need burden sharing amongst participants. This is what we do not see so far. As the draft
stands, it is only the developed countries who have to pay – all
the others just cash in.

Some examples:

• On domestic support: we are prepared to make huge efforts in this negotiation, but it is excluded that we commit ourselves to further reductions beyond the implementation period of this agreement.
• On export competition: the draft is weak on state trading enterprises. These and all other forms of export subsidisation need to be disciplined in an equivalent manner to the disciplines proposed for our type of export subsidies. We have to see a level playing field.
• On Market Access: the proposal effectively concentrates all market opening efforts in the developed countries. Major net food exporters will be able to maintain high tariffs, while gaining hugely improved access to developed importing countries This is neither justified nor is it in the interests of the developing countries themselves. What is the logic of this proposal?

• The reference to non-trade concerns is far too weak.

Q. What is the EU/US framework proposal proposal about?

The US and EU were asked to work together and try and unblock the logjam the negotiations had reached in July. In response the two partners worked very hard, and made major efforts to find a convergence of views. In reaching agreement on a common proposal the two partners showed their commitment to the success of this round and their determination to close some of the gaps that had stalled the negotiating process on agriculture. Further gaps and obstacles remain; it is now up to other WTO members to assume their responsibilities too by engaging in the negotiations in a flexible and constructive manner.

In short: the US/EU framework proposal deals with the « three pillars » of domestic support, market access and export competition, while making it clear that a number of other elements remain to be addressed. For each of the three pillars the paper provides an outline of how to carry the negotiations forward, while leaving the details, and in particular the extent of the future commitments, to be negotiated.

For domestic support, the paper provides a framework to substantially reduce the most trade distorting support (amber box and de minimis) and it creates a box for less trade distorting support (previously blue box) which is subject to a cap.

It recognises that those who subsidise more will have to reduce more, but ensuring that all make efforts.

For market access, there is a formula which takes on board both the formulas discussed to date (Uruguay Round and so-called „Swiss“ formula), while fully preserving the elements of flexibility and recognition of the existence of sensitive products, which is an element of great importance to developing countries.

In fact, recognising their importance to developing countries, flexibility and the recognition of the concept of sensitive products for reasons of development and food security are essential points in this paper. Furthermore, a special safeguard is envisaged for developing countries to protect import sensitive products. The paper also provides for lower tariff cuts and longer implementation periods for these countries. In addition, the importance of existing and future preferential access for developing countries is recognised. Finally, there is a commitment from developed countries to seek to provide duty free access for a certain percentage of their imports from developing countries.

On export competition, the framework paper provides several elements. Firstly a clearly defined parallelism between the disciplines imposed on export subsidies and exports credits. Secondly, it provides partial elimination of export subsidisation for a common list of products of interest for the developing countries. Thirdly, it provides a path for parallel reduction of export subsidisation for the products for which subsidies are not eliminated. In addition to that, there will be clear discipline on food aid programs to prevent misuse and disciplines also on the transactions of state trading enterprises.

Finally, the paper notes a number of elements of interest but not agreed, including non-trade concerns, the peace clause and GIs.

Q. Do the June reforms strengthen the EU’s hand in the WTO?

A. Yes, they do. Thanks to the June decision on reform, we can support our political arguments with clear evidence that we are continuing to practise what we preach, with a policy that meets society’s broader needs, while significantly cutting back on trade distorting support and keeping our market open to trade with third countries. In fact, the reform greatly facilitated the work to find convergence with the US in the framework proposal, particularly on domestic support. In this sense it has already shown its value in terms of a positive contribution to the negotiations.

Q. What is decoupling and what will it achieve in WTO terms?

A. Decoupling means cutting the link between production and subsidies, and support given in this way does not distort trade. The move to single farm payments strengthens the position of the EU since decoupling changes the significance for the WTO of direct payments. They will no longer be classified as blue box, but as green box. This latter (green) box includes those forms of domestic support which are not, or are only minimally, trade-distorting.

