Examination of Witnesses(Questions 20-32)
LORD WHITTY,
MR TOM
EDDY AND
MR DAVID
DAWSON
WEDNESDAY 11 DECEMBER 2002
20. Would you not be in favour of a European
taxation that has been advocated by Geraldine Francis?
(Lord Whitty) No. I think the Chancellor has made
his opinion very clear on that and far be it from me to dissent.
Mr Cash: I am very glad to hear that.
Mr Tynan
21. Many see the enlargement process as an opportunity
to reform the CAP, could you explain the assumptions as regards
the latest expenditure figures made in the Mid-Term Review? For
example, do you assume that compulsory modulation will take place
for the sort of levels the Commission is indicating and if the
Council were to reject those figures is the ceiling breached as
far as you are concerned?
(Lord Whitty) The decisions on the Mid-Term Review,
including the modulation proposals, will be negotiated over the
next six months. We would have liked not only a shift from Pillar
I to Pillar II but also some digressivity, ie cuts in the total
budget. The proposition is not for cutting the total budget, the
proposition is to shift money via modulation out of Pillar I into
Pillar II. There were other ways of doing that, you could have
just cut Pillar I and established a higher Pillar II—that
is in Fischler's proposals—if that happens then we will
not run up against the ceilings which run to 2006, we would only
run up against the ceilings post 2006, a bit later, because the
only ceiling is on Pillar I. The modulating money would go out
of Pillar I, into Pillar II and therefore it would not be effected
by the ceiling. The decoupling proposal, as I understand it, which
is decoupling the sheep regime from so many euro per sheep giving
a general payment to farmers that would still count, as we understand
it, as Pillar I expenditure. The fact that you will be bouncing
up against the ceiling fairly early in the new financial perspective,
you currently could not avoid it by only going for decoupling,
you could through modulation, depending on what the ultimate ceilings
are going to be in the new financial perspectives for all EU expenditure.
The other big factor here, I will return to it, is in a sense
if you ignore the decoupling or ignore modulating then there is
not a credible EU position in the WTO negotiations because our
subsidies will still be seen in WTO terms as trade distorting
and related to subsidising reduction.
22. Do you believe there is an opportunity or
chance of the Council rejecting the level set by the Commission
as regards compulsory—
(Lord Whitty) I think the proposals which were agreed
at the GAERC on Monday and Tuesday would be unacceptable to the
heads of state, although there will be a bit of shifting, partly
because the Portuguese proposal is that we look at existing members.
There will be some late night negotiations with a fine print that
will be less than totally logical. I think a deal is there. If,
however, the Hungarians, the Poles and others who are saying this
is not acceptable were to maintain that position to any great
degree and the Portuguese and others would say, "the only
way we can deal with that is by a significant increase in our
own quotas and our own money", then there is a possibility
of failing. I believe the deal as it stands at the moment broadly
speaking, subject to a little bit of shading, is likely to be
acceptable to the heads of government.
Mr Cash
23. You used the word "shifty", I
think it should have been shifting, not shifty. In what must also
have been a fraudulent slip you then referred to the issue being
somewhat "shady".
(Lord Whitty) Shading.
24. This is no criticism of you at all, I think
it is inherent in the whole situation. If the ceilings could accommodate
the present proposal would they leave room for reforms in the
other sectors where they are needed, such as sugar?
(Lord Whitty) The sugar regime runs to 2006 and the
diary regime, which is the other big one, which is not really
reformed by the mainstream NTR proposals, comes to an end in 2008.
Fischler wants to make propositions to reform and liberalise both
of those regimes, probably trying to wrap up the dairy one in
the overall proposals and sugar would probably be dealt with secondly.
If the result of removing the present price support system from
sugar, for example, meant that you had to compensate beet farmers,
at least for the transitional period, the cost of that would have
to come out of the Pillar I money and therefore it does make the
total amount of money there more difficult. It means you have
to reduce something else if you are going to keep within the ceilings.
At the point where the transitional cost of reforming the sugar
regime emerged it would have to be paid for out of that. At the
moment if the beet farmers get it right it does not really appear
on the budget in quite that way. Any compensation for loss of
that price would have to be paid for out of Pillar I money, other
bits of Pillar I money would have to give.
