Europe to scrap 'trade distorting' subsidies?

- Last updated on GMT

Related tags: Eu, World trade organization, European union

The European Union is ready to cut generous, and much criticised,
subsidies on farm exports to jump start troubled world trade talks,
said EU trade chief Pascal Lamy on Monday.

In a letter to all members of the World Trade Organisation, EU Trade Commissioner Lamy and Agriculture Commissioner Franz Fischler conditionally offered to cease export subsidies on farm goods.

"The EU is ready to put on the table all export subsidies, provided the EU gets full parallelism and a balanced overall package on agriculture,"​ said the two commissioners.

The EU spends some €43 billion a year on its farm policy, nearly half of its entire annual budget. The largest benefactor of the support is France, that in the past has posed resistance to reform to the EU's farm policy.

In September last year 145 countries walked away from the negotiating table in Cancun, Mexico, as the WTO Doha round of trade liberalisation talks failed to move forward. Slammed as protectionists, developing countries such as Brazil criticised Europe and the United States for their intransigent position over farm aid, accusing them of distorting trade.

At the time Fischler staunchly defended Europe's position, attesting that recent reform to the €45 billion subsidised Common Agricultural Policy (CAP) would deal with 'trade-distorting' features of the old CAP.

But the letter this week to the WTO members demonstrates a move to conciliation.

"This bold initiative proves that our commitment to the Doha Round is more than words. Agriculture is key to its success, so we are ready to show flexibility,"​ said the EU farm chief.

Change will not happen alone as Lamy and Fischler underlined that the Americans, Australians and Canadians "must make clear that they will fully match the EU on the forms of export support they use, such as export credits, abuse of food aid or state trading enterprises".

Much disputed CAP reform last year before the Cancun trade talks saw Fishler introducing a single payment system -decoupling - for farmers. Before Cancun, the EU already offered to eliminate export subsidies on a list of products of interest to developing countries, and we subsequently made clear that there would be no a priori​ exclusions, so all our export subsidies are effectively on the table. However, the list approach has not worked, say the Commissioners this week, adding that this is why the EU 'has taken the decision to be ready to move on export subsidies'.

A recent report from US-based think-tank the International Food Policy Research Institute (IFPRI) claims that protectionism and subsidies by industrialised nations cost developing countries about $24 billion (€22bn) annually in lost agricultural and agro-industrial income. Highlighting the urgency for a level playing field for trade in food, the report reveals that Latin America and the Caribbean lose about $8.3 billion in annual income from agriculture, Asia loses some $6.6 billion, and sub-Saharan Africa close to $2 billion.

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