Prospects for change
111. Thus the prospects for change in the CAP are
very closely linked to enlargement and to the World Trade Organisation
negotiations. The CAP Mid-Term Review, which has already begun
with the announcement of Commissioner Fischler's proposals, will
conclude in 2003. At the same time the World Trade Organisation
negotiations get underway; and accession of the first new member
states to the European Union is expected in 2004.
Developments in each process will shape and influence the others.
The fact that these processes coincide and interact in this way,
even though their timetables do not exactly correspond, suggests
an imperative to achieve the fundamental reform of the CAP which
has been the proclaimed intention of British governments for so
112. However, there are also reasons to think that
change may be delayed. The National Farmers' Union agreed that
the launch of the World Trade Organisation Round in Doha, enlargement,
the general move towards lower price support and growing pressure
for broader rural development continue to put pressure on the
CAP. However, given the timetable for the processes that would
take these issues forward, the National Farmers' Union did not
expect reform to take place until 2005 or 2006 at the earliest.
The Institute of Agricultural Management also expected that reforms
in the medium-term would be "relatively small".
Furthermore, the Deputy-Director General of Agriculture told us
that enlargement "is an event which allows those who want
to argue for reform to argue for reform and those who want to
argue for conservatism to have the means of enforcing conservatism".
113. The Farm Security and Rural Investment Act 2002
replaces the Federal Agricultural Improvement and Reform (FAIR)
Act of 1996. The Act will increase crop support through fixed
decoupled payments and enhanced loan deficiency payments. It also
introduces a new system of counter-cyclical payments which are
triggered when overall income for different crops (market price,
plus fixed decoupled payments, plus loan deficiency payments)
falls below a certain target level. This final measure effectively
guarantees the emergency payments that were made under the FAIR
Act would be available every year,
a point which has led the United States Administration to argue
that the practical effect of the new measure is much less than
the apparent impact, given the amounts paid every year from 1996
to farmers under the emergency provisions. Estimates put the cost,
over ten years, of the new Act at $190 billion, very close to
the annual AMS limit for the United States of $19.1 billion.
The European Commission reported that total spending under the
Farm Security and Rural Investment Act would be 70 per cent to
80 per cent higher than the amount foreseen at the end of the
114. The Act does not bring levels of agricultural
support in the USA to European Union levels, but it still sends
out the wrong signals. The Commission has said that "the
United States, in choosing to aid farmers in a highly production-distorting
way, has lost any claims to be a credible force for farm policy
reform in World Trade Organisation agriculture negotiations".
This loss of credibility is exacerbated if the United States'
proposal addresses only export subsidies which they no longer
and not all forms of export support. We acknowledge Mrs Beckett's
comment that the United States Administration "has made it
very clear to us and ... publicly ... that this is not the Farm
Bill that it would have chosen".
115. We condemn the passage of the United States
Farm Security and Rural Investment Act as making the liberalisation
of farm trade more difficult. It represents a clear policy of
providing production subsidies, moving in precisely the opposite
direction to the way we would want the world to go and the way
the European Union is proposing in the Mid-Term Review proposals.
The Act will give comfort to those within the European Union who
oppose serious CAP reforms and will dismay developing countries
who have a vital stake in world trade liberalisation in agricultural
production. We urge the Government to continue its representations
to the United States setting out concerns about the Farm Act in
the most unequivocal terms. Equally we urge the Commission to
continue to argue that developments in the United States give
the European Union an opportunity to set the agenda for liberalisation
for the first time in an international forum rather than being
dragged into accepting the need for change as happened in the
116. We also note the tensions that exist between
the European Union and the United States over a range of other
agricultural issues. These include American concerns about European
legislation and policies relating to genetically modified crops,
and European worries about the use of hormones in beef.
Such issues have already been, and will continue to be raised
in the World Trade Organisation.
117. Although doubts have been raised about the credibility
of the United States as a leader of liberalisation in world trade
as a result of the Farm Security and Rural Investment Act, the
American Administration has recently proposed steps aimed at dramatically
reducing farm tariffs and subsidies. On 25 July 2002 Trade Representative
Robert Zoellink announced proposals to cut tariffs to a maximum
of 25 per cent, and to define subsidies as either 'trade-distorting'
or not, and to cap trade-distorting support at 5 per cent of the
value of agricultural production.
European subsidies would be cut to a greater extent than those
of the United States, since they are already much higher: American
support would be cut by around half, to $10 billion, whilst European
subsidies would be reduced to $12 billion.
We cautiously welcome more recent proposals by the United States
Government which appear to recognise the damage done by the Farm
Act and to position the United States again as on the side of
reform. These proposals warrant close inspection, however, to
ensure that they will lead to the level playing field sought by
all sides in the World Trade Organisation negotiations, since
crude comparisons of levels of support do not necessarily give
a clear idea of the degree and quality of state backing for farming.
118. Past experience of seeking CAP reform in the
European Union is hardly a source of optimism. Member states have
generally conceded that reform is required only when there has
been pressure on the Community budget. The European Commission
confirmed to us that "the budget is fairly well behaved at
the moment and we had quite an under-spend last year".
The Deputy-Director General of Agriculture told us that in relation
to the reform what "we will see is something which is considerably
less radical than those who want it to be radical",
although he agreed that "it will not be possible to maintain
things as they are".
Our witness from the German Government, Mr Erhard Schwinne, also
acknowledged that European agricultural policy had to change,
"to be much more market-oriented".
He thought decisions would be taken "perhaps in 2003"
to allow such objectives to be pursued from 2005 or 2006 onwards.
119. It is worth noting which countries do well out
of the CAP, and which do not. Figures published by the Economist
reveal that the greatest net contributors to the CAP budget are
Germany, the United Kingdom and the Netherlands. Greatest net
beneficiaries are Spain, France, Greece and Ireland.
It can be no surprise that the strongest advocates of change are
to be found on the first list, and supporters of the status
quo on the second.
Table 8: CAP spending and net contributions
to the CAP budget, 2000
||CAP spending (euro bn)
(figures are approximate)
|Net contribution to CAP budget (euro bn)
The negotiating position of the United Kingdom is adversely affected
by the impact any changes in the CAP would have on the rebate
negotiated in 1984 to compensate for our high net contribution
to the budget of the European Union.
Any reduction in our net contribution to the CAP budget might
bring the continuation of the rebate, at least at its current
level, into question. The rebate was worth approximately 3.6 billion
Euros in 2002.
120. The European Union should reaffirm its commitment to maintain
the Doha timetable for liberalisation of world trade in agricultural
products. The Mid-Term Review offers the opportunity to make
progress towards two essential European Union objectives: to agree
terms for enlargement by the end of the year, and to place Europe
in 'pole position' in the World Trade Organisation negotiations
and therefore better able to shape the agenda. We deal with the
proposals brought forward by the Commission for the Mid-Term Review
in Chapter 6.
121. Although there is currently much emphasis on the Mid-Term
Review, particularly in the context of the Doha Round, it is important
to make one point clear. Agenda 2000 fixes the CAP budget only
until 2006. Thereafter another round of negotiation within the
European Union will be needed to set the new CAP budget. In
2006 there will be another - perhaps greater - opportunity for
substantial reform of the CAP. That prospect makes it all the
more important that the Government make clear to farmers what
direction it envisages those reforms taking. Farmers themselves
should be aware that the Mid-Term Review process will not be the
end of reform of the CAP.