Summary
The UK is objecting to the inclusion of a ‘peace clause’ in any future EU/UK trade agreement which would prevent the UK from challenging the trade distorting effects of EU ‘green box’ agricultural support payments. The trade distorting effects of EU ‘green box’ support payments, has long been a focus of discontent for ACP producers, who see the trade effects of these measures as grossly unfair. While the EU is unlikely to abandon its robust defence of the non-trade distorting nature of existing ‘green box’ payments, the accommodation reached with the UK on this issue could potentially hold important lessons for ACP governments seeking to defend domestic producers against unfair ‘green box’ support driven trade distortions. It would therefore be appropriate for ACP governments to closely monitor these UK/EU discussions.
The EU/UK trade negotiations are highlighting concerns which ACP countries have long held in regard to the trade distorting effects of the high levels of ‘green box’ subsidies which the EU provides to its farmers. Under WTO rules ‘green box’ support by being non product specific, is defined as non-trade distorting and hence cannot be subject to legitimate countervailing measures. Over the last decade the EU has intensified the move over to forms of agricultural support payments which are compatible with the WTOs ‘green box’ classification of support. This was intended to make EU agricultural support measure invulnerable to challenges under WTO trade rules.
Under WTO rules there are no ceilings on the level of support which can be provided under ‘green box’ compatible instruments. In the case of the EU this includes ‘direct income supports for farmers that are not related to production levels or prices’ (1), as well as environmental protection measures and rural development programmes, many of which have non-agricultural elements.
| What the EC Says About EU Agricultural Support and the WTO
‘The EU has transformed its agricultural support programme to further develop a market based, fair and transparent policy. This process started even before the Uruguay Round and has continued to the present day. It promotes the use of less trade-distorting policy instruments. Most support to farmers is now granted in the form of decoupled direct payments with no obligation to produce. The graph below shows the shift in the EU’s policy from Amber Box measures to non-trade-distorting Green Box support.’ EC, The World Trade Organisation and EU agriculture |
However, in the context of the Brexit negotiations the UK government has expressed concerns over the potential trade distorting effects of these EU common agricultural policy farm payments, which it is felt could enable EU producers to undercut UK farmers in the post Brexit. This is despite the fact that for ‘the duration of the current parliament’ the UK government has committed to paying UK farmers the same level of subsidies they would have received under the EU’s CAP, ‘around £3bn a year’ (1).
The debate focusses on two clauses in the EU’s proposed free trade deal with the UK (2) which, according to reports in The Guardian, would have both sides agree EU ‘green box’ payments ‘are not in effect price distorting’ and would ensure that such EU agricultural support programmes cannot be targeted for ‘anti-subsidy proceedings nor be subjected to price or cost adjustments in anti-dumping investigations’ (2). UK chief negotiator Frost has argued that ‘such a clause would limit the government’s ability to protect the British farming industry’ (1).
| The Draft EU ‘Peace Clause’ Text Article GOODS.17: Trade remedies
1.The Parties affirm their rights and obligations under Article VI of GATT 1994, the WTO Anti-Dumping Agreement, the WTO Agreement on Subsidies and Countervailing Measures, WTO Article XIX of GATT 1994, the WTO Agreement on Safeguards and Article 5 of the Agreement on Agriculture. 2.Chapter three of Title IV of Part Two [Rules of origin] does not apply to anti-dumping, countervailing and safeguard investigations and measures. 3.Title II of Part Five [Dispute settlement] does not apply to this Article. 4.Without prejudice to paragraph 1, the Parties recognise that domestic support measures within the meaning of Annex 2 of the WTO Agreement on Agriculture (“green box” payments) have no price-distorting effects and are not specific to an enterprise or industry or group of enterprises or industries. 5.Such domestic support measures shall neither be countervailed between the Parties in anti-subsidy proceedings nor be subjected to price or cost adjustments in antidumping investigations. EC, ‘Draft text of the Agreement on the New Partnership with the United Kingdom’, (Article Goods 17: Trade remedies, 17.5), 18 March 2020 |
While these provisions are seen as a potential stumbling block to the conclusion of an EU/UK trade agreement, the importance of this issue to the EU cannot be underestimated. The shift in support to agricultural production into WTO compatible ‘green box’ forms of support has been central to the CAP reform process since 1993.
