KONGLast week's agreement on a framework for European Union enlargement
was an important step forward for Europe. But the conditions that emerged from
EU horse-trading are a major blow to world trade, and ultimately to European
The all-important side deal between
President Jacques Chirac and Chancellor Gerhard Schröder on agricultural
subsidies, without which enlargement could have been held up indefinitely, is an
The main beneficiaries of the Common
Agricultural Policy have not only successfully held European enlargement to
ransom, they are another roadblock to developing-country support for open
markets, and hence for European exports.
This deal comes at a time when tensions
between developed and developing countries over terrorism and Iraq are spilling
into the trade arena.
It is almost a year since the World Trade
Organization summit in Doha placed agricultural trade reform at the top of the
agenda for a new round of liberalization. Without that, it would have been
impossible for key developing nations to have been brought into the Doha
Yet what has happened since then? In May
this year President George W. Bush signed into law a new farm bill which is
estimated to increase subsidies by 80 percent over the next decade. That was,
rightly, met with howls of anguish - in some cases righteous, in Europe's case
Europe's new pact has been presented as a
step toward trade reform by putting a cap on farm subsidies. It is nothing of
the sort. It is entrenching the Common Agricultural Policy even deeper after
Instead of the big cuts that the long
promised reform demands, there will be no cuts at all, just a pegging of
increases to inflation and some gradual redistribution of the spoils toward the
new members. Given the size of EU export subsidies, this is at least as large a
setback for the WTO objectives as the new U.S. farm act. The United States is at
least committed in principle to phasing out the most damaging aspect of farm
support - export subsidies.
In their Brussels bunker, the European
elite seem not to recognize how much damage is being done to the world around
them by imbalances in liberalization. The globally destabilizing foreign debt
problems of Argentina and Brazil are in part caused by the the pincer between
low prices of agricultural products (40 percent of Brazil's total exports) and
freeing of markets for manufactured goods and capital movement.
Western commentators on these countries'
economic problems seem almost willful in their determination to avoid examining
their own hypocrisy. The ongoing farm subsidy scandal will also be a further
burden on Europe's almost stagnant economy. But apparently Europe's leaders are
so preoccupied with sectional and national petty interests that they fail to see
the damage they are doing to themselves. This is not just the E40 billion in
direct subsidies. Not just the E600 a year extra food costs to the average EU
household. It is also the lost opportunities of selling higher value-added goods
to lower-cost farm producers from Brazil to India, Russia to Australia.
There are of course many causes of
Europe's lethargic growth, but this is at least as important as the endlessly
debated fiscal constraints of the stability pact or Wim Duisenberg's allegedly
miserly monetary policy.
The total economic costs of the Common
Agricultural Policy can only increase as other countries become more competitive
in world agricultural markets despite OECD export subsidies. Nations which were
once major grain importers are exporting it. India is beginning to realize that
with a rational price structure it could do well. China as a whole is not as
vulnerable to freer farm trade as many imagine.
Closer to home for Europe are other
examples. Russia, even shorn of the Ukraine, is now a significant grain exporter
for the first time since czarist days. Success is due to reform as much as to
clement weather. If Ukraine could reform and fulfill its potential, it would be
an even more competitive player.
Add in the cost to an aging Europe of
shutting its poor southern Mediterranean neighbors out of farm product markets
and, even from 10,000 kilometers away, one can see that in addition to being
selfish, myopic and hypocritical, Europe's farm policy is self-destructive. It
is hurting its own consumers while making demographically dynamic developing
countries which ought to be buying more European airplanes and trucks not only
poor but skeptical of the benefits of trade. It is perhaps the biggest single
threat to international economic cooperation. European leaders, how dumb can you
get? International Herald Tribune