Select Committee on Environment, Food and Rural Affairs Minutes of Evidence

Examination of Witnesses (Questions 20-39)



  20. Last point, which is our stance on developing countries. How do you think we are placed to assist them in this round, particularly in respect of agriculture, which is obviously a critical aspect in their case?
  (Mr Roberts) There is no more a developing countries' position in the WTO than there is a developed countries' position. Some developing countries are members of the Cairns Group and are, therefore, liberals. Some belong to a group called "the like-minded group", and (although it is not a member of that group) India is in more or less the same position, which is that it is extremely liberal as regards domestic support in the developed countries but wanting to maintain, maybe even increase, their own tariff protection. Then there are other groupings of developing countries, for example the small island developing countries and the single-commodity exporting countries, who are mainly concerned about the impact on their preferences in the European Community's market on reductions in Community tax. So we have quite a mosaic of positions, and not just one position.

Mr Jack

  21. Like many Members of Parliament, I keep receiving postcards from people who are deeply sceptical that this round is going to do anything to help the developing countries of which Mr Todd spoke. Why do you think the public are so sceptical; that the WTO, as a mechanism, is, if you like, painted in the bad corner as far as developing countries are concerned? Is the EU going to do anything to try and help the process of education and understanding about the way in which this round is going to deal with developing countries, particularly because of the strong emphasis in the Community's document about helping developing countries?
  (Mr Roberts) As to the first point, I think that the Uruguay Round may have raised more expectations than it could fulfill. That was very clear from the discussions in the Agriculture Committee in Geneva, where we are doing the negotiations. The first phase of the negotiation was examining the consequences of the Uruguay Round. It was very clear that everybody in the world was looking at the Uruguay Round and counting it a success if they had increased their exports and as a failure if they had increased their imports. But there is a zero sum game here; you cannot have everybody increasing their exports and nobody increasing their imports. So there was disappointment by some developing countries because they have not increased their exports as much as they had hoped, but, of course, it was inevitable that that expectation would not be fulfilled. Secondly, I think there is an increasing degree of sophistication in the way in which the developing countries are looking at the developed countries, particularly because they have got the services of economists who are working out for them how much more market there would be if the developed countries had no tariffs and no domestic support. Then they each assume that they would all benefit from it—although I think that is an illusion; only the most efficient would benefit from it. So there is, if I might say, an exaggerated expectation at the Uruguay Round and there is an exaggerated expectation—at least for many of them—as to what would happen if the developed countries more or less gave up their agriculture. These views, sincerely held in the developing countries, are making their way to your constituents via the NGOs (who are doing their own research and coming to similar conclusions) and you are seeing the results in your postbag. That is not to say that we should not and must not address the issue of developing countries better in this round than we did in the last. We will have to consider very seriously how much we allow developing countries to derogate from tariff reductions, how much we are prepared to pay for their opening up their markets by reducing support in our own and what kind of technical assistance we can give developing countries to ensure that where they have a potential comparative advantage in agriculture they can actually make use of it.

Mrs Shephard

  22. You have described attitudes within the EU and the expectations of some of the countries coming in as a result of enlargement. Of course, as you have also very well illustrated, this issue is multidimensional, like chess, and multidimensional moving chess as well. I was on the Jumbo Council that concluded the agricultural part of the Uruguay Round. What characterised that was that in the build-up to it we were made aware of, as it were, the motifs of the demands of the different groups outside the EU—not all of which were to do with agriculture and many of which were nothing to do with agriculture. So we were aware that at the end there might be a trade-off between IT and cereals, for example. Can you tell us anything about the motifs beginning to be discernible in the other groupings within the WTO that would be big in the final round?
  (Mr Roberts) I think the council you are talking about was at a more advanced stage than we are at the moment.

  23. Yes, yes, but the point I am making is that there have been fairly accurate predictions about the kind of sticking points and the sorts of commodities that would finally be involved in those sticking points all the way through the preliminary stages. It could be that you are not even at that stage yet, which I totally accept, but I wonder if there are any glimmers.
  (Mr Roberts) I can say where our position is under greatest pressure from the greatest number. It is clear that our position on export subsidies is the most difficult. The reason for that is rather simple. The kind of export subsidies we give are the kinds which were disciplined in the Uruguay Round. Through the process I have already described, we have, every year—and so has everybody else—had to say how much export subsidies we have paid, both the value and the volume. The only other big grouping or country which could spend a lot on export subsidies was the United States. The United States gave up giving export subsidies on cereals because they discovered that with NAFTA it made no sense—because if they exported their cereals with subsidies they simply imported more from Canada. So they have turned that necessity into a virtue and have not been using export subsidies for cereals, and so they go round the world saying "The Community gives 85 per cent (or whatever it is) of the total export subsidies given in the world." That is total nonsense, because they give a lot of subsidies through different means, but through the particular kind defined in the Uruguay Round we give 85 per cent, and, therefore, we are the target for everybody. That is where we are under greatest pressure. We are also under pressure with regard to blue box payments, which are direct payments arising from the MacSharry reforms, because not many other countries are using the blue box. Once again, the Americans have changed position; they were entitled to use blue box payments but with the FAIR Act they changed their system from blue to green. Therefore, they and all the countries that do not use the blue box are calling for the abolition of the blue box. I suppose the topic less in evidence is the degree to which we have to give increases in tariff quotas. We have not discussed increases in tariff quotas as yet, but I think there will be a lot of pressure there and that will be difficult to meet if we are also cutting our export subsidies. I think those are the areas where we will be under greatest pressure. What we might be gaining from it—you spoke about telecommunications—is more difficult to perceive at this stage, because the other negotiations are not as advanced as the agricultural negotiations.

