The WTO, the TPP, FTAs, and the CAP of the European Union

Abstract

This research examines the interrelationships between the reforms undertaken through the European Union’s (EU) Common Agricultural Policy (CAP) and multilateral rule-making negotiations under the General Agreement on Trades and Tariffs (GATT)/World Trade Organization (WTO), the processes of dispute settlement mechanisms under the WTO, and bilateral negotiations of free trade agreements (FTAs).

Since the Uruguay Round (UR; 1986-1994) of the GATT, multilateral rule-making negotiations have driven by CAP reforms. In 1992―under external pressure from trading partners, including the USA and the Cairns Group of Fair Trading Nations―the EU reformed its CAP to help conclude the UR negotiations. This reform gave the EU a bargaining advantage in multilateral trade negotiations, and ultimately resulted in rules and regulations regarding agricultural market-access and subsidies that were largely advantageous to the EU. The European agricultural sector is still characterized by high levels of protection for domestic producers.

Through the CAP, the EU aggressively reformed domestic agricultural support programs to prevent future disputes being settled under the dispute settlement mechanisms of the WTO. For instance, after a decision against the EU, it abolished export subsidies on sugar and drastically reformed the European Common Sugar Policy. A new, market-oriented policy for sugar production was also introduced under external pressure from trading partners.

The EU also declared some of the most competitive food-exporting countries, including Australia, as unacceptable partners for FTAs. Through trade diversion effects, FTAs concluded among these major food exporters―such as the Trans-Pacific Strategic Economic Partnership Agreement (TPP)―have negatively impacted the economy of the EU. However, the EU aims to reduce these potentially negative impacts by concluding bilateral FTAs with Japan and the USA. Acceding to the TPP would bring little benefit to the EU’s agriculture sector. Thus, while the TPP requires liberalization across agricultural and industrial sectors, the EU rather intends to enhance the international competitiveness of its agricultural products by gradually opening its agricultural market through bilateral FTAs with major trading partners, except the most competitive ones mentioned above.

The EU’s approach to regulate its agricultural markets harmonizes differing interests: maintaining the multilateral trading system; preventing legal disputes; responding to external pressures; constructing global FTA networks; and enhancing agricultural competitiveness. It does so by taking advantage of the various interrelationships between the CAP reforms and the multilateral rule-making negotiations under the GATT/WTO; the processes of the dispute settlement mechanisms of the WTO; and bilateral negotiation of FTAs.