Can the CAP manage without market regulation after 2013?

1. Collectif Stratégies Alimentaires et Plate-Forme Souveraineté Alimentaire Can the CAP manage without market regulation after 2013? Brussells, 31 May-1st April 2010 The CAP subsidies are incompatible with the WTO Agreement on Agriculture Jacques Berthelot, economist

2. OUTLINE Introduction I – The EU allowed OTDS islowerthanthatit has calculated II – The EU applied OTDS islargerthanthatnotified III – Comparing the notified supports with the CAP expenditures IV – The whole green box has tradedistortingeffects V – Necessity to broaden the definition of export subsidies Conclusion

3. INTRODUCTION The compatibility of the CAP supports with the AoA is to be assessed for the present rules and the agricultural modalities of 06-12-2008. For the EU Commission and Parliament and most economists, the agricultural modalities are in line with the present and future CAP. Hence the EU could lower, at the end of the Doha Round implementa-tion, by 80% its trade distorting supports (OTDS) allowed in 1995/00 OTDS: total AMS of 30-06-2001 + product-specific (PS) de minimis + non-product-specific (NPS) de minimis + blue box (BB). Impossible as its authorized level is lower than that calculated by the EU and its applied level is larger than that notified.

4. Introduction: definitions of the OTDS components • The total AMS (aggregatemeasurement of support) or amber box of the tradedistortingdomestic supports : • The productspecific (PS) AMS : includesboth « marketprice supports » (MPS) and subsidies coupled (i.e. linked) to the production or price of the currentyear. • 2) The non product-specific (NPS) AMS: multi products subsidies to agricultural insurances, credit and fuels, irrigation… The product-specific (PS) de minimissupport : if the calculated PS AMS islowerthan 5% of the production value of the product, itis not included in the total of the PS AMSsof the currentyear The NPS de minimissupport : if the calculated NPS AMS islower than 5% of the total agricultural production value itis not included in the NPS AMS of the currentyear Blue box : partiallydecoupled direct payments of CAP reforms of 1992 and 1999 as based on past areas, yields and cattleheads

5. I – The EU authorized OTDS islowerthanthatit has calculated For the EU the authorized OTDS of 1995-00 were of $110.3 billion – 67.2 of total AMS+11.1 of NPSdm+11.1 of PSdm+20.888 of BB – and would be of only 22.1 billion at the end of the DR implementation • This calculationcontradictstwice the AoA: • The authorizedPSdmis not 5% of the • whole agricultural production value; • 2) The feed subsidies are conferring PS AMSs to all EU animal • products, and to the EU oilseeds and pulses used as feed.

6. The allowedproduct-specificde minimissupport is not 5% of the value of the whole agricultural production This is an untruth: the AoA article 6.4 states that it is 5% of the production value of each product. As soon as a PS coupled support reaches 5% of the production value of the product, it looses its PSdm and gets a PS AMS which is added to the total of PS AMSs, and the production value of that product is added to the production value of all products with PS AMSs. This is confirmed by several authors and the US Congressional Research Service. The WTO knows it but claims it is not allowed to inform its Members. The same plays for the Trade policy reviews. The consequences will appear once understood why feedstuffs subsidies have not been notified.

7. The EU has not notifieditsfeedstuffs subsidies The EU and US have refused to consider their subsidies to feedstuffs (cereals, oilseeds, pulses) as input subsidies to be notified in the PS AMSs of animal products (meats, eggs, dairy) issued from the feed. Yet the Congressional Research Center and OECD have acknowledged that feed is an input and the EU and US have notified some feed subsidies: to skimmed milk for veals, dry fodder, public pasture fees).

8. The production value of the productswithout PS AMSsfalls sharply , hence the amount of the allowed PS de minimis As these subsidies to feedstuffs are conferring PS AMSs to them as well as to all animal products, this increases the agricultural pro- duction value of products with PS AMSs and reduces the produc- tion value of products without PS AMSs, hence the allowed PSdm in 1995-00 which falls to €1.063 billion instead of €11.129 billion. The average blue box (BB) is reduced to €11.145 bn instead of €20.888 bn because €9.743 bn of direct payments to feedstuffs have been transferred to the PS AMSs of animal products. Therefore the allowed OTDS for 1995-00 falls to €90.5 bn [67.159 (AMS) + 1.063 (PSdm) + 11.129 (NPSdm) + 11.45 (BB)] instead of €110.3 bn and the cut by 80% gives an allowed OTDS of €18.1 bn at the end of the Doha Round (DR) implementation period.

9. II – The EU applied OTDS ismuchlargerthanthatnotified 1°) The PS AMS has been of €60.973 bn on average from 1995 to 2000, not of the notified €48.425 2°) Why the SPS and the BB are coupled, hence in the AMS 3°) The NPS subsidies have been largely under-notified 4°) The applied OTDS in 1995-00 and 2006-07

10. 1°) The PS AMS has been of €60.973 bn on average from 1995 to 2000, not of the notified €48.425 The average additional €12.548 bn come from: • PS AMSs of oilseeds meals (€800 mn) and • pulses (€525 mn) from the EU production. 2) PS AMSs conferred to the animal products by the feed subsidies: dairy (€4.078 bn), bovine meat (€2.630 bn), pig meat (€2.522 bn), poultry meat and eggs (€1.358 bn). 3) PS AMSs linked to subsidies to the fat matter of milk (€428 mn) and to the skimmed milk for casein (€207 mn) These additional average €12.548 bn for 1995-00 are still at least there in 2006-07, the last notified year, so that the PS AMS rises from the notified €26.632 bn to €39.180 bn.

