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- WSJ.com Chirac Saves CAP -- Again October 31, 2002 STATE OF THE UNION Chirac Saves CAP -- Again By BRIAN GARDNER The European Union's Common Agricultural Policy will not be reformed, at least not for some considerable time, and certainly not as long as France's President Jacques Chirac is around to prevent it. Last week's Franco-German accord on CAP reform and EU financing came as no surprise to experienced Brussels hands. Chiracian tactics and achievements in defending CAP from successive assaults have been known and admired since his days as an outstanding French farm minister in the 1970s. The French president is among the handful of early-day Euro-politicians who can be squarely blamed for building CAP into the euro40 billion a year, surplus-dumping, taxpayer-squeezing, consumer-damaging monster that it has grown into today. Each attempt to rein in this beast has failed. Under pressure of general international opprobrium and more specifically the GATT Uruguay Round of trade talks the reformers could claim a significant victory in getting the 1992 MacSharry program, named for the European Farm Commissioner who drew it up, for CAP modification adopted. The program shifted farming supports away from subsidizing the market -- the EU used to buy up commodities like milk and butter en masse -- to direct subsidies for the farmer, which at least distorted the market a little less than before. These subsidies were supposed to be phased out within three years. Instead, the subsidies stayed on. The defenders of the CAP -- who want to maximize subsidized production and exports, keep near exclusive control over the domestic market and fund it all from the bottomless pockets of European taxpayers -- have effectively fought back. That 1992 reform wound up being no reform at all: the cost of CAP went up by a third between 1993 and 2000, and now reaches euro42 billion a year. Another effort to stem the rising cost of the policy came in 1999. This so-called Agenda 2000 initiative sought to scale down the large subsidy payments going to larger farmers and to cut back market supports and export subsidies. As at the Brussels Summit last week, though, EU leaders gathering in Berlin in 1999 were concentrating on bigger issues and could not be bothered with the fine details of agriculture policy. Hurrying on with the creation of an even greater and wider union, they gave in to French opposition to any serious reduction in CAP largesse. The Commission's reform plans were largely abandoned. The French representative at the Berlin meeting of course was then, as now, President Chirac. The main concern of the EU leaders in Brussels was to clear away the budgetary obstacles to the admission of 10 new members mostly from the old Soviet bloc. This was, it could justifiably argued, far more important than squabbling over a few farm subsidies. It was still surprising that Germany, the EU's paymaster which had pursued a hard-line on CAP reform, caved in so quickly when Chancellor Gerhard Schroeder struck his deal with Mr. Chirac. But the French president caught the Germany leader at a good time. Fresh from a bruising election campaign and cold-shouldering by American and British allies over Iraq, Mr. Schroeder was looking for friends on the international scene. What better way to boost his image as an international statesman than to revive the Franco-German alliance so dear to the hearts and minds of "middle Germany"? His desire to be at the center of European politics again trumped German frustrations with the costs and effects of CAP. The lingering respect that is still paid to this "engine" of the European was Union implicit in that the other thirteen leaders at Brussels lamely signed up to this bilateral deal. Mild protests from self-declared keen CAP reformers, Britain and the Netherlands, were swamped in the general enthusiasm to get on with eastward enlargement. In return for a less than water-tight undertaking to cap farm support spending until the enlargement process has been completed in 2013, Mr. Schroeder and the rest of the European Council agreed that there would be no CAP reform until after current financing arrangements expire in 2006. What this means is that the radical plans from EU Farm Commissioner Franz Fischler will effectively be shelved. The Austrian commissioner proposed to detach farm subsidies from production, cap the largest subsidy payments to the largest farmers and force environmental compliance on the farming industry. The upcoming CAP Mid-term Review, which could've started a serious overhaul of the subsidy program, will now be a mere compte rendu of current problems in the cereals beef and dairy sectors leading to mild "recommendations" for eventual changes. As well as the obvious implications for EU consumers and taxpayers who ultimately pick up the tab for their subsidized farmers, this decision has important implications for EU enlargement and the Doha Round of trade liberalization negotiations. Because there will be no reduction in the level and type of subsidy paid to EU farmers, this can be expected to substantially increase the eventual cost of applying the CAP in the future EU members in east Europe. Estimates from the Dutch finance ministry suggest that applying this unreformed policy to the 10 east European candidates could effectively double the budgetary burden of CAP by the beginning of the next decade. In addition, it will make a generally poor agricultural sector in the candidate countries worse off by delaying a much-needed overhaul. The international consequences of the EU's backsliding on CAP reform are even more important. Had the Commission's proposals been accepted, the EU would have been able to have effectively fended off attacks in the Doha Round from the United States and the Cairns Group of 15 farm exporting countries who don't heavily subsidize agriculture -- New Zealand and Thailand, among them -- on the euro28 billions a year paid in the form of direct subsidies to EU producers. It would also have been able to offer important concessions on import tariff reduction and export subsidisies. With price supports kept at current levels the gap between EU and world prices will remain and the Union's substantial exports will continue to have to be subsidized. Broadly, this debacle will mean a marked lack of enthusiasm by the EU for making any progress in the Doha Round. Publicly, Mr. Fischler and other EU politicians are putting on a brave front, claiming that the Brussels' summit decision will not compromise either CAP reform or progress in the Doha round. Privately, however, officials admit that reform and the trade liberalization initiative are now stymied. The bigger danger now is that enlargement will make matters even worse; the majority favoring the CAP status quo will now likely be greater in an EU of 25 than the current 15. Mr. Gardner is editor of Food Policy International. URL for this article: http://online.wsj.com/article/0,,SB1036017549138865311.djm,00.html Updated October 31, 2002 Copyright 2002 Dow Jones & Company, Inc. All Rights Reserved Printing, distribution, and use of this material is governed by your Subscription agreement and Copyright laws. For information about subscribing go to http://www.wsj.com

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