  Mrs Shephard: Thank you very much.

Mr Mitchell

  24. The appendix to your document says that the objectives should be to increase market access to the benefit of all WTO members. That is a nice, professional, free-trade principle. How far is it just a kind of virtuous facade in view of CAP's appalling record on agricultural protectionism, and how far is it an assessment that European agriculture is, in fact, now competitive and efficient, particularly compared to lower-cost producers like Australia, New Zealand and Canada? Could the EU internally and externally stand up to competition from those low-cost producers?
  (Mr Roberts) It is not just an empty phrase. What the council was saying in that statement was an affirmation, as you say, of the view that trade increases wealth. When you are in Geneva, I may say, you do not get that impression very often. You have the impression that only exports increase wealth. That was an affirmation of that principle. I believe the council sincerely meant it. We are not in the position of, say, the Japanese, where the main object of their negotiating strategy is to avoid reducing tariffs. We recognise that tariff reductions are a part of the process of wealth creation. Can we stand up to competition from the most competitive? It depends a little on what structure we are prepared to see our agriculture change to and what direct subsidies we are allowed to pay. Increasingly, our subsidies are less production-linked than they were in the past, but they are somewhat structure-linked. They enable us to keep a pattern of farming which we sometimes call the European model of agriculture, which is possible with this degree of subsidisation even with increased international trade. If we are not able to keep the subsidies then it does not mean that we are necessarily not going to be competitive but we would have a very different structure.

  25. Comparing Europe and the Japanese is like the pan calling the kettle grimy behind. This conversion to principles of free trade is very much a deathbed conversion on the part of the CPP. You are still envisaging in that answer some form of subsidy. Could European agriculture compete if it were not given some form of subsidy which Australia, New Zealand and Canada do not pay?
  (Mr Roberts) Canada does give subsidies, actually. I would describe them as semi-detached members of the Cairns Group.

  26. It is driving me back to New Zealand.
  (Mr Roberts) I do not think that we could compete with our existing structure. If we want to keep our existing structure we have to have domestic subsidies but ideally they should be the kind of subsidies which allow us to maintain the structure of farming that we want to see in Europe rather than the subsidies which inflate our production over what we could achieve if we were to go over to highly efficient, industrialised farming systems. That is why we have all the debate about multifunctionality.

  27. Are there any assumptions built into that statement about the exchange rate? European agriculture must be more competitive now because the euro has gone down about 20 per cent. If it begins to achieve its objective—which I assume is to look the dollar in the face—it implies that it rises and, therefore, European agriculture becomes less competitive. Is that taken into account in this statement?
  (Mr Roberts) I think there are two kinds of situations, one is where a currency change gives a real change in comparative advantage. If a zone with a single currency becomes very efficient in some other industry then agriculture falls further down the pecking order, and that is manifested in a change in the exchange rate. It is possible that that is what has been happening to the Americans and they have not liked to recognise it. The other situation is when you have aberrant movement of currencies due to speculative forces. There you may have a situation where at least for some years a country appears to have a comparative advantage of nothing. That, of course, is mathematically impossible but it can appear to happen if you have a currency being driven to an absurd height. When we make our projections on what we can achieve within given constraints, we always have within it our exchange rate assumptions. Of course, our exchange rate assumptions can always turn out to be wrong.

  28. Are they higher than the euro or lower than the euro?
  (Mr Roberts) The lower the euro the more competitive are all our exports and all our industries which are directly affected by international competition.

  29. The lower the euro the more miserable British agriculture.
  (Mr Roberts) The lower the euro compared to sterling, yes. What we have seen in the last few years has been sterling losing strength against the dollar but gaining strength against the euro.

  30. But it is basically over-valued against both. Anyway, that is another argument. Your statement is qualified by the fact that there should be a reduction of export subsidies in return for a reduction in all other forms of export subsidisation. The WTO has just outlawed the American tax concessions through export corporations. If these other forms of subsidy are abolished, is the EU prepared to go the whole hog and abolish export subsidies?
  (Mr Roberts) I do not think I can answer that question.

  31. Would that be acceptable to other Member States?
  (Mr Roberts) The reason I cannot answer the question is that our mandate does not cover that. What we have said is we are prepared to reduce, provided other forms of export subsidy are similarly disciplined. The Community has not taken a decision on whether it would be prepared to abolish. It has not given us a mandate—put it that way—to accept abolition. I took it your question was meaning some hypothetical date in the future.

