Examination of Witnesses(Questions 1-19)
LORD WHITTY,
MR TOM
EDDY AND
MR DAVID
DAWSON
WEDNESDAY 11 DECEMBER 2002
Chairman
1. Lord Whitty, welcome to the European Scrutiny
Committee, it is nice to see you again. Can you introduce your
two colleagues and then we will get started?
(Lord Whitty) This is Mr David Dawson and Mr Tom Eddy
from our International and European Division.
2. Minister, since we invited you to give evidence
there have, of course, been several developments, in particular
the agreement reached in the European Council in October on the
new CAP budgetary ceilings for 2007 to 2013, and the revised offer
to the candidate countries. Can you tell us what the Presidency's
improved offer to the candidate countries involves and what you
think will be agreed at the Summit later this week?
(Lord Whitty) It is a moving situation, Mr Chairman.
The original offer from the Commission has gone through the various
iterations and on Monday of this week there were some further
relatively minor, but for the individual country fairly significant,
further concessions. The Commission is stuck with the 25% of direct
payments. The requirements on meeting most of the regulations
in the agricultural and food safety areas, there are a few transitional
periods, are much less than had been thought in the earlier stages.
The accession countries to a varying degree, were looking for
two things, they were looking for the 25% to go up so that the
structure of the increase of direct payments would be faster.
Alternatively their fallback position was that they could fund
a higher proportion of direct payments from a combination of their
own resources and the allocation that has been given to them under
Pillar II, the agricultural policy. The Commission on behalf of
the Presidency made further offers on that latter point which
will allow them the ability to top-up to 40%, part of which can
come from the rural development side. It is EU funded. There does
appear to be some complication in this but the original proposal
was that 80% of it could come from their Pillar II allocation.
The arithmetic of that is still being looked at. I may ask my
colleagues to explain the latter situations in a moment. The other
additional concessions which were made related to dairy quotas,
and a number of further concessions were made to these countries
individually on varied quotas over the past few days. The results
of Monday and yesterday's deliberations were that most countries
went away saying they could sell the package, although they all
had their individual concerns. The Hungarians were still arguing
for an increase in the 25%. The Poles in particular are still
arguing for more concessions on the quotas or alternatively some
other way of getting additional money. I believe the Polish Government
has endorsed that stance, so Poland wants to come back later to
argue, one way or another, that there should be more money on
the CAP side. The increase in quotas for the accession countries
has, of course, some knock-on effect in relation to existing members.
The Portuguese in particular have said: "If we are changing
reference periods and other things in relation to incoming countries
we are at a disadvantage under the current system, which have
limited justifications". It would open up the floodgates.
The Portuguese have put in a pretty comprehensive request that
their quota system should be looked at and raised significantly.
We understand it will be less systematic if the Portuguese are
going to do it and we want to. We are in a difficult situation.
I think the Greeks will be there soon. That is broadly the position,
it is not a very clear one. There is reasonable confidence that
we can include all of this without significant additional expenditure
or significant additional knock-on effect on existing members
at the time.
Mr Marshall
3. I am pleased at least someone appears to
understand what this system is about. Maybe that is the reason
you were at one time the General Secretary of the Labour Party.
You did mention rural development in your answer to the Chairman,
there is a ceiling on market expenditure under the CAP but there
is no such ceiling, no limitation on rural development. Do you
see this as a possibility of expenditure increasing above the
limits that the Commission has suggested? If so, what would be
the United Kingdom's response to this?
(Lord Whitty) The Berlin limits will apply. The expenditure
limit agreed in Brussels beyond 2006 does indeed apply Pillar
I of the European Agricultural Policy. Clearly post 2006 the total
budget will add limits on all parts of EU expenditure, presumably
including Pillar II. We are not at the stage of deciding that.