Q. What is in it for developing countries?

A. The June 2003 CAP reforms will improve the long-term coherence between the CAP and the Doha Development Agenda. The main adjustments are expected to reduce the potential for EU surpluses to weigh on world markets, by reorienting the CAP towards less trade-distorting domestic support and more extensive agricultural practices.

Q. How does the EU justify CAP expenditure that amounts effectively to $2/day per cow?

A. This argument is irrelevant. It distracts attention from the key issue at stake: the question is not how much a country supports its farming community, but rather what part of that support is trade-distorting. This is what matters for developing countries. The June 2003 CAP reforms clearly move the bulk of agricultural support to non trade-distorting decoupled single farm payments.

Q. The EU is shifting support to new mechanisms but the same amount of money goes to farming doesn’t it?

A. This argument is missing the point. What really matters in the context of the WTO and especially for developing countries is the impact of farm subsidies on production and trade. Here CAP reform is clearly positive. Take a look at the recent OECD study which shows the trade effects of various policy options. It is clear that thanks to the reform, the bulk of EU subsidisation of agriculture will move to less or non-trade distorting mechanisms. This means that they will no longer impact negatively on world markets.

Unfortunately, some of our trading partners and some NGOs are deliberately or not blurring the real issue in the WTO talks. Not all farm spending is evil. This is confirmed by OECD research, and by the fact that the WTO itself differentiates between trade distorting (amber box), less trade distorting (blue box) and non trade distorting (green box) agricultural support.

The common objective in the WTO is to reduce farm subsidies, including those of the EU, which distort international trade and harm the interests of developing countries. The rest is rhetoric. And it is this common objective that we are pursuing in our reforms.

Q. Aren’t Geographical Indications just another form of trade barrier, serving EU interests only?

A. No, GIs are not trade barriers as they do not concern imports. The EU simply wants to ensure that its exports are not impeded, either because they fall foul of trademark rules or because they are forced to compete on the same markets with non-EU products bearing similar names but which do not meet the same quality criteria. It is simply not acceptable that the EU cannot sell its genuine Italian Parma Ham in Canada because the trade mark „Parma Ham“ is reserved a ham produced in Canada. Caused loss for Italian Parma producers: € 3.5 million a year.

Q. Is Europe alone with its bid to step up protection for regional quality products?

Clearly not. This is also close to the heart of many developing countries. India, Pakistan, Sri Lanka, Thailand, Kenya, Jamaica and other developing countries have demanded better GI protection. They are worried about multinationals patenting and selling „Basmati“ rice, „Ceylon“ tea, „Blue Mountain“ coffee, „Jasmine“ rice. The EU proposal would help these countries reap the benefits of the TRIPs Agreement. Today, 6000 million pounds of „Antigua Coffee“ are produced in such region of Guatemala but 50000 million pounds are sold under that name around the world. Similarly, 10.000 million kg of „Darjeeling“ tea are produced in India, but 30.000 million are sold under the same name around the world.

Q. How do export credits distort trade?

A. It is not widely recognised, but is nevertheless true that EU export refunds are by far not the only trade distorting tools to boost exports. Some WTO Members resort to state supported export credits for a significant part of their trade in order to capture market share in developing countries. According to an OECD study, the US used about US $ 4 billion of officially supported export credits in 1998. These practices, which are highly trade-distorting, should be disciplined in the same way as other forms of export subsidy. The OECD identified US payments and long-term credits as the source of 97 % of the world’s trade-distorting export credit subsidies. US credit subsidies are made on commodities which are already cheap, owing to the effects of counter-cyclical subsidies, giving considerable additional leverage to this instrument.

Q. And single desk selling (state trading enterprises)?

A. State trading enterprises (and other forms of single desk seller) that have been granted special rights or privileges by their Government should also be disciplined. Their practices, such as cross-subsidisation and price pooling, which are not in accordance with commercial practices, and which therefore distort export trade, should be addressed in the WTO negotiations.

