Agricultural Power in the European Community: Explaining the Fate of CAP and GATT Negotiations

Abstract

For more than two decades the European Community's Common Agricultural Policy (CAP) has been widely criticized for excessively burdening consumers and taxpayers, stimulating surplus production, and wreaking havoc on world markets through price distortions and subsidized exports.1 Over time, the political equation leading to acceptance of these economic effects has appeared increasingly puzzling to critics. After all, the percentage of the EC work force employed in agriculture declined from 21 percent in 1961 to roughly 7 percent in 1990; agricultural output as percentage of gross domestic product (GDP) declined from 4.8 percent in 1973 to 2.4 percent in 1990; and the percentage of the total EC budget consumed by the CAP rose from 16.7 times agriculture's share of the EC's GDP in 1973 to 24.4 times in 1990.2 As of 1990, however, the EC was still allowing the CAP to account for nearly 60 percent of total Community expenditures and to inflate food prices by 7 percent (and nonagricultural prices by an estimated 3.8 percent) over the level that would be reached if subsidies were eliminated.3 Although significant reform of the CAP was achieved in 1992, its liberalizing effects fell far short of the goals of its sponsors and actually increased CAP costs in the short run. Especially since the beginning of the Uruguay Round of GATT negotiations in 1986, the political puzzle underlying the CAP has become prominent focus of discussion far beyond the European continent. The history of the Uruguay Round has been characterized as a battle between the United States, which fought to end trade-distorting subsidies, and the EC, which . . . attempted to protect the current market-managing price support mechanisms of the CAP.4 Disagreement on this issue was major reason for the breakdown of GATT negotiations in December 1990. When provisional GATT agreement was accepted by the EC Commission in November 1992, resistance to the deal by the French government necessitated renewed negotiations; only with grudging American concessions to the EC was final accord reached in December 1993. Throughout these years of difficult negotiations, many observers in the U.S. and elsewhere repeatedly asked why the EC governments would jeopardize GATT deal generally in their interests for the sake of costly agricultural policy benefiting a handful of farmers. This article will explain the puzzle of continued European Community support for CAP that seems on the surface to be increasingly untenable in political terms.