Brian Fallow: Tut, tut - gallic greed rules again

One might think that France, her cities ablaze, needs to have both hands on a fire hose. But she seems to have one free to clamp over the mouth of European Trade Commissioner Peter Mandelson.

Hopes are ebbing fast for a breakthrough deal on agriculture without which next month's World Trade Organisation summit in Hong Kong looks set to be another failure like Seattle in 1999 and Cancun in 2003 or deferred for fear of such an outcome.

Under intense pressure from the French and other beneficiaries of the status quo, Mandelson portrays his offer on improving access to European markets for farm products as a bottom-line, take-it-or-leave-it one that goes to the edge of his negotiating mandate from member states.

The French, indeed, are saying he has already gone too far and are talking about a veto.

But for just about everyone else, the European Union offer does not go nearly far enough.

"If that literally is their final offer, that is the end of the Doha negotiations," said outgoing Trade Negotiations Minister Jim Sutton.

Four years after the Doha round was launched with agricultural trade at its heart and a focus on doing something, at last, for the Third World, how has it come to this?

The problem is that the time has come to translate words, which are easy, into numbers, which are hard. In particular the agreement that launched the Doha Round called for "substantial improvements in market access". Now comes the task of quantifying what "substantial" means.

The European offer, tabled on October 28, would almost halve the average level of its agricultural tariffs, from 23 to 12 per cent, with steeper cuts to the highest tariffs.

But its critics say the effect of that could be largely nullified by a condition that would carve out for gentler treatment 8 per cent of its tariff lines, 170 products in all. About 90 per cent of the European Union's farm imports are concentrated in 50 or so tariff lines, including dairy products.

Europe, in short, wants maximum freedom to draft an agricultural tariff schedule that would minimise any new trade from the agreement.

And even that is conditional, Mandelson keeps stressing, on seeing concessions from other parts of the world on industrial tariffs and services: "This is not an agriculture-only round and Europe will not be its sole banker."

In give-us-a-break mode, the Europeans argue that the EU is already the largest importer of farm produce, and that they have already substantially reformed the Common Agriculture Policy's domestic subsidy regime to make it less trade-distorting, and that it was their offer to scrap export subsidies that pulled the Doha Round out of a bog last year.

Certainly the offer to scrap export subsidies addresses an especially egregious trade distortion, which floods markets outside Europe with subsidised produce and depresses world prices. It would remove "the biggest thorn in our side", Sutton said at the time.

When the offer was announced by Pascal Lamy, then EU Trade Commissioner and now WTO chief, a monsoon bucketful of vituperation was dumped on his head by his French compatriots - always a good sign.

The Europeans also claim credit for moves during 2003 to "decouple" much of the EU's internal farm support from production, reducing the incentive to produce more in order to garner a larger subsidy. And in a deal struck to make the addition of the 10 new central and eastern European countries to the union fiscally supportable, the CAP budget has been frozen until 2013, implying a substantial progressive dilution of subsidies to farmers in Western Europe.

It is fair enough for them to contrast that move in the right direction with the United States 2002 Farm Bill, which was a step backwards in terms of agricultural protectionism.

But that was then and this is now. What has put the Europeans under pressure is last month's offer by the US to make significant cuts to its domestic farm support regime - conditional on progress on markets opening elsewhere.

On October 10 in a bid to kick-start the agricultural negotiations, it proposed to cut 60 per cent from the permitted level of its most trade-distorting domestic support schemes.

The US, to be sure, is not above claiming a dollar's credit for 10c worth of concessions, and a cut from the maximum level of support allowed under existing trade rules is not the same as a cut from the actual level of support now applied, but at least the Americans are entitled to the benefit of the doubt.

A recent speech by US Agriculture Secretary Mike Johanns suggests a shift in thinking might be under way within the Administration towards a less mollycoddled, corporate welfare model for US farming.

Although he stressed that his comments should not be seen as an outline of policy for the next farm bill, due in 2007, he said: "Soon we must decide as a nation whether to embrace a new age of agriculture or continue relying on a policy structure that was conceived 75 years ago when the face of agriculture was very different from what it is today."

The lion's share of US farm support goes to large operations. Less than 8 per cent of all farms get 50 per cent of the total subsidies paid out. And 92 per cent of all spending is paid on just five crops; the two-thirds of American farmers who grow other things get little support.

A successful challenge in the WTO against US cotton subsidies, and the possibility of challenges over rice and corn, had shaken confidence that US farm policy could provide a true safety net, Johanns said.

"If we timidly take our seat at the world trade table with a farm programme structure that is wedded to the past, we can expect a future of playing defence to protect our share of trade and wondering what US farm programme will be challenged next." Better access to export markets would provide greater security.

Contrast that with his French counterpart, Dominique Boussereau, who is reported as telling the French Senate last Friday that respect for the CAP was an absolute red line. "If this line were to be crossed France would use its veto on a potential global accord," he said.

Time is short. The WTO round really needs to crest the brow of the hill next month, making the key political bargains and trade-offs, and be on the downhill stretch next year.

That is because a vast amount of detail would still have to be negotiated to flesh out the essential deal and the whole thing needs to be done and dusted by the end of next year if it is to pass through the US Congress before the Bush Administration's negotiating authority expires, and before the 2007 French presidential elections.

Right now the prospects are not looking good.