5.2. Anticipated course of events

5.2.1. Negotiation standpoints

LFA compensatory allowances, especially direct payments per LU, have clearly contradictory effects. However, that problem may be overcome by the new Commission proposal, which foresees only direct payments per hectare which are linked to environmental conditions (cross-compliance). It is likely that the proposed switch of the LFA measures to area payments may cause income problems for the farmers of the extensive pastures in large areas of the Mediterranean, in the west of Ireland and in the Highlands and Islands of Scotland, unless there is sufficient modulation and differentiation within the scheme. Although such modulation and differentiation is included within the proposals, it will be necessary to avoid 'discrimination' by appealing to an objective basis.

The 'Millennium Round' of WTO Trade Talks will concentrate primarily on the issues of free market access and trade. However, they are likely also to raise dilemmas about the externalities of production. This issue will be raised particularly by the EU since their negotiation starting-point on the trade issues tends to be weaker. Commitment of the European side will be devoted to environmental and rural development considerations (e.g. decoupling subsidy according to the environmental aspects and incorporation of rural diversification measures). It is also likely that the European side will raise the questions of food safety, animal welfare and consumer protection (e.g. genetically modified agricultural products and use of growth hormones in animal production etc).

In its promotion of rural development issues, the EU has to be aware not only that the reaction of its opponents will be negative, but also that some of the member States will react in the same way. A switch from strictly agricultural to rural development support in the budgetary expenditure could also trigger demands for inclusion of specific commitments from the rural development measures in the AMS calculations. The Commission's proposal for horizontal rural development measures, financed from EAGGF with the farming population as the main beneficiaries of public support might also be questioned by the opposing groups. These are all non-trade issues and the response from the negotiating partners could be that they do not have their place in the trade talks.

The environmental aspects of international agricultural trade will have to be clearly defined. All the negotiating parties have given their commitments on the UN environmental forum. Therefore, some issues can be raised, such as:-

1. Sanitary and phytosanitary aspects, use of GMOs in agricultural production;
2. Does non-sustainable use of water resources in south-west USA have economic (and trade distorting) impacts on production?
3. Is use of growth hormones in animal production in accordance with the concepts of sustainability and animal welfare, let alone human health?

The interests of the Less Developed Countries (LDCs) should also be seriously taken into consideration. It can be anticipated that LDCs will refuse to sign the agreement if the questions of greater access to the world market with less trade and non-trade distortions (e.g. taxes, food labelling), especially from the EU side, are not solved. They will also open the question of food security.

If the Trade Talks of the Millennium Round come to a deadlock on the agricultural issues, strong external pressures can be expected from other sides (e.g. participants industrial and intellectual property rights talks) to come to an agreement as soon as possible (2003?).

Procedural complications
Procedural complications stemming from different interpretations of the legal text of the GATT Uruguay Round Agreement from the negotiating parties can be expected.

EU Enlargement
The WTO talks will take place at the same time as the pre-accession negotiations with the first group of candidates from the CEECs. Double standards of the CAP (e.g. absence of income support for farmers in new CEE member States) will additionally weaken the EU argument for the need for agricultural income support. In addition, some of the CEECs that are applying simultaneously for membership of both the WTO and the EU are exposed to pressures from both sides.

Environmental considerations
As has already been suggested, environmental issues are likely to be raised in the WTO Trade Talks by the EU negotiators in particular, mainly as a contra-argument of the agricultural countries with higher levels of agricultural protection. The OECD agri-environmental indicators have been prepared explicitly to establish a standardised instrument to guide the debate about sustainable use of agricultural areas. These indicators were originally designed to assess aspects of ecology and cultural integrity. However, in the later stages of negotiation, discussion about these indicators was 'hijacked' by the agricultural secretariat (influenced by the Cairns group) which proposed to develop only indicators such as soil, water and farm financial resources. The EU reacted with a proposal to include landscape and habitat, but this was both weak and late. The present definition of (synthetic) OECD agri-environmental indicators corresponds to the interests of the USA and the Cairns group and they will probably insist on their use as a basis for the WTO agricultural trade talks.

Rural development issues
There is a threat that European rural development will be trapped in the Brussels - Geneva prison. There is a distinction between the rural and urban package of economic assistance. Agriculture in regional economies is becoming only a narrow area of concern. Structural Fund (ERDF, ESF) actions in designated rural areas are not problematic from the point of view of the WTO Trade Talks. However, the same cannot be said for the EAGGF Guarantee expenditure, especially if 'rural development' assistance turns out to be only or mainly for farmers. On the other hand, the WTO pressure can be seen as a positive catalyst for the European rural development debate which is always in danger of becoming sectoral. In the EU, too little attention has been devoted to the theoretical and methodological basis of its rural policy measures. Ultimately, this reflects the relative strength and organisation of the farming and rural (territorial) lobbies.

'Greening of CAP'
According to the commitments of CAP, agreed in the GATT Uruguay Round, the dilemmas about future agricultural policies have a dual character. The question is how to make these policies greener - in both policy and environmental senses of the term.

Un-utilised opportunities
The set of measures agreed in the 'Green box' includes farm income and crop insurance. This measure has never been seriously discussed in the CAP agenda, whereas it is widely used in some of the WTO trade partners (e.g. Canada).

Rural development issues as a subject of separate talks?
An idea to launch the rural development issues as an 'own negotiation' theme emerged at the Seminar. However, launching such an idea demands bringing together allies, which takes a lot of political effort and time. In addition, the legal terms of such a move have to be reconciled.

9. According to the GATT Uruguay Round agreement on agriculture (URAA), the agricultural policy instruments are classified in three groups, popularly called 'boxes':

   'Red box' - measures that are directly subject to decisions, agreed in the URAA. They include market support measures, such as import levies, export subsidies and intervention purchases. They represent a significant part of the AMS calculations and have to be reduced substantially over the implementation period.

   'Blue box' - conditionally permitted measures. Compromise solution that includes measures, such as compensation payments.

   'Green box' - recommended measures without direct market influence, such as decoupled direct payments, rural development support, R&D, marketing channels support, sanitary & phytosanitary improvements...