TRADE-MERCOSUR: Battle Heats Up Against Farming Subsidies

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Sep 12 1999 (IPS) - France’s amiable stance to a trade accord between the European Union (EU) and Southern common market countries (Mercosur) is abruptly hardened whenever agricultural issues come up and a tough battle lies ahead, according to trade analysts.

During the past four years, France has tried to deter Mercosur (the Southern Cone Common Market) from entering into an exclusive deal with the United States, particularly the Free Trade Area of the Americas, urging instead an EU-Mercosur alliance.

But a month before the Third Ministerial Conference of the World Trade Organisation takes place in the U.S. city of Seattle, Mercosur has reinforced its demands for a halt to farming subsidies.

The situation puts the Mercosur nations – Argentina, Brazil, Paraguay and Uruguay – in the middle of a tug-of-war between the United States and the European Union. Each offered supposed benefits, although the policies of agricultural protectionism of both has caused major financial losses to the trade bloc.

Europe remained Mercosur’s biggest trade partner, however, and provided it with 40 percent of its direct foreign investment.

During a visit to Brazil at the beginning of this month, the French foreign minister, Hubert Vedrine, said that the southern bloc was “vital to global equilibrium” and expressed his hope that the current trade crisis would not affect joint projects with the EU.

The foreign ministers of Mercosur and the European bloc will meet on Nov. 15 and 16 in Brussels to hammer out a schedule and framework for negotiations to create a common free trade zone, which would enter into force in 2005.

The presidents of the Mercosur countries already have taken steps to ensure that nothing will be decided until the issue of agricultural subsidies has been addressed to their satisfaction, according to political sources.

In Brussels, the South American nations will raise the issue of the economic damage they suffered through European protectionism, in the hope that the EU’s anxiety over potential US pre-eminence in the Mercosur region will outweigh the traditional preferences granted to its domestic farming sector, sources said.

However, just one week before the French foreign minister uttered his encouraging words on the future of South American- European trade talks, his counterpart in the Ministry of Agriculture, Jean Glavany, justified farming subsidies in no uncertain terms while in Buenos Aires.

Glavany said it was simple fact that his country’s policies involved subsidies, and asserted that if it halted the practice, “instead of 700,000 farmers, there would only be 100,000-to- 200,000.”

He added that whether or not there was protectionism “is a policy decision, the democratic and sovereign (right) of each government,” and he criticised the United States for portraying itself as an ally of Mercosur, while continuing to grant subsidies.

Mercosur negotiators wanted to advance talks on the creation of a free trade zone with Europe hand-in-hand with discussions on the issue of agriculture, while the E.U. wanted the talks to proceed as if the subsidies did not exist.

Protectionist policies – applied mainly by the European Union, the United States and Japan – amounted to some 350 billion dollars annually, according to the Organisation for Economic Cooperation and Development.

These subsidies for both production and exports, not only undercut the markets of agricultural nations that did not subsidise their own farmers but also put downward pressure on international commodity prices.

In the last two years, a fall in consumer demand triggered by the economic crises in Russia and Asia combined with advances in agricultural machinery and biotechnology created a market surplus, which was further worsened by persistent subsidies. The prices of agricultural commodities fell an average 40 percent during this time period.

The Mercosur nations, with farming and livestock products as their main exports, also are members of the “Cairns Group,” comprising 15 countries with well-developed farming sectors that have demanded the elimination of protectionism and are lobbying hard ahead of the Seattle conference.

The agriculture ministers of the Cairns Group met at the end of August in Buenos Aires, where they released a document calling for free access to markets, and an end to export subsidies and tariff barriers based on “pseudo-scientific” arguments.

The US Secretary of Agriculture, Dan Glickman, briefly attended the gathering by special invitation. While Washington is not an official member of the group, it shared a common interest in trying to get the European nations to abolish subsidies.

This confrontation EU-US conflict, which at times turned Mercosur into a virtual hostage, flared up at the start of September in Buenos Aires, at the First Summit of Food and Agro- Industry organised by The Economist Intelligence Unit.

In the Argentine capital, Phillipe Chalmin, president of the Society of Economic Policies of France and an advisor to the EU on agricultural issues, declared that the Cairns Group held no sway, that agriculture would not be a major theme at the Seattle conference and that Washington would not end up supporting agricultural nations as they had hoped.

The US representative, Caroline Brookins, president of the World Perspective organisation, criticised the statements of the French delegate for their pessimism and accused the EU of approving the use of biotechnology in the pharmaceutical industry but rejecting it in agriculture, as one more way of controlling world trade.

Finally, the delegate from Argentina, Jorge Riaboi, announced that if the contentious issue of agricultural subsidies was not dealt with, there would be no headway in the multilateral trade round in Seattle.

The lines in the sand thus were clearly drawn. From now until the conference, trade talks between nations and blocs that involve that industrialised North and developing South were expected to be firmly focused on the battle for the end of subsidies. (FIN/IPS/mv/dm/if/ks/mk/99)