Europe and its farm subsidies

EU Trade Commissioner Pascal Lamy resorted to defensive posturing prior to negotiations about agricultural trade this week in Geneva. Mr. Lamy had few other cards to play, since Europe’s politicians gave him little to offer at the talks. Mr. Lamy’s stance reflects the more focused pressure on Europe lately, due in large part to America’s growing flexibility on the issue.

Mr. Lamy recently fired off a letter to World Trade Organization (WTO) chief Supachai Panitchpakdi, accusing the trade arbiter of distorting data on farm subsidies. Mr. Supachai earlier this year claimed that developed countries provide their farmers with about $300 billion worth of these subsidies.

Besides these recriminations, there was little excitement in Geneva. The only breakthrough was an agreement to hold another round of talks starting April 20 and to try to reach a framework accord on farm goods before the end of the summer. Europe and Japan can be roundly blamed for the impasse.

Washington can also be fairly criticized as a big subsidizer of the U.S. agricultural industry. But since the disastrous trade round in Cancun last year, it has demonstrated a greater interest in moving away from subsidies. “We are going to have to find a way of setting an end date for export subsidies. That means that the EU needs to be brought along in the process,” said U.S. trade negotiator Allen Johnson.

The more detailed the data on farm subsidies, the more egregious EU policy looks. According to a recent study by Tim Josling, a senior fellow at the Stanford Institute for International Studies, and Dale Hathaway, senior fellow at the National Center for Food and Agricultural Policy, EU spending accounted for nearly 90 percent of the $36 billion that WTO members spent between 1995 and 2000 on export subsidies — considered by poor countries to be very damaging to their own farm exports. The United States spent about 2 percent of that amount. Also, U.S. tariffs, which average 12 percent, are lower than Japan’s (33 percent), the European Union’s (30 percent) and Canada’s (24 percent), according to the study. Poor countries tend to have much higher average tariffs, but these figures don’t reflect rich countries’ “mega-tariffs” on certain goods, such as tariffs of 116 percent on dairy products.

This trade round, which was geared to benefit poor countries, hinges on progress on agricultural trade. Developing countries must also reciprocate with liberalization, but they have little incentive to do so without reform of rich countries’ farm policies.