European Trade Policy: What's behind?

Date September 16, 2003
Speaker Michel FOUQUIN(Deputy Director, CEPII)
Moderator NAMENAME(titletitletitle)


Questions and Answers

Q: The message from Cancun was alarming. Developing countries are no longer willing to cooperate as long as rich countries continue to subsidize their agricultural sectors. What is the likelihood of agricultural reform?

A: President Chirac is a strong proponent of agricultural policy. We did an analysis of the effect of European subsidies on trade with Africa, and we found they had a large impact. This analysis is starting to change the minds of many in France. We must be particularly careful of the least developed countries. Least developed and less developed countries are different issues. In pure free trade, the biggest country wins; for example, China and India would win in the textile industry while smaller countries would lose. So how do you treat the least developed countries? Phasing out subsidies will not address this problem, as the least developed countries are net importers of agricultural goods and eliminating subsidies would raise world price, thereby hurting these poor countries, worsening poverty and hunger.

Q: Some of the least developed countries are sugar producers, and a reduction in subsidies would be beneficial to them. Perhaps if there were progress in sugar reform, these countries would contribute to the multilateral negotiations.

A: The biggest winners from sugar liberalization would be Brazil, Ethiopia, and Mozambique. But in Brazil, the sugar producers are not the poor farmers; so reducing sugar subsidies would not help the poor in Brazil.

Q: If the WTO is not functioning well, how long will it take for the poor countries to realize that they are losing more than they are gaining? The United States will be fine, while the small countries would lose because forming bilateral agreements every country in the world would be impossible given their limited resources.

A: I agree with your point.

Q: Would you comment on the development of intra-industry trade in Europe and the other factors in trade liberalization besides trade diversion and creation?

A: The first product exported from France to Germany was a car, and the first product exported from Germany to France was a car. The quality of products between these two countries is similar. And the more trade that occurs between the two countries, the more similar the quality of products traded. The border effect suggests that trade within a country tends to be larger than trade between countries. If Europe were completely integrated, trade could increase eightfold. But there are problems, namely different languages and retail systems. The single currency will help reduce the border effect. Integration leads to a greater number of choices for the consumer, thereby increasing consumer welfare. We do take this into account when analyzing the benefits of free trade.

Q: In what sector is Japan most protected?

A: Rice. Twenty years ago, Japan was very protectionist through its use of non-tariff barriers. Nowadays, it is still difficult but at least possible to trade with Japan. Aside from rice, Japan is on the same level as the United States and Europe in terms of protection. Japan has become less protected and trade conflict has therefore declined.

Q: What will happen after the failure in Cancun?

A: U.S.-E.U. agreement will not be enough. We must take into account the demands of the poor countries as well. It will be more difficult to work trilaterally, but we have to do it.

Q: What is the status of the anti-globalization movement in Europe? If subsidies are removed from agricultural products, the world price may temporarily increase. But are subsidies in rich countries the way to address world hunger?

A: The anti-globalization movement was probably happy with the failure in Cancun. Some of these people try to find real solutions to problems, others are simply against trade. You do find that small countries will lose from free trade, but it does not mean that we must maintain the subsidies. You could get rid of subsidies and still have tariff peaks which you would have to address.

Q: Will Russia join the EU?

A: The population of Russia is moving west, leaving Siberia empty; and this is a geo-strategic concern. Also, Russia's population is decreasing. Russia is a producer of primary goods and oil, and an agreement with Russia could help with Europe's energy situation. Such an agreement is progressing but slowly because there are concerns about enforcement.

*This summary was compiled by RIETI Editorial staff.