Q. How have food aid systems been used to distort trade and how can they harm developing countries?

A. Irresponsible deployment of commodities under the cover of food aid programmes is an abuse of the concept. Dangers include: disturbance of local markets; undermining local agriculture; displacement of legitimate importers; and circumvention of WTO rules on subsidised exports. The EU does not at all question the granting of genuine food aid. We question the use of food aid donations used as surplus disposal measures. Some WTO members have used food aid donations more as a production and commercial tool to dispose of surpluses and promote sales in foreign markets than as a development tool tailored to the needs of the recipient countries. It is ironic that the amount of food aid given by some countries tends to increase significantly when prices are low whereas levels are much lower when prices are high – and food aid is most needed.

Q. Why does the EU want clarification of the ‚Precautionary Principle‘?

A. In the interests of food safety we believe that the EU, like other WTO members, has the right to establish the level of protection that it deems appropriate. The precautionary principle covers cases where scientific evidence is insufficient, inconclusive or uncertain and preliminary scientific evaluation indicates that there are reasonable grounds for concern about potentially dangerous effects on the environment, human, animal or plant health. In order to avoid trade abuses the EU believes that there is a clear need for clarification of the use of the precautionary principle.

Q. Does the CAP not harm poorer countries, for example via the ‚dumping‘ of subsidised food products on third country markets?

A. Descriptions of the ‚harm‘ done by the CAP to third countries tend to exaggerate, when they are not totally incorrect. The EU has reacted when there have been negative impacts resulting from its exports, as was the case of beef to West Africa in the 1980s, when the EU stopped granting export subsidies. However, experience shows that the simple withdrawal from the EU does not automatically help developing countries, given that the market space created by such withdrawal is frequently taken over by products from other developed countries which are equally competitive.

In addition, the CAP reforms of the last decade have greatly minimized the risk of harming developing countries: the proportion of the CAP budget spent on refunds is down from 30% of the EU farm budget in 1993 to less than 9% in 2002. And the EU is ready to do more. Following the June 2003 reform package, the EU will be in a position to further reduce export subsidies. In the WTO talks, the EU has offered to completely eliminate its refunds for certain products important to developing countries, if other forms of export subsidisation (export credits, abuse of food aid, state trading enterprises) are equally disciplined.

Q. Do the EU’s existing trade concessions and proposed new ones have a real benefit for developing countries? Do they receive a quantifiable benefit?

A. The Uruguay Round (URAA) did provide important new opportunities for developing countries – they accounted for almost half (US $ 47bn) of the nearly US $ 100bn growth in agricultural trade between 1993 and 1998. Their exports increased by 72 % in that period, from US $ 120bn to US $ 167bn. The EU has been an important source of this growth. Following the URAA, agricultural imports from developing countries have had annual growth rates of 5 % (1996-2001), compared to a previous 3 % (1990-1995).

Q. Can we still talk about ‚Fortress Europe‘?

A. This is far from being the case. The EU is the world’s largest importer of agricultural products. In 2000 the EU imported agricultural products totalling EUR 58.6 billion (60 % of these imports originated in developing countries). The EU imports more farm products from developing countries than the US, Canada, Australia and Japan put together.

Q. Tariff escalation is a big problem for developing countries what does the EU do to help?

A. Tariff escalation in agricultural processed products (ie. higher tariffs for processed products than for the sum of tariffs on their raw materials) encourages developing countries to export raw commodities without adding value. It is therefore very difficult to exploit the dynamics of industrialisation and development that accompany processing of agricultural commodities. The EU is not a great user of tariff escalation. In comparison, Japan and Canada are. For the poorest countries, tariff escalation in the EU market is not a problem since, given the Everything But Arms initiative, those countries face no tariffs on any of their agricultural exports, whether processed or not.

Q. Why do EU cotton subsidies not harm developing countries?

A. Although the EU does subsidise its cotton production, the quantities which benefit from subsidies are limited.

In fact, subsidised EU production represents only 2% of world production. Moreover, the EU is the largest importer of cotton in the world, and a large share of those imports come from the West and Central African countries, and pay zero duty. Exports of cotton from the EU are minimal, and receive no export subsidies. Against this background it is difficult to sustain that EU cotton subsidies harm developing countries.