Mr Cash: You have given a very good explanation
of how difficult it all is.
Mr Marshall
25. Lord Whitty, you have indirectly answered
this question in response to Bill Tynan's previous question, so
we can get it on the record can I ask you the question quite explicitly,
is there a political will within the Council to come to an agreement
on the Commission's proposal? Secondly, to try and get away from
some of the specifics and the minutiae of the questions we have
been asking, could you give us a feeling for the negotiating position
in the Council itself to give us an idea of how the various countries
are lining up either for or against the Commission's proposals?
(Lord Whitty) It is not the Commission's proposals
any more, it is the proposals that have come out of the GAC. Do
you mean the enlargement negotiations or the MTR negotiations,
we are in danger of confusing the two. Do you mean the decision
to be taken at the end of this week?
26. Yes.
(Lord Whitty) There is a common position with the
current EU members orally that would accept, in my view, what
has come out. There is this complication of the Portuguese having
raised their own quotas. Subject to that all Council members would
be prepared to accept the proposals that have come out on Monday
this week. Clearly the Germans are particularly concerned that
we do not pay any more. We consider that the present deal is very
generous to the accession countries and is significantly more
than the original proposition. We do not wish to go further than
that. I believe that to be the position of most countries. The
complications of people saying, you have been so generous that
we now must look at our own structure does mean that the Portuguese
and possibly other southern countries might have a slightly different
position. I think that will be a minority position which will
eventually be accommodated or brought in line. I think there will
be a deal. There is very strong political will for a deal on enlargement.
I think these issues will be resolved, but it is not absolutely
clear as of today.
Jim Dobbin
27. The CAP and the WTO, how far does it need
to ensure compatibility between the CAP with future changes to
the WTO? Do you think that will provide an impetus to further
reform at this stage?
(Lord Whitty) Yes, I think it is the main impetus
for reform, the main external impetus. It also relates to the
Johannesburg agenda where if we are not careful we will not commit
ourselves to reform and the EU will effectively be in the dock
with the rest of the world. Already in the pre-Johannesburg dis-
cussions in Bali and in Johannesburg itself it was clear that
the developing countries, the Cairns group, Australians, free
traders, if you like, were regarding the EU and their agricultural
subsidy system as the main impasse to getting a deal which would
really make the Doha Round of the WTO generally in the development
round. The Americans are in the frame as well, to some extent,
because of their Farm Bill and their level of expenditure. The
Americans are already trying to dress up some of their subsidies
in a way which would be compatible with WTO, but in reality they
have a lot of production subsidies and the EU have a lot of production
subsidies. Whilst it may be relatively easy for the EU to remove
any remaining tariff restrictions and any remaining refunds on
export commercial aspects the key to a successful WTO round is
that the EU commits itself to removing production subsidies. That
is why Commissioner Fischler along with the rest of the Commission
are so insistent that decoupling of any forward support system
is agreed in principle as rapidly as possible. You no longer get
any money per sheep or per ton or hectare of grain. You would
get it for environmental performance or land management or whatever,
but not on the basis that you get a leg up in the market by direct
subsidy. The rural support would be green box in WTO terms, most
of it, and therefore would be WTO compatible. If the system remains
as it is it is clearly not WTO compatible. Strictly speaking the
timetable for the EU having an negotiating position on this is
March. If it is not possible for us to have agreed on the Mid-Term
Review by March: Fischler is aiming, the Greek Presidency is aiming
to finish negotiations by June, but by September we will have
to be to in a position where we can make a proposition to remove
production support over the period of the WTO negotiations, which
may be several years in terms of phasing. If we do not, if we
get to Cancun in September, where the main WTO decisions will
be taken, and the EU is not in a position, we will definitely
be on the back foot. The Americans have already made a proposition,
which maybe slightly dubious, which puts them in the liberalising
camp. The rest of the negotiating partners are in the liberalising
camp, the EU needs to get itself into that position to be a credible
partner in the WTO in September rather than be dragged there during
the course of the WTO Round, which is what happened last time.