What is often said by the British Government, although we may
have to swallow it as part of the deal, is that the ability to
top-up from 25% of direct payments for a mixture of their own
resources, as is allocated in Pillar II, actually slows the potential
for those countries for three years, at least, to shift the expenditure
under CAP in the wrong direction. We would wish to see for both
the Mid-Term Review Report and WTO reasons a shift out of Pillar
I into Pillar II, whereas this provides for the incoming countries
the ability to shift some payments in the other direction. That
seems to us to be a bad precedent, admittedly it is for a limited
period and in order to do a deal, and we are not talking about
vast amounts of money in terms of the total budget, but it is
not desirable.
4. Could I press you a little further on this?
You seem to be saying that there is actually a limit on the expenditure
on rural development in terms of the overall ceiling for expenditure
on CAP. Is that correct, are you saying there could be in practice
a limit within the overall budget for expenditure on rural development?
(Lord Whitty) The deal in Brussels insofar as it related
to post 2006 related only to expenditure under Pillar I, effectively
freezing Pillar I from plus 1% and spreading it from 15 to 25
countries. There has been no equivalent ceiling agreed for Pillar
II, but then there is no equivalent ceiling yet agreed for structural
funds for any other element of expenditure but there will have
to be before we move into the new financial perspective for Europe
in 2006, there will have to be an overall budgetary ceiling equivalent
to the Berlin ceiling. It is not there yet.
5. Can I just press you, I do not really understand
the mechanics behind all of this, are you saying if it looks as
though expenditure on rural development is being used to provide
excessive funds, not just to the applicant countries but to farmers
in the existing 15, if that appears to be increasingly a burden
then action will have to be taken to limit expenditure on them?
(Lord Whitty) No, I am saying two things, we are talking
about two different periods: One, eventually there will have to
be a limit on all parts of EU expenditure, including rural development
post 2006. The deal proposed to the incoming countries allows
them to shift expenditure for the next three years, ie pre 2006,
which notionally bears to draw down under the rural development
theme, expended on areas which are Pillar I and therefore in a
sense go above what was previously allocated in relation to Pillar
I. Initially the proposition was that if they were to do that,
fine, they do it from their own resources. The Commission then
effectively made an offer which said that your own resources includes
the money that has been allocated to you under Pillar II. That,
we think, is not a particularly helpful move but it is a time
limited one and therefore it will expire in 2006-07, 2006 in EU
terms terms.
Angus Robertson
6. Lord Whitty, agricultural policy within the
United Kingdom of course is devolved, Scotland does not have normal
representations in the EU like other Member States, can you give
the Committee an idea of any single policy area which DEFRA or
you yourself are pursuing within the European Union with reference
to these changes which the Scottish Executive has asked you to
pursue?
(Lord Whitty) We have regular discussions with the
Scottish Executive. There is a meeting this afternoon with Scottish
ministers, Welsh ministers and Northern Irish ministers. We discuss
the negotiating positions that we should take in relation to the
enlargement discussions. There is not a particular Scottish view
in relation to enlargement. If you are talking about wider issues
like the Mid-Term Review then there are differences of emphasis
amongst the devolved administrations there which we have to take
into account when negotiating a United Kingdom position. In relation
to enlargement I do not think there is any serious approach amongst
us in the devolved administration.
7. Can you give us an example of a policy that
DEFRA is pursuing that the Scottish Executive has asked you to
do that you would not have done otherwise?
(Lord Whitty) I do not think it is a question so much
of that, it is a question in relation to modulated money, there
were reservations on behalf of the Scottish Executive as to whether
we should support modulation. The conditions on which they would
reluctantly support modulation include an ability to be more flexible
in the payment out of Pillar II, so that we would have differential
ways of spending, and the formula would be the same for the whole
of the United Kingdom, but the way that the money was spent would
allow the Scottish Executive more flexibility as to how they would
spend it. That has been urged on us by the Scottish Executive
and is part of our approach to the Mid-Term Review. Modulation
is part of the Mid-Term Review deal and then we will be looking
at the Scottish Executive, who spend their money in a different
way than England, whereas at the moment the presumption is that
any form of expenditure would be across the nation state.
