EU deal on farm subsidies may stymie WTO progress

EXIM MATTERS

While the trade ministers of the member countries of the World Trade Organisation (WTO) were busy reiterating their well-known positions on farm subsidies at the Hong Kong meet last week, the heads of governments of the European Union (EU) member states met at Brussels and struck a deal about how much the EU will spend between 2007 and 2013, how the money will be spent, and which countries will provide the funds.

The financial perspective envisages more money for development of the ten new EU members, a cut of about 20 per cent on the rebates that the UK gets, greater contribution from France and no deadlines for cutting farm subsidies""it will merely come up for a mid-term review.

The UK, which pays more for the farm subsidies that others get, has retained a major part of the rebates that it intends to bargain in return for concessions on Common Agricultural Policy (CAP) during the review.

The EU budget does, however, say that there will be no new money to pay farm subsidies to Romania and Bulgaria when they join the EU in 2007 or 2008. This will inevitably lead to a reduction in the subsidies paid to the existing 25 members.

Even otherwise, the amount that EU spends on farm subsidies is now down to about 40 per cent as against 70 per cent a few years earlier and it is being used by a larger number of farmers in the new EU member countries.

What the EU Budget means for countries like India that are outside the EU is that the new members states in East Europe that are in transition to market-oriented economies will get just about enough impetus to grow faster and become meaningful players in the global markets. The higher growth rates in the transition economies will mean greater opportunities for investment and exports to these regions.

Secondly, there is no immediate urgency in the EU to cut the farm subsidies as significantly as the developing counties might like.

The decision to review of CAP only means that the EU members have agreed to argue about it. Unless the review brings about any change, the farm subsidies will continue.

Till then, it seems unlikely that much progress will be made at the WTO trade talks either, unless the EU Trade Commissioner Peter Mandelson gets back from Hong Kong with a stern message that without more concession from EU on farm subsidies, the Doha Development Round will not reach any conclusion before the fast track authority of President George W Bush expires.

The EU budget has to be approved by the European Parliament, where the socialists, who want more spending for the poorer states, have reasonable say. France wants no change in CAP till 2014 and has rights to veto any proposals for change at the CAP review. The budget merely places a limit on spending in various areas but a detailed annual budget still has to be agreed upon every year.

For the EU, the budget deal comes as a relief after the disputes that marred its summit in June and rejection of the EU constitution by the French and Dutch.

For the UK, it has some success to show for its EU presidency. For the new EU members, the budget enables them to plan how to spend their development aid. For rest of the world, it is a move forward, however small and intangible.

tncr@sify.com