Special Section: Trade & Development - Euro-Protection: Free trade? On the Continent? Ha!

This month, a chartered British Airways Boeing 747 will fly from Brussels, the capital of the European Union, to Cancun, a Mexican holiday resort and the venue of the Fifth Ministerial meeting of the World Trade Organization. On board the jumbo jet will be the European Commission's trade negotiators and a cast of supporting actors, including E.U. politicians, spokesmen, and lawyers, officials from E.U.-friendly NGOs, and a bevy of journalists hand-picked to ensure that the "right" message is sent home to Europe. It seems unlikely that this jumbo jet of junketeers will do much good in Cancun; based on their past record, it is more likely that they will prevent good from being done.

In principle, the citizens of the 15 current members of the E.U. and 10 accession states stand to benefit enormously from an opening of international trade. Competition from imports would drive down costs and drive up quality, improving productivity and making the cash in consumers' pockets go further. Meanwhile, the ability to export with fewer restrictions would lead to new and expanded markets for goods produced in Europe. The benefits of trade liberalization to Europeans would be immense.

So much for the theory. In reality, trade policy in the E.U. is driven by powerful vested interests. To the extent that ideology enters the debate, it is rarely from a pro-trade perspective. On the positive side, the E.U. wants to open export markets for its leading industries, including finance and telecoms. On the negative side, it wants to protect big landowners and other beneficiaries of existing agriculture subsidies and trade restrictions.

Europe spends over ?40 billion subsidizing its farmers every year through a scheme called the Common Agriculture Policy (CAP). As with so many subsidy schemes, CAP has been extremely resistant to reform because the beneficiaries are a small group of vested interests, while the costs are spread out among Europe's 380 million citizens.

Although the CAP has many detractors in Europe, the vested interests so far have mostly had their way. But in 2001, the E.U. signed up for a new round of trade negotiations, in which all members of the WTO committed themselves to negotiate an agreement on reducing trade- distorting agriculture subsidies. The problem is that so far it has not been possible to broker a deal that is acceptable to the major agricultural exporting countries.

One reason is that France's president, Jacques Chirac -- a former farm minister -- continues to oppose CAP reform. He fancies himself the defender of France's farmers and, together with Chancellor Schroeder of Germany, is committed to delaying any reform of the CAP for as long as possible.

The E.U. Commission's Directorate General for Trade (the equivalent of the U.S. Trade Representative) is directed by Pascal Lamy, a Frenchman whose term as trade commissioner ends next year. The stakes for Cancun are thus raised because Lamy is keen to broker a trade deal before he leaves. But he obviously wants a deal that is seen as positive not only for Europe but also for his homeland, France, where he will no doubt seek political office.

France is -- on the surface at least -- the most obstinate supporter of agricultural subsidies in the E.U.; but beneath the surface all is not well with the country's pro-CAP lobby. Tenant farmers realize that subsidies drive up rents and reduce their flexibility to deal with changing conditions. With many small French farmers now opposed to CAP, it is unclear how long Chirac and his ilk will be able to continue to support their farmer friends. Could socialist Lamy become the hero of the French industrial class by finally taking a stand against the farmers?

In a year's time, the membership of the E.U. will expand to 25 from its present cozy 15 -- and the new members are all major agricultural producers. Under the current scheme the incoming farmers will receive only a fraction of what farmers in the 15 current members get. This dual system will inevitably create tensions and lead to pressure for further reform. The elimination of production subsidies will become a real possibility. Added to this is the very real possibility that the entire round of trade negotiations might founder if the E.U. does not agree to reduce its farm subsidies to a level acceptable to agricultural exporters; the latter are reluctant to accept any trade agreement that does not include massive reform of the CAP.

Another constituency for change can be found in the poorest nations: For them, CAP reform is a life-and-death matter. Seventy percent of the population of the poorest countries is involved in agriculture. Most of these people are subsistence farmers, producing just enough to survive -- in a good year. In bad years, millions of subsistence farmers and their families starve to death or die of malnutrition-related diseases. The E.U. champions itself as a friend of people in poor countries, but their behavior tells a different story. Take sugar: According to the E.U.'s official Court of Auditors, Europe pays farmers 225 percent more for sugar than the prevailing world market price. Much of this sugar is then dumped on poor-country markets, undermining what would otherwise be successful sugar industries. The same is true for many of the products subsidized under CAP, with surpluses driving down prices and destroying local markets for farmers in poor countries. The International Monetary Fund recently estimated that worldwide elimination of all agriculture subsidies and tariff barriers would lead to a 1.24 percent increase in GDP for sub-Saharan African countries.

Many poor countries are eager to remove barriers to trade in agricultural products and textiles. But they also realize that the E.U., Japan, and the U.S. are reluctant to liberalize trade in these goods. To improve their bargaining position, many of these exporting countries have resisted overtures from the U.S. and Europe to liberalize trade in industrial goods -- and some have been demanding special protection from imports.

In a desperate attempt to protect European farmers, the E.U. has pushed all manner of non-trade issues in the WTO -- including competition policy, investment, and the relationship between the WTO and multilateral environmental agreements (MEAs). The objective of loading the agenda with these items is to divert resources and attention away from the most important item: liberalization of trade in agriculture. The E.U. has sought to broaden the agenda in order to reduce the likelihood of a negotiated outcome. In talks on investment, for example, it has proposed criteria to evaluate corporate investments on environmental grounds. This is unlikely to be acceptable to most WTO members and might become a sticking point -- or at least be used as a bargaining chip. The E.U. also succeeded in sidetracking trade talks into a contentious negotiation over an agreement to allow poor countries without a pharmaceutical industry to import generic copies of drugs from overseas. As a result of these E.U. tactics, a deadline for agreement on "modalities" for agriculture negotiations passed without result at the end of March 2003.

Fortunately, the heat has turned up somewhat since then. Quite rightly, negotiators from poor countries refused to accept the rather pathetic offers put on the table by Lamy; they knew he was holding out and they decided to call his bluff. Then, in mid August, the U.S. and Europe announced a transatlantic deal to reduce trade-distorting support to agriculture. (The announcement, however, made no mention of specific figures or time frames; and, at the time of writing, it seems unlikely that this deal will be approved by the WTO's other members.)

Europe must learn that trade is a two-way street, a process of exchange that leads to benefits all around. If poor countries are ever going to kick the aid habit, farmers in wealthy countries will have to be weaned off agriculture subsidies. This is the best way to help people in poor countries to escape poverty, and to generate income to purchase the services that Europe wants desperately to sell them. Probably no such deals will be struck at the Cancun WTO meeting, and the Doha Round negotiations will remain stalled. Outside the official negotiations, anti-globalization activists may try to claim credit for the meeting's failure. But there should be no mistake: This dubious honor will lie with the European Union and its jumbo-jet passengers, who will do all in their power to protect their vested interests and prevent progress in trade negotiations.