Why Agricultural Protection in the West Causes So Much Debate in International Trade Negotiations - Essay Example

Based On The Existing Literature, Assess The Likely Impact Of Abandoning The Common Agricultural Policy. Use Your Findings to Explain Why Agricultural Protection in the West Causes So Much Debate in International Trade Negotiations Table of Contents Table of Contents 2 Introduction 3 Impact of CAP on Agricultural Producers in Developing Countries 7 Impact of CAP on Consumers of Developing Countries 8 Discussion about the agricultural protection in the West relating to international negotiation 10 Conclusion 12 References 13 Bibliography 17 Introduction Common Agricultural Policy (CAP) has been the keystone in the policy of European Union (EU) related to agro-business in the rural areas. CAP was proposed by the European Commission in 1960 which principally focused on providing coordinated framework related to cultivation for the maintenance of abundant supplies, to enhance productivity as well as to create a balance between both customers and producers. However, CAP has stimulated from being solely concentrated towards manufacture-based structures of subsidizations to a system that specializes in the orientation of markets, safety of food and environment and welfare for animals among others. In this context, it can be stated that authoritative agencies had been eager to take the opinions of the public on matters related to agriculture and on the CAP in an attempt to realize people’s interpretation for these matters from a generalist point of view and their reactions towards the development of the agricultural policies (European Commission, 2010). Considering these aspects, the essay will be based on evaluating the possible impacts of abandoning CAP in Europe. Furthermore, the essay will also intend to explain the reasons for debate in international trade negotiations due to agricultural protection policies enacted in the Western countries. Impact of CAP on the agricultural producers in Europe The CAP is considered as one of the oldest policies of EU. CAP syndicates direct support for production of crops and agriculture land in terms of least prices of tariffs and quotas on certain agricultural products. The major objectives of CAP are to provide agricultural producers with a sustainable standard of living, quality food products at reasonable prices and protection of rural heritage. CAP, thereby intends to enhance the productivity by promoting technical improvements and ensuring optimum utilization of production factors, especially in relation to labor policies. CAP also helps to stabilize the supply and demand of agriculture products in the market by securing the availability of supplies. Thus, abandoning CAP would lead to disruption in the production of agricultural products and producers of Europe in several ways (Rosset, 2004). CAP is a cohesive system which helps to control the price level of agricultural products within EU. One of the most significant facilities of CAP for agricultural producers is direct subsidies. CAP provides agricultural producers of Europe with direct subsidies in order to motivate them to enhance the production of crops and to maintain the stock of home grown crops. Thus, if CAP is abandoned, it would harm the agricultural producers by restricting the changes to attain adequate cash inflow to incur the necessary farming expenses and hence would hamper the production of crops at a larger scale. Furthermore, the reform of CAP had also provided the agricultural producers with a greater liberty to select those crops which have high demand in the market. Furthermore, CAP also provides production quotas in order to prevent overproduction of certain food items such as milk, jot and grain among others. As a result, abandoning the CAP would result in excess production which shall not only lead to the wastage of resources but also cause damage of crops due to overproduction (Trinity College Dublin, 2010). As stated by Donald & et. al., (2001), the CAP protected agricultural producers of European Union Member States in two different ways. Firstly, CAP helped to stabilize the market by fixing the prices of agricultural products and by maintaining appropriate stock through purchasing additional crops. Secondly, CAP enforced duties on imports of cheaper agricultural products and granted export refunds for permitting surpluses to be exported competitively in the world market. Therefore, through the capital grants permitted by CAP, it gradually became possible for agricultural producers to utilize modern agricultural technologies in the production process gaining competencies in terms of better cost efficiency and production capacity. Hence, abandoning of CAP would mean that the extensive methods of production will no longer persist in the production of agricultural goods. Moreover, CAP branches are considered collectively as EU’s commercial partners worldwide. For example, Cairns Group, one of the CAP branches provides partial benefit on the non- subsided agricultural producers on world markets. Hence, if CAP is abandoned from Europe, the agricultural producers of Europe would have to suffer due to lack of technological activities that are required for the attainment of ultimate success (Donald, et al, 2006, pp. 171-173). According to Demekas & et. al., (1988), CAP has allowed farmers for intra-European Commission (EC) trade of the agricultural commodities. The part of the agricultural expenditure proposed on behalf of the government for grants in the exporting countries has also been avoided due to CAP. From a broader observation it was again revealed that CAP also has an impact on employment facilities as well as on the allocation of capital and labor. Hence, if CAP is abandoned, it would affect the economy of the European community by a large extent (Demekas & et. al., 1988). Impact of CAP on consumers of Europe According to European Communities (2004), in the early years of 1990s, CAP was practices following certain objectives to satisfy the basic food necessities of the society during the post European war period. Thus, CAP played a vital role to ensure the stability in supply of food. It also provided subsidies to the farmers and inducements for manufacturing the food products (European Communities, 2004). As stated by Howarth & et. al. (2012), CAP attempts to provide support to the farmers of Europe for agricultural output and to the consumers of the EU by an extensive level. With the application of CAP methods it has been possible for farmers to enlarge the growth of products that ensured profitability and effective productivity. Thus, if CAP is abandoned, the growth of agriculture shall have to witness high risks of getting strangled (Howarth & et. al., 2012, p. 31). The Consumer Committee of Europe had stated that CAP can lead to extra cost burden for consumers. In this regard, it is being assumed that CAP pursue its own benefits and hence it can generate high cost for agricultural and food products. As a result, CAP would enhance the expenses of consumers to a certain extent. It is also being criticized on the basis that in order to maintain stability in the agricultural market, CAP artistically enhances the prices of food products all throughout the European regions by imposing high level of tariffs and by constraining competition by non-European agricultural producers. This high price of food products put much burden on low income group people owing to the fact that maximum portion of their income is expanded on food. However, CAP had undergone significant changes due to interests of consumers. It is after the alterations that today, with the help of CAP, the farmers are now able to react effectively with the market demand. Hence, abandoning CAP would not only impose an impact on the production of food products, but also result in high prices due to insufficient reaction of producers according to market demand. As a result, the consumers of Europe will have to face increased financial pressure (Trinity College Dublin, 2010). Impact of CAP on Agricultural Producers in Developing Countries Donald & et. al., (2001) stated that with the abolition of CAP, the farmers of the EU will be assisted by export subsidies, import tariffs and supply controls (Donald & et. al., 2001, p. 173-174). As CAP provides better agricultural facilities with better quality equipment it is required to sustain CAP for extensive agricultural growth. Thus, if CAP is abandoned then the production process will be hampered in EU (Einarsson, 2011). Therefore, it can be stated that CAP has a significant impact on the developing countries in terms of agricultural trade policy, regulation of prices and development of cooperation policies. Moreover, the impact would assess on the social, cultural, and the demographic heterogeneity within the developing countries as a whole (European Commission, 2011). CAP can thus influence the agricultural producers in developing nations by three ways. First, CAP imposes strong influences on the prices of agricultural products in the international market. It is in this context that by imposing export subsidies, tariff barriers and providing support to domestic agricultural producers, CAP can effectively increase the competition for agricultural producers in developing nations. Secondly, CAP has a significant impact on the inconsistency of the market of agricultural products. It attempts to stabilize the internal prices of agricultural products for the producers of EU which is quite likely to have an impact on the producers of developing nations for exporting agricultural products to the international markets. Thirdly, by imposing non-tariff barriers, CAP can affectively enhance the cost for agriculture producers of developing nations to access the market. Furthermore, CAP also eliminates the small producers of developing nations to engage with global supply chains. Thus, from the perspective of the producers of developing nations, abolition of CAP would help to minimize the cost of agricultural products which can further enhance the agro based income in developing nations. On an average, developing nations are being negatively affected by the enactment of CAP as it restricts competition making the domestic producers decipher a protectionism attitude. Hence, with the abolition of CAP, several low cost producers will be able to enter in the international agricultural market; as a result of which, they will be able to supply foods with low cost which shall not only have an impact on developing nations but also on the consumers of Europe (Trinity College Dublin, 2010). Impact of CAP on Consumers of