Jim Dobbin
8. This question is linked to your initial statement
and the responses that you gave to Mr Marshall, following accession
how do you respond to those farmers from Eastern Europe who are
coming in who are having to compete with existing member farmers
who are going to receive higher levels of subsidy?
(Lord Whitty) Of course this is the point that the
accession countries make. We are talking about direct payments
here, everything else is a level playing field. Quotas, we would
argue, are on the same basis as for the existing members, given
the different time scales. They may argue round the edges of that
but in general they accept that. The direct payments were provided,
direct payments are a combination of compensation for the past
price support that has been removed. As far as the incoming countries
are concerned they never had that form of price support to need
to be compensated for. Put crudely, in a sense whenever we do
a direct payment it is a bonus for them. I know they do not see
it that way, but it is. In a sense they are being compensated
for past systems and they did not have those systems. They would
argue, nevertheless, that once they are all part of a single market
and there are relatively few transitional arrangements in this
market that after a few years we should be equal, whereas the
proposal is that we will not be equal on direct payments until
2013. The United Kingdom Government's view in the Mid-Term Review,
and beyond, is that direct payments should be phased out in any
case. By the time we have reached 100% direct payments that would
be a small proportion of support that goes to rural areas. I think
our view is that the quantum would come down as the percentage
goes up and that we would therefore reach something closer to
a level playing field relatively rapidly. That is the historic
rational for existing members getting direct payments at 100%
and not necessarily the incoming ones.
Mr Cash
9. You referred to the advantage that you seem
to believe that they are going to get as a bonus. I notice that
you immediately sought to qualify it to that extent because I
think you are quite right in thinking that they may not see it
the way that you express it in the first place. Here we are dealing
with countries which have an extensive number of people who live
in rural areas, we are now talking about people, their livelihoods
and their way of living. Poland, for example, has two million
farmers. There are serious problems of a political nature—which,
maybe, between you and Mr Dawson you would be able to assist me
with here—because there is no serious doubt that consequences
in relation to the Common Agricultural Policy being applied to
these countries is causing deep unease in these countries and
in the populations. Do you think that the complaint which many
people think is justified by these farmers will be translated
into a serious reaction against going into the enlargement process
as they move forward? Are you anticipating any reaction along
those lines in Copenhagen?
(Lord Whitty) I think it would be justifiable for
some of the accession countries to say, because we have such a
large agricultural sector unless we do a positive deal then there
will be political problems in winning any referendum. Probably
Poland, and possibly Lithuania are the only ones where that is
a serious problem, actually making a difference between winning
and losing, because in countries like the Czech Republic and Hungary
the reality is that while there are problems in their agriculture
their population which is directly engaged in agricultural is
pretty much approaching Western European levels, if not quite
British levels, and it is less of a political problem. A political
problem for all of them is having to sell a total package, not
just the agricultural package. The total package, details of which
will be determined at the end of the week, will ensure that if
there is any disbenefit as a result of the individual items, including
agriculture, then there will be a compensatory mechanism making
sure the country as a whole is no worse off than it previously
was. If that arose because of the fact they are only getting 25%
as a direct payment as far as the incoming countries as a whole
are concerned the amount of money going to them will not suffer
as a result of that. That is fine for most of the incoming countries
but I suspect in terms of the politics you are referring to in
relation to Poland they have to be assured that they will have
access for their agricultural and rural sector to a greater degree
than many of the other accession countries. I have argued with
those from the accession countries I have met in various contexts
that actually it is in their interest to do what the United Kingdom
wants in terms of the future of the CAP, that is to shift resources
away from these direct payments and into rural development issues.
What is really the problem is that they need both infrastructure
and modernisation of their rural industry and their agricultural
sectors rather than a direct encouragement to over produce, which
the subsidy regime under direct payment currently provides. I
think there is a question of looking in the immediate term at
the total package rather than the individual measures that make
up the total package and in the longer term looking at where their
real interests lie in terms of developing what are in some cases
very under developed and poor rural areas dependent on a form
of agriculture which is going to have to change to some degree.
