May 25, 1992

EC FARM REFORM BUOYS GATT, BUT MANY OBSTACLES REMAIN.

GENEVA MAY 22 (CHAKRAVARTHI RAGHAVAN) The agreement Thursday of European Community agriculture ministers for the reform of the its Common Agricultural Policy (CAP) was widely welcomed by GATT negotiators who however cautioned against any euphoria that the long-stalled Uruguay Round negotiations would now be concluded.

Most negotiators wanted to await full details of the EC agreement to see how it would fit into the Dunkel proposals in the Draft Final Act.

In a comment relayed through his press office, GATT Director-General Arthur Dunkel was cautious, merely saving: "Every step taken by participants in the Uruguay Round which contributes to the objectives of the overall agricultural reform package under consideration in Geneva and in capitals, has to be welcomed. When such a step is taken by the Community, one of the major world agricultural exporters and importers, it is of particular significance. But of course, the other participants in the Round will wish to look very closely at the Community's decisions as part of a continuing multilateral negotiations".

Few negotiators with some political antenna believe that the Uruguay Round negotiations could really be concluded before the U.S. elections where there are a number of uncertainties and, unless it could be demonstrated that the U.S. has "gained", Bush may see no particular advantage in pleasing some and displeasing others, and have lobbies lined up during elections.

While the EC biting the bullet and introducing cuts in its subsidies, though for its own internal budgetary reasons, is to be welcomed, and could open the way for a U.S.-EC accord, it also means that the EC Commission would not have much scope for making any more compromises, one negotiator said.

But apart from agriculture, a number of key players want also changes in other parts of the Dunkel text, and are awaiting the decision to open the agricultural package to put forward their own demands for changes, one participant noted.

The U.S. itself wants changes in the services text, in intellectual property and in textiles and clothing, and in the rules relating to anti-dumping - changes which would involve more concessions from the Third World. Other players too want changes.

The months of tough negotiations within the Commission, and between the Agriculture Commissioner Ray MacSharry and the Ministers of the 12-member States have produced a package that, according to published reports, would involve a 29 percent cut in cereal prices over three years, with farmers being compensated by direct payments and with large farmers being forced to set aside acreage and thus reduce production.

The resultant EC price of wheat will now be slightly more than the $ 100 world market bench-mark price used by MacSharry in negotiations with member-States. But the $ 100 price is itself due to the current tight market conditions - because of the supply situation in the U.S. and the situation in Russia, China and India.

Also, the acreage setoff programme does not always result in less production: the large farms would resort to more intensive production, through chemicals and pesticides - as happened in U.S.

The EC reform, in terms of the Uruguay Round package, would require the payments to farmers being put into a "green box", namely not being subject to challenge on the ground of "subsidy" - either in terms of the GATT subsidy code or through U.S. interests invoking their domestic legislation on these matters.

The EC cut has to be spelt out clearly, but appears to involve its willingness to accept some of the Dunkel proposed-disciplines (on imports, domestic support cuts and on subsidised exports).

But it would also need some changes in the Dunkel proposals, which are product specific, and not sector specific, as the EC reforms would appear to involve.

In the export area, where the Dunkel proposals want both cuts in budgetary outlay and volume, the cuts are to be spelt out in 22 listed individual product lines: wheat and wheat flour, coarse grains, rice, oilseeds, vegetable oils, oil-cakes, sugar, butter and butter oil, skim milk powder, cheese, other milk products, bovine meat, pigmeat, poultry meat, sheepmeat, live animals, eggs, wine, fruit, vegetables, tobacco and cotton.

The EC on the other hand wants to apply cuts across sectors, so as to be able to provide more subsidies for its less competitive products.

With U.S. competition with Europe in third markets related to specific products, the U.S. might not be agreeable to this, in any event the Bush administration cannot afford to appear to be giving in before the polls.

The U.S. so, far has not also been willing to agree to put the EC direct payments permanently into a "green box" of non-challengeable subsides, only willing to allow it for six years and for digressive use.

The special green box for the EC would also raise questions relating to the treatment for developing countries where the conditional green box or their support is seen in several of them to be greatly inadequate in terms of what is needed for increasing agricultural production and rural development.

Subject to some relaxation, the support in the developing world would still be related to the "world market prices", which, even after the EC cuts and U.S. agreement, would still remain a price determined by government subsidy. A 24 percent cut in subsidy would still mean 76 percent subsidy and a market price determined by this, one of the negotiators pointed out.

The EC reform would also put pressure on Japan, South Korea and Canada - who have so far remained in the background, though they too demand changes in the agriculture text.

But whatever the final outcome, while the "reform" and agreement may be moving in the direction of less government support, it will be so much of a patchwork that overall it will still be far away from an agriculture sector governed by clear rules and disciplines and importing Third World countries could end up with worst of all worlds.