Developing Countries From 1985, certain reforms had been taking place in CAP, comprising preservation of natural sites and wildlife, while decreasing the requirement of overproduction. CAP focuses on the retention of landscapes, avoidance of violation of unwanted vegetation of agricultural land, and protection of permanent pastures. Hence, the consumers of the developing countries is quite likely to lose certain amount of subsidies through export policies (Cantore & et. al., 2011, p. vi). For instance, abandoning CAP would cause certain casualties such as, In the global markets, it will affect the prices and demands for agricultural exports from developing countries It will also affect the usage of land for production activities as well as in the environmental conditions. Abandoning CAP would impact on the methods of production in developing countries (PBL Netherlands Environmental Assessment Agency, 2012) The obvious gainer from the abolition of CAP would be the developing nations such as Brazil, Indonesia, India, China and Thailand among others. These nations will be benefitted due to increase in the prices of agricultural subsidies by developed nations such as Europe and US. The developing nations will gain even more as abolition of CAP would result in the elimination of agricultural tariff which protect the export of crops. However, the Least Developed Countries (LDCs) would be negatively impacted if CAP is abandoned. The exporters which are protected by CAP would also suffer if it is abandoned. Agricultural exports of LDCs are usually sustained by privileged market access system. It is in this context that with the abolishment of CAP, the agricultural market will be liberalized which significantly decrease the value of these privileges. With respect to consumers, it can be stated that the abandonment of CAP on consumers of developing countries will depend on the extent of changes in the price of food products in the international market and also on the transmission of these price changes in the domestic food market of developing nations. Furthermore, the income structure of developing nations will also determine the impact of abolishing CAP which would probably reduce the poverty in middle income developing nations (Trinity College Dublin, 2010). Discussion about the agricultural protection in the West relating to international negotiation Integration of world economy had significantly progressed since the second half of 20th century through tariff reductions, capital drives and foreign direct investments. This integration calls for liberalization and reduction of protection levied by governments. One of the most protective sectors with respect to trade can be found in agricultural segments. Several policies, such as CAP are being designed for protecting the agriculture of western nations. Most of the agricultural policies of west lack cross border foundation. In this context, it can be stated that US and Europe had traditionally used a mix of both import restrictions and export subsidiaries in order to protect the domestic agricultural segment (Paarlberg, 1996). The protection of agriculture in the West significantly impacted the systems of WTO and their legitimate guidelines towards trade negotiations. International negotiations also geared towards agreements for trade liberalization have been proceeding since 1986 with the initiation of ‘Uruguay Round’. It has often been observed in this regard that the international negotiation on agricultural trade and subsidies are quite critical and confusing in nature. In the earlier stages, trade negotiations for agricultures were looked upon as a two-sided affair between the EU and the US. The output of discussions in the context of agricultural trade hereby replicate on the inequalities in power negotiations. In this regard, the Uruguay Round Agreement on Agriculture (AOA) provided a multidimensional frontage for which designing of two-sided affairs became essential rather than to pressurize the subsidies of the EU and US in agricultural aspects. Moreover, international dispute-panel threw challenges to the agricultural support systems of EU and US by generating instances for future actions. More importantly, international negotiation concentrating upon agricultural productions in US and Europe had also obtained significant reductions in tariffs which were quite high. The high tariff on agricultural products actually discriminates poorer nations to participate in international agricultural trade. While western nations can provide financial support to their agricultural producers, poorer nations cannot afford to expend money on agriculture. Due to this reason major concentration of international negotiation was provided on reduction of tariffs. However, on the latter part of negotiation, concentration was also provided on trade liberalization (Watkins, 2001). Trade liberalization would provide elimination of barriers to trade. The major issues of trade liberalization was increased market access for agricultural producers of developing nations, domestic affiliates, export subsidiaries, market concentrations and special protections among others. Therefore, through liberalization, it would provide more economic growth and profit gaining opportunities. It is now commonly shared that the agricultural segment of western nations such