Europe’s agricultural offer in the Doha Round – why not rebalance it?

May 9, 2007

The day the EU’s Council of Ministers approved the Commission’s mandate to negotiate bilateral agreements with South Korea, ASEAN and India, ECIPE, the new Brussels-based trade policy think tank published a long paper by one of the prominent specialists of agriculture in international trade negotiations, Patrick Messerlin (from the Groupe Economie Mondiale at Sciences Po in Paris). If you really are into the technicalities of international trade negotiations, then I warmly recommend you to read this admittedly very complex paper.

To cut a long essay short, Patrick Messerlin argues in that paper that the EU is going down the wrong path. With its new bilateral strategy and that the outcome of these negotiations will be a highly inefficient – not “spaghetti bowl” (Jagdish Bhagwati’s favourite term) – but an “electron collider” of mutually discriminatory bilateral agreements ordered in a hub-and-spoke pattern around the EU. Indeed, the target countries or group of countries in Asia are not Japan, or China, but those with the highest remaining barriers to trade. The “preferential” or “discriminatory” effect of these agreements will be particularly high. Messerlin argues that Europe has high stakes in an open, non-discriminatory multilateral trading system, especially as it needs to manage its way in the world as “diminishing giant”.

His message is therefore: the EU should concentrate on getting the Doha deal done. Agriculture is one of the most difficult issues, and he proposes that the EU should rebalance its current offer:

First of all, a reminder:

“The current negotiations deal with many more agro-industrial (hereafter “food”) goods (roughly 1,500 tariff lines) than with farm products (roughly 500 tariff lines).”

“Tariff escalation” in EU agricultural trade leads to the fact that it is food producers that are more protected than actual farmers as producers of primary goods:

” (…) strong “tariff escalation” among the initial EC tariffs [leads to a situation where]―the more processed the goods, the higher their level of protection. The average tariff of the bulk farm products (19.7 percent) is substantially lower than the average tariff of the processed food products (32.3 percent), and, even more strikingly, the highest tariff for the farm products (93.6 percent) is much smaller than the highest tariff on processed food (264.3 percent).

The negotiating formula the EU is tabling in the current negotiations could be, therefore, enhanced. The current “tiered formula” approach:

“ the post-Doha tariffs would be 10.7 percent for the bulk farm commodities compared to 16.9 percent for processed food products, while the post-Doha tariff peaks would be 43.7 percent for those farm products, compared to 105.7 percent for processed food”

Messerlin’s proposal for a “Swiss formula”:

“would thus rebalance the existing EC offer in an economically sound way, because cutting deeper into the highest tariffs would generate most of the welfare gains that European consumers―especially the poorest―would expect from a liberalization (…)”

“Although tariffs with larger cuts are concentrated in the processed food sector, rebalancing would keep the average tariff of all the processed food products almost unchanged. But it would cut 222 food tariffs more deeply―on average from 45.5 to 35 percent, but by more than 5 percent for only 87 tariffs, and by more than 10 percent for only 46 tariffs (a dozen of which are various forms of whey). Meanwhile, it would cut 847 food tariffs less deeply (on average from 11.4 to 13.1 percent). A vast majority in the processed sector would thus gain from rebalancing, all the more if the food markets in the rest of the world would also be opened up.”

Final, political, advantage of a rebalanced Swiss formula:

a positive impact on domestic politics. European producers of the goods getting smaller tariff cuts would clearly support a shift to a Swiss-like approach (…).

In making such an offer the EC can therefore be more ambitious in its demands in the NAMA (non-agricultural market access) negotiations towards emerging economies, which is what its business community wants.

How nice. Err, is it too late?

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