December 5, 2016
The hostile statements against continuing the negotiations are increasing, without anyone presuming the outcome of the Transatlantic Agreement at this stage. Between the Brexit and the 2017 electoral deadlines, headwinds are indeed gathering. The recognition of protected geographical indications, the risk of downward convergence of sanitary standards or the attrition of the last significant tariff lines are the frequently mentioned stumbling blocks.
Yet, an element is lacking in the debate, that of the divergence of agricultural policies implemented in the US and in the EU, a discrepancy that is all the more troubling since the Farm Bill and the Common Agricultural Policy (CAP) are supposed to be the result of the US and European common leadership documented in the agricultural chapters of the World Trade Organization (WTO) rules.
In fact, the Uruguay Round conclusion at the Marrakesh Accords had led to commitments in terms of policies to support farming incomes. The aim was to decouple the volumes produced from the support granted to farmers: The guaranteed prices––and thus customs duties––were progressively replaced by direct subsidies to farming operations, subsidies that were increasingly decoupled from production. In return for this radical modification of the Common Agricultural Policy, the European Union thus negotiated the implementation of most current customs duties.
Initially, both the European Union and the United States applied themselves to develop their agricultural procedures by respecting the principle of decoupling aid. However, starting with the 1998 crisis and specially since 2002, the transformations of the Farm Bill completely broke away from this reform path… contrary to the European Union, thus creating a growing discrepancy between support policies.
As far as grains are concerned, farmers on the American side gain from counter-cyclical subsidies, which increase when prices decline, and from extensively subsidized insurance programs. Farmers are therefore guaranteed to earn at least $202 per ton of wheat (including sale price and subsidy) on 85% of their production, while on the European side, prices can drop to $101 per ton, to which about $40 can be added in decoupled subsidies that are linked to environmental and sanitary requirements.
Concerning sugar, the latest CAP reform recently implemented the removal of sugar quotas, contrary to the Uncle Sam’s homeland, where set price production quotas are maintained thanks to the transformation into ethanol of import surpluses.
Lastly, for milk, the EU also eliminated quotas in early 2015, and consequently its responsibility in managing international balance. There is no milk quota in the United States, but a public mechanism to share the added-value between producers and processors, as well as subsidies when margins fall off, and programs to stimulate domestic and foreign consumption.
In a nutshell, on one side we have a Farm Bill that helps agricultural sectors to be aggressive exporters thanks to strong safety nets, and on the other a CAP that gave up correcting market failures, and grants subsidies that are out of step from any economic reality.
In this context, how can one advance the interest of the TTIP to meet the objective of a convergence of the American and European economies? The current levels of customs duties correspond to commitments whose direct support component is only obeyed by the European side!
Now freed from the British anti-agricultural lobbying, the European Union must review its CAP by adopting counter-cyclical subsidies and effective measures to manage crises in order to give a new course to the European construction by drawing on American pragmatism. More broadly and faced with the failure of the Doha Round, the American and European diplomatic services would be quite more helpful in joining others to design new bases for a new world governance for agricultural policies, rather than continuing this headlong rush to bilateral agreements without any response to the end of the commodity super-cycle.