Mr Tynan
28. You supported the idea of a single decoupling
payment to produce payment on past production and without any
obvious time limit on reduction in future years, should the British
taxpayer be paying for an open-ended payment where farmers can
receive payment without producing anything at all?
(Lord Whitty) The objective is to remove production
subsidies. Politically the only way we can really do that, at
least in the short-term, is to say, "We will decouple the
payment that the farmer gets there" is not the ideal solution
and it will be subject to cross compliance of various forms so
the standard of the land and farming will have to meet certain
standards. It is the only way, really, that we can negotiate a
fairly early move away from production subsidies. I think Fischler
recognises the political reality of that and the price of doing
that both in changing the nature of the CAP and in WTO terms such
that we recognise the necessity that you will have to give some
payment based on historic receipts.
29. One of the big issues that we applied in
Scotland is the question of the production of beef. First of all,
is payment made on this basis of decoupling? Is there any safeguards
as regards ensuring that the farmer continues to produce beef
instead of switching to something like sheep?
(Lord Whitty) One of the problems is that the exact
terms of decoupling are not yet clear. Our understanding and our
position would be, no, there would not be a requirement that you
would necessarily continue to use that land for beef farming.
Whatever you use the land for, however, would have to meet certain
standards, if it was continued to be used for beef there would
be some cross compliance with those standards. Of course this
may take place over a period of time but there would not necessarily
be a direct requirement that you continue to use the land in the
same form of agricultural production as you did historically.
30. Would it not encourage farmers to switch
to an easier form of farming?
(Lord Whitty) It might. The benign effect would be
to put farmers into an area where they get the highest value for
farming, which I suggest would include Scottish beef, and not
produce every last sheep or every last beast to not quite such
a good standard, I would not like to geographically locate it,
to get the premium.
Chairman
31. Minister, you have expressed concerns about
the impact on the UK of the proposed exemption from modulation
for farms receiving less than
5,000 in direct aid, and also the suggestion that
there should be a cap of
300,000 on the aid payable to any one farm. Does
any other Member State share those concerns, and how confident
are you that these elements in any settlement can be resisted?
(Lord Whitty) As far as the first is concerned, as
far as the franchise at the bottom excluding small farms is concerned,
we do not in principle object to that, we recognise that there
are very small farms that probably need to be exempt from this
proposition. There are not many of them within the UK. What we
object to is the implication of that as to how much each country
puts into the pot because clearly a higher proportion of Greek
farms would be excluded than of UK farms and, therefore, the amount
of money would be disproportionately based on Northern European
farming. Also, some of the complications of the way Fischler is
proposing this linked to employment and other aspects make it
hugely complicated. We are not in principle opposed to having
some de minimis level so that very small farms, effectively
small peasant farms, are not affected by it. What we do object
to very strongly is the ceiling at the top in that although the
UK as a whole would not miss out because any money saved as a
result of that ceiling would come back to the national government
to be used for agricultural purposes, some of our larger farms,
our most efficient farms, would suffer and it would be a serious
disincentive to increase efficiency in a number of fields. I understand
anecdotally already it is having the effect of making people look
to de-merging and disaggregating farms for purely subsidy receiving
reasons, which is perverse. We are strongly against a ceiling.
Other countries than the UK will be hit by that ceiling and the
country that will be most hit is Germany, partly because of ex-collective
farms in Eastern Germany but also because of some large farms
in the former Western Germany. Other countries will have a few
farms affected. Denmark, France, will also have some farms affected.
If I am right, the money we would miss out on is
20 million at the end of the period, the amount of
money Germany would miss out on is
115 million. I forget which year that is but we will
clarify that. That shows the size of the problem in Germany is
considerably greater than it is in Britain, so the Germans are
strongly opposed to that and I think we will get support from
some of the other northern countries.
32. Minister, thank you very much, it has been
an interesting hour and a bit, I hope you did not find it too
stressful. I am sure the Committee will find a good use for your
replies to the questions as we prepare our report and observe
the good work that you will carry on doing.
(Lord Whitty) Thank you very much, Chairman.
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