10. Basically, what you are really saying is
that the money will be found and funded through some other source
even though the money is not available in the accounts of the
European Community and that there will be, I think, we can fairly
say from the Court of Auditors Report, et cetera, a fiddling of
the books to say make sure that somehow or other they are made
to feel happier than they would otherwise?
(Lord Whitty) There are two periods we are talking
about, the money we are talking about would be available within
the Berlin ceiling for the first three years. The situation thereafter
is that we do not have an overall ceiling, we have a CAP Pillar
I ceiling and certainly if we were to pay the money via 100% direct
payments or something approaching it then we would very rapidly
run out of that money—we would calculate by 2008, and indeed
if we make any more significant concessions earlier than that.
We are actually at the beginning of the next financial round.
The immediate compensation is to ensure that the total package
of money does not leave any of the countries, for everything,
not just agriculture, worse off than they currently are and could
be met under the Berlin ceilings.
Miss McIntosh
11. Can I ask how confident you are, Lord Whitty,
that you will carry the British farmers with you in these negotiations?
As you will be aware, many formally quite wealthy United Kingdom
farmers, particularly in areas like the Vale of York, are facing
financial ruin, how confident are you that you will be able to
carry them with you through the difficult negotiations?
(Lord Whitty) I think as far as the enlargement negotiations
are concerned I think there was some concern as we approached
enlargement from the farming community that they would be faced
with an influx of competitive agricultural produce from Eastern
Europe and Central Europe. I think the reality is, and I think
most farmers represented recognise that, under the arrangements
between the EU and the accession countries in the EU there would
be access for most of those products in any case. What we provide
with a single market is that they are produced under the same
conditions as they are produced in Western Europe amongst the
existing Member States. Therefore accession of the ten new countries
will mean that we will be on more of a level playing field than
we are now. I think in general that it is now accepted in the
farming community that enlargement as such is not a threat to
them and, indeed, should provide them with the prosperity that
it will bring a larger potential market for competitive British
farming produce. It is a different issue when we talk about the
reform of the CAP, but in relation to enlargement, as such, I
think there is not so much alarm in the farming sector as when
they first contemplated it.
12. Do you think they would have had more confidence
in Britain's negotiating position if France had been taken to
court for failing to take United Kingdom produce, after all France
is one of our existing markets?
(Lord Whitty) I think that is an entirely different
issue. I think that France has been brought to heel and that is
the main outcome of that process. As you know, the decision whether
to pursue further damages was a matter for the Commission, the
Commission did take them to court, they got the court judgment
and they went back to the court to enforce that judgment. The
only issue a few weeks ago was whether they went back again—France
having finally agreed to implement the court decision—to
impose fines on France. The Commission decided against that. If
you want my opinion on that I would have preferred the Commission
to have been a bit heavier, however I think the result is the
important thing.
Mr Marshall
13. In response to Miss McIntosh's first question
you said that British farmers were not likely to face as much
difficultly as perhaps she seemed to imply because of the additional
costs that the farmers in the accession countries would have to
face in terms of regulations and meeting conditions which the
Western European farmers have to meet at the present time. Can
you give us some idea, some indication of what those additional
costs are likely to be for the farmers in the accession countries?
(Lord Whitty) I am not necessarily talking about additional
costs because the application of some of the EU regulations of
themselves, at least in the medium term, will be a more efficient
way of producing. I am saying it would be unfair competition if
they were not subject to the same regulations, it would be reasonable
for British farmers to argue they are subject to unfair competition.
If that comes in in Tariff 3 that without EU regulations applied
there is an argument that they are undercutting Western European
and particularly British produce there will be a cost for some
of the regulations, but that is not the main point.
14. What is the main point?
(Lord Whitty) The main point is that they are produced
under the same conditions, they are subject to the same regulations.
15. Is that not an increased cost?
(Lord Whitty) It may or may not be an increased cost,
in some cases it will be an increased cost.
16. How else will it materialise?
(Lord Whitty) Certain production methods will not
be allowed. In that sense the production methods which continue
to be allowed and the food safety standards which are in force
might lead Polish agriculture to become more efficient, and they
are on the same conditions.