  32. No. The export subsidies are a major bone of contention, are they not? They are the major point of objection by the Cairns Group to what is going on. The WTO decision on the American tax corporations does clear the way for a general abolition of subsidy regimes.
  (Mr Roberts) The WTO decision is a decision of the dispute settlement system which rules that the US system is in conflict both with the general rules on export subsidies set out in the subsidies code and with the agriculture rules, because they were giving a subsidy through their tax system. That is not a negotiating decision, that is simply a statement that the US legislation is not in conformity with its obligations. It has got nothing to do with the negotiation of new obligations to get rid of export subsidies.

  33. The WTO does want a general reduction in export subsidies in agriculture.
  (Mr Roberts) Yes, because we do not want to end up in a situation where we have cut, yet again, our export subsidies and yet we are facing fierce competition through the misuse of food aid and through the use of unlimited credit, when we are severely constrained on our form of export subsidies. Yes, we do, from a purely competitive point of view, want to see that the subsidies that we do not use are disciplined as well as the ones we do use.

  Chairman: If you had not divined it, Mr Mitchell is our resident New Zealander. I am now moving on to our resident vegetarian.

Mr Drew

  34. Can I go on to look at the impact on domestic support, Mr Roberts? Where are we with the Americans in terms of outcomes of the Uruguay Round? I never quite understand exactly what these wonderful terms are; it is a bit like a permanent yellow card and you never quite get to the red card; people are threatened with the possibility of being sent off. Where are we with those negotiations? Are the Americans actually likely to shift their position?
  (Mr Roberts) I am sorry, in relation to what?

  35. In relation to the peace clause, in relation to actually making sure that the domestic support system is less interventionist than it once was.
  (Mr Roberts) As regards the peace clause, the US has not said very much. The last time the American administration said something rather ruminative about its peace clause it might have been a lever to get a settlement, but I do not think they have said very much about it in the recent past. Their agricultural industry said they do not want the peace clause continued because they think it is a means by which other countries maintain subsidies to the detriment of the United States. I think that was a position which had not been very carefully worked out. The government—both the last American administration and this one—has been fairly quiet about the issue. A lot of other countries, particularly the Cairns Group, have said they do not want to see the renewal of the peace clause. I expect that what they really mean is that to renew the peace clause they would expect to see a very good settlement on the things which concern them. Their formal position at the moment is they do not want the peace clause renewed. As regards subsidies, the present situation in the United States is very interesting. We have got the debate going on in relation to the new Farm Bill and it looks as though the consensus is growing that they should have a new Farm Bill which takes them to the limit of their domestic support obligations in the Uruguay Round. In other words, they are not going to cut their domestic support now in order to create a negotiating margin for accepting further cuts later. Their position in the talks remains, however, that trade distorting support should be substantially reduced. They square that circle by saying that if there is a decision and when there is a decision then the Farm Bill, once adopted, will be adapted through administrative action to bring it into line with their new commitments.

  36. Moving on to look at the way in which the reductions are taking place, if I understand it correctly, the total aggregate measures of support mean that you would reduce across the board. What is the thinking behind continuing in that format as against looking at individual product reductions?
  (Mr Roberts) Our position is that we think it should be an across-the-board reduction, not tied to individual products, because we think that if you try to negotiate tight limits on individual products, in effect you are trying to run your agriculture policy directly from Geneva, and there should be room for a country to say they will give less support to pigs or to beef, or the other way round. There has to be some degree of fine-tuning left to WTO members. It is true, however, that some of the Cairns Group have argued that it should be more specific to commodities than it was in the Uruguay round. That debate has not got very far in the negotiations we have had so far. Positions have been stated but not analysed in very great detail.

  37. There are none within the EU who would want the product reductions.
  (Mr Roberts) No. Our position in our mandate—and that is a unanimous mandate—is clear; it is a reduction in the AMS.

  38. If we are looking for a further reduction in the AMS, which products would feel the pain most, if you are not going for a product-by-product reduction? Some products and commodities would be under greater pressure than others, so which would feel the pain most?
  (Mr Roberts) As they stand, none, because we have a margin. We are well within our existing AMS commitments, so we could make a substantial reduction without having to take immediate action. It would mean that the scope for agricultural policy to be made more generous would be reduced. In the context of an enlarged Community, the scope in our AMS is rather less. To try to envisage how many countries would be entering at what time, and then assessing how big the AMS reduction would be and which commodities it would hit, takes me rather too far into the future.


  39. We have mentioned the US. Do you have any feeling for the volume of American farm supports stacked up against the European level? One keeps reading about the new supports coming out in agriculture, and then you have radical bills to cut support. One gets the impression there are quite radical extremes in the United States, whereas in the European Union it all has an incremental feel about it. Have you anything that is quantifiable?
  (Mr Roberts) Yes. The OECD publishes annually the measure of support in all OECD members, the producer support equivalent (PSE) measure, which is somewhat different from the WTO/AMS measure. On that measure, the level of support per hectare in the United States is still lower than in the Community, but the level of support per farmer is much higher in the US than here.

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