as Europe and US has gone through several international negotiations with mixed outcomes. Thus, considering the outcome of negotiations, it can be stated that the agricultural segment of west require establishing good reputation in order to sustain competitiveness, profitability and to differentiate the products from other international goods. The challenge for west with respect to agriculture is twofold, i.e. on one hand, it is essential to provide agricultural products with qualities that are required by customers, and on the other hand, the customers must be informed regarding the quality of products in the market (Rosset, 2004). Conclusion From the above observation, it can be comprehended that CAP is an important policy related to the development of agricultural operations in most of the developed and developing countries. It was initially implemented by European Commission which focuses on providing coordinated framework related to cultivation of agro products, maintenance of abundant supplies, enhancement of productivity, as well as maintenance of a balance between both customers and producers. However, abolition of the policy could bring different impacts on various parties associated with the international trade of agricultural products. For instance, for agricultural producers in Europe, abolition of CAP would negatively impact on the productivity due to the eradication of protective measures. On the other hand, for agricultural producers of developed nations, abolition of CAP would result in new opportunities to trade with west nations. Furthermore, the extinction of the policy would also impact the environmental conditions to a large extent. However, in order to enhance the performance of CAP, certain steps should be adopted which could assist in the liberalization of the developed and underdeveloped countries. Conclusively, it can be stated that with the abolishment of CAP, it would diminish the trade regulations and the market prices of agricultural products. References Cantore, N. & et al, 2011. CAP Reform And Development. CAP Reform And Development - Introduction, Reform Options And Suggestions For Further Research. Pp.1-52. Donald, P. F. & et. al., 2001. The Common Agricultural Policy, EU Enlargement and the Conservation of Europe’s Farmland Birds. Agriculture, Ecosystems and Environment, Vol. 89, pp. 167–182. Demekas, D.G. & et al, 1988. The Effects of the Common Agricultural Policy of the European Community: A Survey of the Literature. Journal of Common Market Studies. Vol. XXVII. Pp. 113-145. European Communities, 2004. The Common Agricultural Policy Explained. Published by Eugène Leguen de Lacroix, pp. 3-33. Einarsson, A. 2011. The Food Retail Market and the Common Agricultural Policy in the Nordic Countries and the Countries Applying for EU Membership. The CAP Reform. Bifröst Journal of Social Science, Vol.5. European Commission, 2011. Common Agricultural Policy Towards 2020. How Does The CAP Influence Agriculture In Other Countries? [Online] Available at: http://ec.europa.eu/agriculture/analysis/perspec/cap-2020/impact-assessment/annex12_en.pdf [Accessed November 22, 2012]. European Commission, 2010. Europeans, Agriculture and the Common Agricultural Policy. Introduction. [Online] Available at: http://ec.europa.eu/public_opinion/archives/ebs/ebs_336_en.pdf [Accessed November 22, 2012]. Howarth, C. & et al., 2012. Open Europe, Annex 5: Methodology. More for Less: Making the EU’s Farm Policy Work for Growth and the Environment. pp. 3-34. PBL Netherlands Environmental Assessment Agency, 2012 COUNTRIES. Reform of the EU Common Agricultural Policy: Environmental Impacts in Developing Countries. The CAP Reform Will Hardly Change The Environmental Impacts Of The CAP In Developing Countries. [Online] Available at: http://www.pbl.nl/sites/default/files/cms/publicaties/pbl_2012_reform_of_the_EU_CAP_583_500136006.pdf [Accessed November 22, 2012]. Paarlberg, R. L., 1996. The Uruguay Round and Agriculture: International Path to Domestic Policy Reform? Harvard University. [Online] Available at: http://dev.wcfia.harvard.edu/sites/default/files/WCFIA_96-01.pdf [Accessed November 22, 2012]. Rosset, P.M., 2004. Agricultural Subsidies and Trade Issues: The Key Alternatives. Carnegie Council on Ethics and International Affairs. Pp. 1-58. Trinity College Dublin, 2010. Exploring Links between EU Agricultural Policy and World Poverty. Research. [Online] Available at: http://www.tcd.ie/iiis/policycoherence/eu-agricultural-policy-reform/impact-cap-developing-countries.php [Accessed November 22, 2012]. Watkins, K., 2001. WTO Negotiations on Agriculture: Problems and Ways Ahead. Background Briefing Paper for Session 1, pp. 1-27. Bibliography Ackrill, R., 2000. Common Agricultural Policy. Continuum International Publishing Group. Commission of the European Communities, 1974. The Common Agricultural Policy. The Commission. European Commission. Directorate-General for Agriculture, 1998. The Common Agricultural Policy: Promoting Europes Agriculture and Rural Areas--Continuity and Change. Office for Official Publications of the European Communities. Hill, B. E., 1984. The Common Agricultural Policy: Past, Present, and Future. Routledge. Lynggaard, K., 2006. The Common Agricultural Policy and Organic Farming: An Institutional Perspective on Continuity and Change. Cabi. Read More