The EU has promised farm concessions to restart the WTO trade talks. Despite some pain for Irish farmers, a deal should be supported, argues Alan Matthews
On May 14th the EU Trade Commissioner, Paschal Lamy, and EU Agriculture Commissioner, Franz Fischler, sent a letter to the trade ministers of other World Trade Organisation (WTO) members. It was an important step in trying to rebuild the momentum in the WTO Doha Round of negotiations to reduce trade barriers and agree new trade rules following the breakdown of the Cancún meeting in Mexico last September.
The two commissioners made two important concessions so as to inject a new dynamism into the negotiations in an effort to reach a framework agreement by the self-imposed deadline of this July. The first concerned the so-called Singapore issues, covering trade and investment, trade and competition policy, transparency in government procurement and measures to facilitate trade such as the simplification of customs procedures. The African Union and least developed countries refused to accept inclusion of these issues in the Cancún text.
The joint EU letter now makes clear that the EU only sees trade facilitation remaining part of the Doha Round, with possibly rules on government procurement, if a consensus emerges to support this.
Just as important, the EU letter also shows flexibility on the issue of eliminating export subsidies for agricultural products which has been the sticking point in the agricultural negotiations. For the first time, the EU hinted that it would be prepared to agree to a phase-out of export subsidies. To be sure, the offer is highly conditional on both a favourable outcome on market access and domestic subsidies from an EU perspective, and on the parallel phasing out of the export supports of other countries, including export credits, food aid and state trading enterprises.
Other WTO groupings, such as the US, the Cairns group of agricultural exporting countries and the influential G20 group of developing countries have reacted positively to the EU move. The US has signalled its willingness to put its export credits and other forms of export support on the table. The spotlight has moved to the Cairns Group and the G20 to draft proposals for cuts in farm import tariffs which are now the main obstacle to a deal on agriculture. The US and the EU have indicated that their concessions are conditional on middle-income developing countries agreeing to open their markets. India's attitude under its new government will be an important factor in this equation.
The opportunity now exists to craft a compromise agreement which could see considerable reductions not only in agricultural trade barriers but also in remaining non-agricultural trade barriers as well as barriers to the increasingly important area of trade in services. The question is: how important is it to Ireland that an agreement is reached, and what would be the balance of gains and losses?
Quantitative work undertaken in the Department of Economics at Trinity College suggests a broadly positive outcome, although there will be some losers from trade reform. The big gainers from further trade liberalisation are consumers who can look forward to lower prices, greater competition and greater choice.
Some firms and producers will also benefit as lower trade barriers open access to market opportunities limited by high tariffs or non-tariff barriers such as regulatory restrictions. The average tariff level facing Irish merchandise exports in non-EU markets is around 7 per cent of the value of trade at world prices, although when this is weighted by the importance of intra-EU trade in total Irish trade, the applied tariff figure falls to 2.5 per cent.
The real gains are to be found in the services sector, including access to government procurement contracts as well as financial, transport and professional services markets in non-EU countries.
However, some Irish firms and producers will face greater import competition on the domestic market as well as on EU markets where they currently enjoy a margin of preference against non-EU suppliers. For industry, most of the adjustment to free trade has already occurred. The average rate of protection provided by the EU's Common External Tariff (CET) to Irish firms is only 3.4 per cent, and the weighted overall protection provided once the duty-free access provided to intra-EU imports is taken into account is much lower at 1.4 per cent.
Average protection levels and the importance of preferential access to other EU markets are much greater in the case of agricultural products. The recent CAP reform modified how direct payments will be made to farmers, but left the structure of market price support largely intact. Internal market prices for sugar, beef and dairy products are still much higher than world prices, in some cases more than twice as high.
Nonetheless, some of the anticipated losses from the unwinding of CAP price supports would be compensated by improved allocation of resources within the national economy. At a time when the economy must import labour to meet its requirements, it makes no sense to attempt to shore up employment in less productive jobs on farms.
Despite data limitations, especially in measuring barriers to services trade, our study suggested positive if modest overall gains to the economy from a successful outcome to the Doha Round. These gains would accrue year after year so their cumulative importance is far greater. Farmers are the main group who would not necessarily share in these gains. The best way to assist them is to increase investment in research to help them to achieve the productivity gains they need to compete.
But the Doha Round also offers the best opportunity to developing countries to address, and redress, some of the asymmetries which emerged after the Uruguay Round. Helping developing countries to trade out of poverty is one of the best investments we can make in ensuring a sustainable and peaceful future for us all.
Alan Matthews is Jean Monnet Professor of European Agricultural Policy at Trinity College Dublin and a member of the Department of Agriculture and Food Agri-Vision 2015 Committee