Professor Alan Matthews

Trinity College Dublin, Ireland

24 November 2010

HOW MIGHT REFORM OF THE EU'S COMMON

AGRICULTURAL POLICY AFFECT TRADE AND

DEVELOPMENT?

COMMISSION COMMUNICATION BUILDS ON

PREVIOUS CAP REFORMS

Distinction between Pillar 1 and Pillar 2 spending

ANOTHER VIEW OF THE EU REFORM PATH

CHANGING EU NET TRADE POSITION PUTS

UPWARD PRESSURE ON WORLD PRICES

WHY ANOTHER CAP REFORM NOW?

WHY ANOTHER CAP REFORM NOW?

• To achieve greater equity in the distribution of direct payments between Member States (from old to new)

• To secure legitimacy for CAP spending in the debate on the EU budget

• To address new challenges

• Price volatility

• Food security

• Market power in the food chain

• Support for public goods (climate change)

• Territorial balance

CAP INSTRUMENTS POST 2013

- DIRECT PAYMENTS

• Redistribution between MS (what criteria?)

• Limited to ‘active farmers’ (how defined?)

• Better targeting

• Basic income support payment

• capping

• Green payment

• Natural handicap payment

• Continuation of limited coupled payments

• Small farm measure

CAP INSTRUMENTS POST 2013 – MARKET

MANAGEMENT

• Market orientation is maintained

• Safety net measures will continue

• Risk management toolkit (under Pillar 2)

• Ending of dairy quotas after 2015, future of sugar quotas to be

evaluated

• Improved food chain functioning

CAP INSTRUMENTS POST 2013

- RURAL DEVELOPMENT

• Greater focus on environmental challenges, climate change,

innovation

• More emphasis on outcomes in expenditure evaluation

• New distribution criteria to allocate funds between MS

• Greater coherence between Pillar 2 and other EU funds

TRADE EFFECTS

– WTO MARKET ACCESS PILLAR

• Communication silent on future of export subsidies

• Food security discourse could imply more active management of

import tariffs

• Maintenance of safety net intervention

• Highlights lack of realism in AMS market price support calculation

• Impact of dairy quota removal (and sugar?)

TRADE EFFECTS

- WTO DOMESTIC SUPPORT PILLAR

Developing country concerns about trade effects of EU Green Box spending

TRADE EFFECTS

- WTO DOMESTIC SUPPORT PILLAR

• Communication influences this argument in two ways

• Could change composition of EU green box spending

• More important will be decisions on overall budget envelope for CAP

and division between Pillar 1 and Pillar 2

IMPACTS FOR DEVELOPING COUNTRIES

• Need to take into account heterogeneity of developing countries

• Communication has limited impact on market access opportunities

• EU trade policy initiatives have been and will be more important in

creating new market access opportunities in this decade

• Proposed greater targeting of direct payments will reduce any

remaining trade-distorting effect of direct payments

NEXT STEPS

• Impact assessment early 2011

• Publication of legal proposals mid-2011

• Agreement on reform mid-2012

• Negotiations complicated by new powers for European Parliament

under Lisbon Treaty

• Negotiations will be extremely difficult, and outcome is likely to be

delayed