Mr David
17. The enlargement of the European Union is
obviously an EU priority, it is one of Britain's biggest priorities
and therefore it is important that we come to an agreement with
the applicant states at or immediately before Copenhagen. It is
also a British priority that we have reform in the Common Agricultural
Policy and the Mid-Term Review in that respect is absolutely crucial.
Is there not a danger then that by the new Commission proposals
increasing the level of subsidies which goes against one of the
principles behind the Mid-Term Review that the long term reform
of the CAP will be made more difficult if we have an agreement
in Copenhagen which increases the levels of direct subsidies?
(Lord Whitty) I am not sure the Commission propose
to increase the level of subsidy. The system is still the same,
the quotas have gone up slightly and there is a cost attached
to that. It is on a reasonably rational basis, obviously there
is a bit of fudging and mudging when you get to the end of these
negotiations. The issue of topping up, it is topping up to 40%
of what Europe is getting, it is not new money in that sense,
it is either accession countries money or it is money that was
previously provided for a different purpose. What I do think,
which I think lies behind your question, is, does the nature of
a settlement make it less likely that the incoming members will
favour support when they become full voting members of the change
in the CAP? That is one of the reasons why I was a bit apprehensive
about moving money from rural development back into Pillar I.
As far as the Mid-Term Review itself is concerned decisions on
that will be before enlargement, they will be decided on votes
of the 15 not on votes of the 25. Whilst enlargement was one pressure
for reform it is not the main pressure for reform. There are three
main pressures for reform, one of which is the budget limits,
one of which is changing public opinion in most European countries
towards agricultural support and the third, which is the most
immediately acute, is the need for the EU to go into the WTO negotiations
with a package which removes or is committed to removing the direct
production subsidies under CAP. We have to decide that before
we get to the crunch WTO negotiations in September.
Mr Cash
18. Whatever is finally agreed on enlargement
is obviously going to have a critical bearing on the wider outcome
of the Mid-Term Review, what headroom in practice will enlargement
leave between CAP expenditure and the new budgetary ceilings agreed
in October?
(Lord Whitty) The current proposition will leave very
little headroom under Pillar I. The ceiling is only a Pillar I
ceiling and it is beyond 2006. Leaving aside all of the other
pressures for reform that I was talking about, if we continue
to operate on the present basis then on our calculations the deal
would move close to the ceiling budget anyway and any better deal
would reverse the headroom, if you like, even more. There is not
any real headroom if we are only focusing on Pillar I. If we are
to look at Pillar II, then Pillar II expenditure, a shift of the
whole support system into Pillar II, is not only desirable for
WTO purposes but it is also desirable for internal purposes. We
would be in a situation where, just to put some figures on the
Pillar I position, in 2007, which is the first full year of the
new system, there would be headroom on our estimate of 800 million
euro, whereas by 2008 that would go into minus 200 million.
19. It is a bit of an Enron type situation,
is it not? We have been watching this now for the best part of
20 years one way and another, we are now getting into this new
situation and the money is not there. The reality is that for
what are regarded as good reasons there is a determination to
try to match the difficulties that are inherent in the CAP with
the practical realities of the situation globally and in Western
Europe, but the reality is that however much you look at the figures
and you juggle with them and play round with them on any budgetary
arrangement, which will be reviewed again by the Court of Auditors,
the figures just do not stack up. That is really the problem.
I put it to you that you may be trying your best but for practical
purposes it ain't working.
(Lord Whitty) Our objective and the Commission officials
objective is to reduce the direct payment and therefore bring
Pillar I expenditure pretty rapidly down during the period post
2006, as well as start on that before 2006, which would mean we
were less likely to hit the ceiling. Clearly they will have to
find a new financial perspective, it will have to be the overall
constraints of the budget as well as on Pillar I. At the moment
the only ceiling we have extant is the Pillar I ceiling. You are
right, if we go on as we are and we spread Pillar I expenditure
over 25 countries rather than 15 then one year in we would be
in serious trouble.
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