True Friends and Enemies of Reforming the Common Agricultural Policy

Glenn Harrison, E. Rutstrom
March 1992  [92-GATT 8]

We employ an empirical general equilibrium model of the CAP to determine which factors and countries would be expected to be opposed to or support reform of the CAP. The objective is to determine who the "friends" and "enemies" of the CAP are. The analysis studies the extent to which lobbying activity by these interested parties could be expected to encourage or discourage internal EC reform of the CAP. Several alternative polices to reform the CAP are evaluated in this manner, so as to determine if one or other set of policies has greater chance of being accepted. Specifically, we study the recent MacSharry proposals for reform, as well as the stated negotiating positions presented at the GATT. The result will be a summary assessment of the relative politico-economic acceptability of these reform proposals within the EC. Our results lead to a very simple policy conclusion. Given the se of policy packages considered here, there is little doubt that the EC is most inclined to adopt the full MacSharry proposal. This suggests that pushing the U.S. or Helstrom proposals is not likely to lead to EC acceptance unless the EC receives significant compensation from other aspects of the multilateral trade negotiations. If one is just looking for a reform package in agriculture that can be negotiated without consideration of other types of sidepayments than the full MacSharry proposal would have to be the favorite from the EC perspective. Without further disaggregation of the analysis to identify the U.S. or Japan we can only note that the full MacSharry proposal is the best of the group as far as overall welfare goes for the rest of the world. Of course, agricultural interests in the rest of the world have strong preference for the U.S. proposal. These results also imply that a negotiation stance that called the EC to implement the "raw" MacSharry proposal without the elaborate scheme of sidepayments that are built into it would be dangerous. It would cause agricultural interests within the EC to change from being supporters of reform to being staunch opponents. Again, in the absence of sidepayments being effected to the EC from other aspects of the overall trade negotiations on non-agricultural matters, one would not encourage dismantling of the sidepayments scheme that is part of the full MacSharry proposal.

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