EU trade policy stuck in time warp

The current discussions around a proposed Mercosur trade deal are a throwback to the pre-2008 economic crash. Then the EU policy on agriculture was that it was dismissed in terms of its relevance and economic effect and was a giveaway in all trade negotiations.

Now that the EU has finally emerged from this recession, it appears that history is repeating itself. The key issue isn’t just that the EU has offered at least 70,000t of additional South American beef access to the EU market. Nor is it the fact that this new import quota will cause a significant price reduction in the EU beef market. It isn’t even the issue that there is at least a question over adherence to EU production and processing standards of beef, particularly in Brazil.

There is also the question of the UK departure from the EU which will have a major effect on the Irish and the EU beef market.

Any of these issues would be sufficient in their own right to challenge the rationale of making an offer to Mercosur countries to accept tens of thousands of tonnes of their beef at a favourable tariff rate.

The big issue that emerges from this offer to Mercosur in the pursuit of a trade deal is the theory that benefits accruing to the EU car manufacturers or banking sector will somehow compensate Irish and other EU beef producers that will inevitably experience a drop in prices.

The reality of course is that this “free market invisible hand” ideology does not deliver for farmers in Ireland or across the EU.

The EU single market does not operate at a level of efficiency whereby income increases in sectors or even in individual member states that delivers better economic outcomes in other sectors or other member states.

Banking crash

The banking crash of a decade ago meant a widespread loss of jobs and income for many across the economy – somewhat ironically this coincided with a time, particularly for Ireland, when the agricultural sector delivered growth and relative prosperity that wasn’t experienced by the wider economy.

In this period Ireland experienced the reality of the free market, particularly in the banking sector. The entire economy including the “boring” but stable agricultural sector, had to pick up the tab for the flamboyance of the banking sector that crashed and burned in 2008 leaving the rest of the economy to pick up the pieces. The invisible hand of the free market delivering for Irish farmers was indeed invisible.

Whatever about the ideology, the reality is that it is only targeted intervention that works.

European Commissioner for Agriculture and Rural Development Phil Hogan demonstrated in his responses to the Russian export ban post-2012 and the price volatility in the dairy and other sectors in 2015 and 2016 that only direct targeted intervention focused on the sectors and regions most affected and of sufficient resource has the potential to have the desired effect.

A pronouncement from the EU that a new Mercosur-type trade deal in which those such as beef farmers who will be most affected, have no say or vote, is a “market signal” that suggests EU producers are inefficient, completely inaccurate and misleading, even if it fits the EU free trade textbook neatly.

If DG Trade wishes to continue its pursuit of an economic textbook 20th century trade policy based on aspirational GDP-wide benefits of globalisation, it must be done with meaningful financial compensation for those sectors whose livelihoods are directly affected.

The consequence of not pursuing an equitable solution for agriculture if it has to be sacrificed in the interests of the “greater good” is evident in industry that is lost in Ireland the UK and further afield in the EU.

The demise of previously great industries brings with it a feeling of a population left behind. Nowhere is this more evident than in the US with the demise of traditional industry.

When this happens, a disgruntled population and electorate emerges. They cling to a populist solution that may be a mirage but it is a better picture than the reality of the consequences of free trade secured at any price.