11. 2°) Why the SPS iscoupled, hence in the AMS Any proceeding against the SPS will put it in the AMS, for 7 reasons: • It contradicts the condition b) of the AoA Annex 2, paragraph 6 • on the decoupled income support: the subsidy should not be a • function of the production type or volume. Now the EU caps several • products: milk and sugar quotas, planting rights for wines, caps on • the production of cotton and tobacco. Yet the WTO has ruled in • March 2005 that the US fixed direct payments are not in the green • box as farmers are forbidden to grow fruits, vegetables and wild rice. 2) It contradicts the condition e) "No production shall be required in order to receive such payments". But the regulation of 29-09-03 states that one must maintain "good agricultural and environ- mental conditions", of which " minimum livestockstocking rates".

12. 2°) Why the SPS iscoupled, hence in the AMS 3) It contradicts the condition d) as it remains coupled to land since farmers must show each year they have eligible hectares 4) It contradicts the condition a) as it is based on the BB direct payments of the 2000-02 years, a not available criterion. 5) A large part of the SPS is based on the direct payments to cereals, oilseeds and pulses used as feed in 2000-02 and to feed- stocks for agrofuels, both of which are inputs to notify in the AMS. 6) The SPS is coupled as it coexists with BB payments for the same products. The BB has to limit production but the SPS authorizes to produce anything, even products whose production the BB limits. 7) As the SPS cannot be attributed to a specific product, it can be attributed to any product so that all EU agricultural exports can be sued for dumping.

13. 3°) The subsidies of the NPS AMS have been hugelyunder-notified The main under-notifications concern the subsidies to agricultural investments, marketing and promotion, agricultural fuels and irrigation. They emerge from the comparison with those notified to OECD, except those to irrigation, notified to the WTO green box.

14. 4°) The EU averageapplied OTDS in 1995-00 and in 2006-07 The average applied OTDS in 1995-00 has been of €78.743 bn instead of the notified €69.269 bn, and that of 2006-07 has been of €80.628 bn instread of the notified €34.181 bn. Conclusion: comparing with the allowed €18.099 bn at the end of the DR implementation period, the EU and its farmers should be preoccupied in case of a prosecution at the WTO.

15. III – Comparisonbetween the subsidies notified to the WTO and the actual CAP expendituresfrom 1992 to 2009

16. The notified components of the EU OTDS: 1995-2000 to 2006-2007 The gap between EU budget expenditures and notifications to the WTO lies mainly in the fake market price support of the PS AMS

17. The largest part of the PS AMS does not correspond to subsidies Few WTO Members know that 88.5% of the EU AMS in 1995-00 were not subsidies but a fake market price support (MPS) linked to inter- vention prices as a result of the absurd calculation defined in the AoA: current intervention price minus the 1986-88 world price multiplied by the current production. As long as the intervention price remains the same and the production level hardly changes the AMS does not change either although the world price does. The EU strategy has been to reduce and eliminate its intervention prices, hence its applied MPS, and to replace them by actual blue and green subsidies. Notifying this fake MPS has darkened the DR negotiations and misled the DCs WTO Members. The worst: the EU presents the AMS as the most trade distorting domestic support! What it distorts the most is the DCs members’ understanding. Many experts have underlined the absurdity of the MPS in the AMS.

20. IV – The whole green box has trade-distortingeffects The previous calculations on the EU actual OTDS have been highly conservative as we did not include the traditional green box (except for irrigation), that before the inclusion of the SPS and the SAPS. There has been an intense debate on the fact that all the green box subsidies have trade-distorting effects so that all paragraphs of the AoA Annex 2 on the conditions to be in the green box have been criticized. Including the basic principle of paragraph 1: not to be paid by consumers and not to bring price supports to producers. The first condition does not hold since pratically all taxes end up being paid by taxpayers. Neither the second condition does as the alleged decoupled payments to feed have brought price supports to farmers raising animals and all green subsidies have brought large price supports to all agri-food industries.

21. V – Necessity to broaden the definition of export subsidies The final Declaration of the WTO Ministerial in Hong Kong of 18 December 2005 underlines the necessity to eliminate all forms of export subsidies, takingintoaccount the rulings of the Dispute Settlement Body. NowitsAppellate Body has ruled in December 2001, December 2002 and March 2005 that the dumping must take intoaccount all domestic subsidies to the exportedproducts. Therefore Solidarité has used this method in 2006 for the EU exports of cereals, meats and dairy products in 1995-00 and has re-assessed the dumping of cereals for 2006: total subsidies to the EU-27 cereals exports have reached €1.921 bn, of which €206 mn of export refunds (10,7%) and €1.715 bn of domestic subsidies (89,3%). For an export value of €3.134 bn, the dumping rate has been of 61,3%. The height is reached with the US cotton exports.

22. Conclusion: rebuilding the AoA on foodsovereigntywithout dumping Facing the challenge to feed 9 billion people in 2050 in the context of climate change, all countries should use the so efficient instru- ments used by the EU before the WTO, except clearly all types of subsidies to exports. Indeed the GATT allowed the highest levels of import protection and the variable levies (EU) and quotas (US). Even the net exporting DCs would benefit as the loss of the EU market would be more than compensated by the conquest of the EU market shares in the rest of the world, which would disappear once eliminated the EU total dumping. However some exports would be possible if the world prices become higher than domestic prices without all subsidies. Indeed the survival of the EU farmers lies on their domestic market which has absorbed on average 77.5% of its Member-States’ exports from 2005 to 2007 against 22,5% to the rest of the world.