42 chapters and over 1500 pages ... this is the volume of text on the free trade agreement between the EU and Canada (CETA) leaked to the press this summer. Formally concluded on 26th September, this partnership - which will only actually take effect around 2017 – is far from reaching unanimity. Viewed, particularly by European and Canadian farm organizations, as an imposed ex post agreement, it has been denounced for its opacity and its provisions that approve the complete abandonment of the few remaining regulations of the EU Agricultural Policy1. Above all, this agreement is a forewarning of the Transatlantic Partnership (TTIP), on which negotiations resumed on 29th September.
Are we really willing to sacrifice the future of European food self-sufficiency in the name of these agreements, even if they would enable the United States and Europe to compete with Brazil or China?
Thierry Pouch gives a particularly insightful analysis on the future of the TTIP. In an article for the magazine “les Possibles”, (extract here2), the expert re-examines the shortfalls of European agriculture if the partnership were to see the light of day under the terms imposed by the United States. The challenge, he writes, “is therefore not to repeat what recently happened with Canada. The agreement with Canada led to a quota of 65,000 tonnes of duty-free beef. An agreement with the United States would lead to a much higher quota”.
Suffice to say that the introduction of European agriculture as outlined in free trade agreements with the United States, Mercosur or Canada would considerably weaken the position of European farmers. The EU already imports the equivalent of the surface of French agricultural land (27 million hectares), so it's time to realign the CAP to prevent this situation from getting worse.
momagri Editorial Board
The United States: set to conquer the European market
Abandoning the idealistic view of the Transatlantic Partnership requires an historical perspective on the turbulent agricultural trade relations between both economic entities.
Just after the Common Agricultural Policy (CAP) was established in the early 1960s, the United State requested that members of the Common Market import duty-free American produce for animal feed - soybean meal, grain substitutes – creating an EU dependency on this type of produce that is still very much alive today.
The CAP provides the EU with an adequately effective mechanism for self-sufficiency - one of the CAP’s priorities – progressively driving the United States from their first place as leading supplier of agricultural produce and foodstuffs.
From the early 1970s, the EU became a major exporter - while remaining a net importer and therefore at a trade deficit with the rest of the world - occasionally taking some markets from the Americans (flour delivered to Egypt for example). The appreciation of the dollar during the first Reagan term lost market shares for American exporters, losses that resulted in agriculture being included in the multilateral GATT negotiations (Uruguay Round) in 1986.
The disruption in American food and agricultural exports to the European market is obvious when comparing levels from 1980 ($13 billion) to 2012 ($10 billion). In contrast, the United States still imports more food and agricultural goods from the EU, imports have increased six fold since 1980, settling in 2012 at about $18 billion.
Consequently the trade deficit vis-à-vis the EU - but also of France - was accentuated, contrasting with high surpluses from trade flows with North America (Canada), Latin America (Mexico) and Asia (Japan and China). The American agro-food deficit with the EU has been on average 5 to 7 billion dollars for the past five years, and this as a result of trade flows with France of 2 billion.
One last fact deteriorated the position of the United States in terms of agro-food trade - the growth of Ukrainian grain, Brazilian soy and Chilean fruit exports to some EU countries, partially replacing American produce.
The erosion affecting the American comparative advantage in the agricultural and food sector in the EU, and especially in France, is due, according to the federal government, to EU tariffs on American goods, higher than those in the United States (on the issue of tariffs, see the article by Jacques Berthelot in the same issue), as well as regulatory standards that the EU has gradually imposed, particularly for breeding (no hormones in beef, sanitary conditions of slaughtering animals, animal welfare ...) and on genetically modified organisms (GMOs).
The proposed Transatlantic Partnership would therefore be an opportunity for the Americans to remedy this erosion of their market share in the EU, and to some extent, put an end to EU food self-sufficiency, achieved through the intermediary of the CAP. Therefore, above and beyond tariffs, negotiations have quickly turned to non-tariff barriers, American producers - farmers and processing firms – pressuring their negotiator to obtain the dismantling of the non-tariff barriers applied by the EU.
Let’s take beef for example, very representative of these issues, still poorly understood and whose consequences could be disastrous for the entire sector, particularly in France.
For beef, an important sector for a country like France - and also Ireland, which recently developed a strategy for this sector as a lever to overcome the crisis in which it has been for the past four years within the euro zone - in terms of its geographical distribution, any further reduction on tariffs would expose producers to a flood of goods from the United States.
We know that the US are one of the world's major exporters of beef, along with Australia, Argentina and Canada, and they have held production costs - expressed in kilos of carcass - below those of French producers to the order of 12-15% for the past two years.
US competitiveness for beef is achieved through lower standards (traceability, use of hormones, antibiotics, slaughter conditions and transport ... which French consumers find unsuitable because more beef imports would undermine product safety and consequently weaken the food consumption model) as well as relatively low veterinary or feed costs.
Finally, the impact of the depreciation of the dollar on American trade should not be overlooked, an effective tool on export price competitiveness, while euro zone countries remain stuck with a policy aimed at maintaining high parity of the single currency.
The EU must not make the same errors as those recently made with Canada. The agreement with Canada led to a quota of 65,000 tonnes of non-tariff beef. An agreement with the United States would lead to a much higher quota. More worryingly, a free trade agreement with MERCOSUR countries (Brazil, Argentina, Uruguay who are powerful beef exporters), would further weaken this sector in Europe.
Canada, the United States, MERCOSUR; does the European Union intend to sacrifice whole sections of its agriculture and food sector? The defense strategy of the negotiator in Brussels on issues such as GMOs and hormone meat seem to be very fragile, even dubious, and it is not sure that he would obtain a trade-off if the EU surrendered on these issues, including for dairy produce, an area where the EU has a strong comparative advantage due to quality produce. Even here, the Americans intend to challenge the geographical indications (GIs) that they consider a factor for unfair competition.
The future of European food self-sufficiency is all the more at cause in view of a free trade agreement with the United States because since 1992, Brussels has continued to reform/deregulate the CAP, opting for an intervention device that focuses on “public good” such as the environment, and accelerating producer market connection (Martin, 2014); which means that only the aid and support for farmers producing this type of “public good” is justified.
In January 2015, a comparative analysis of the CAP with the 2014-2018 Farm Bill, will demonstrate how the United States continues to actively support production, notably with margin insurance plans, but also by reactivating the intervention tool, as seen in the dairy sector. As a result, the choices made by the EU (Commission and Parliament) on agriculture justify our concerns on the European negotiator’s defense strategy in the proposed transatlantic partnership.
1 A withdrawal particularly noted by the Rural Coordination which notes that the principle of this agreement is the disappearance of 93% of customs barriers between the EU and Canada for the agricultural sector.
2 The full article article is available from Les Possibles, n° 4, Eté 2014