Against this background the EU has consistently rejected all challenges to its use of ‘green box’ support. This includes a rejection of the WTO legitimacy of the USA’s 2018 challenge to the ‘green box’ payments in the olive sector which saw the US impose ‘a 17.13% anti-dumping duty on Spanish olives’ on the basis that imports into the USA ‘were being sold at unfairly low prices as a consequence of green box payments (1).
Indeed, the EU has sought to go further by seeking to insert clauses prohibiting challenges to EU CAP payments in trade agreements with Australia and New Zealand.
Trade researchers at Oxfam-Germany have highlighted how the EU has consistently resisted efforts in the WTO to ‘develop criteria for green box measures to make them really non-distorting’, with the question being posed as to why the EU should require ‘peace clause’ provisions in bilateral trade agreements if existing EU ‘green box’ measures are genuinely non-trade distorting (1).
According to The Guardian ‘negotiators are set to return to the issue over the “intensified” summer talks starting next week’ (1).
| Comment and Analysis It seems ironical that since the beginning of the EU’s moves over to ‘green box’ compatible measures, the UK government has never objected to the potential trade distorting effects of these measures on 3rd countries. Only now, as it leaves the EU and UK farmers no longer benefit from the EU systems of farm support, has the UK government ‘discovered’ the potential trade distorting effects of EU ‘green box’ measures. However, the trade distorting effects of EU green box support has long been highlighted as a problem for developing countries across sector as diverse as the dairy and sugar sectors. This being noted the EU’s shift over to ‘green box’ support is providing a framework for the gradual reduction of EU agricultural support payments in both nominal and real terms. However, this is a very gradual process. Taking the average over successive three-year periods, CAP agricultural support expenditures fell from an average of €87.46 billion in the period from 1999/20 to 2001/02 to €75.10 billion per annul over the period from 2014/15 to 2015/16. In addition, in terms of future planned agricultural support payments, prior to the onset of the Covid-19 pandemic the EU’s multiannual financial framework foresaw a 3% reduction in nominal expenditures over the 2021-2027 financial framework (4). This however has been overtaken by the supplementary expenditures undertaken in the context of the EU’s far reaching response to the Covid-19 pandemic, which has seen an extra €15 billion mobilised (see companion epamonitoring.net article ‘What Lessons Can the ACP Draw from the EU’s Post Covid-19 EU Recovery Plan’, 25 June 2020) Throughout this gradual process of reduction, the EU has consistently resisted all international challenges to the ‘green box’ system of agricultural support. This is unlikely to change in the context of the UK/EU Brexit negotiations. If the EU is unable to secure a text which effectively insulates EU ‘green box’ support programmes against any challenge from the UK, it is likely to settle for a wording which effectively hamstrings the UK in challenging EU measures in the WTO. Nevertheless, the UK/EU debate could open possibilities for ACP government to create space for unilateral measures in defence of national farming interest in the face of imports of low-priced EU products which receive ‘green box’ support. It would therefore be appropriate for ACP governments to closely monitor these UK/EU discussions. This would appear to be particularly important in the post Covid-19 period, with the recent experience of supply chain disruptions leading a growing range of ACP governments to focus more on the development of national food supply chains. Such programmes aimed at promoting investment in increased local production may require the development of trade policy components which ensure the necessary long-term market security for the required private sector investment to take place. This in turn may require the use of trade policy measures designed to precisely counter the trade distorting effects of EU ‘green box’ agricultural support which have emerged as a source of contention in UK/EU trade agreement negotiations. |
Sources:
(1) Guardian, ‘Brexit talks hit by row over EU subsidies for farmers’, 23 June 2020
https://www.theguardian.com/politics/2020/jun/23/brexit-talks-hit-by-row-over-eu-subsidies-for-farmers
(2) EC, ‘Draft text of the Agreement on the New Partnership with the United Kingdom’, (Article Goods 17: Trade remedies, 17.5), 18 March 2020
https://ec.europa.eu/info/sites/info/files/200318-draft-agreement-gen.pdf
(3) EC, ‘EC, The World Trade Organisation and EU agriculture
https://ec.europa.eu/info/food-farming-fisheries/trade/agricultural-international-trade/wto-and-eu-agriculture_en
(4) agroportal.pt, ‘Coronavirus uncertainty as CAP decisions are postponed, 24 March 2020
https://www.agroportal.pt/coronavirus-uncertainty-as-cap-decisions-are-postponed/