The pitchforks are out in Europe to protect a sacred cow

The European Union dodged a political bullet this week when the Dutch lower house of parliament approved by a mere three votes — 72 to 69 — the bloc’s free-trade accord with Canada.

The near miss highlights the persistent political clout of Europe’s farmers as EU leaders gather in Brussels today to haggle over a new bloc-wide spending plan that would cut agricultural outlays in order to ramp up research and security expenditure. Long a sacred cow, farm aid soaks up almost 40% of the EU’s overall budget even though agriculture accounts for only about 1% of the bloc’s gross domestic product.

The Dutch drama also serves as a warning for the EU as it prepares to ratify a free-trade agreement with the Mercosur group of Brazil, Argentina, Paraguay and Uruguay and pursues similar deals with Australia and New Zealand. In each case, the EU agricultural lobby will pose serious obstacles because of the farm-export prowess of these commercial partners.

The Netherlands, traditionally one of Europe’s staunchest supporters of free trade and home of the continent’s busiest port, struggled to win lower-house backing for the EU-Canada pact in no small part because of concerns about greater import competition for Dutch farmers.

To be sure, even a rejection by the lower house wouldn’t have derailed the deal because it is already in force (since September 2017). For that to change, the Dutch government — or any capital in the EU still going through national approval procedures — would have to send a formal notice terminating the accord and the ratification process would have to be deemed by the bloc to have failed “permanently and definitively.”

Still, with Spanish farmers taking to the streets this month to demand higher food prices and the main lobby group for EU agriculture as a whole fighting a proposed 15% cut in European agricultural spending in 2021-2027, the bloc faces domestic headwinds as it expands its global market-opening drive.

Farmers in Europe have lashed out at the draft EU-Mercosur trade deal, which negotiators reached in mid-2019 after two decades of deliberations and which will start going through the European approval process in around a year. And anybody doubting the difficulties in the EU’s continuing negotiations with Australia and New Zealand needed only to hear European trade chief Phil Hogan on Tuesday all but rule out the prospect of a deal this year with Canberra.

“We are certainly on the defensive in relation to some sensitive issues here,” Hogan told a Brussels conference. He cited Australia’s strength as an exporter of beef, sheep, rice, sugar and dairy.

In that context, it may be fitting that the Dutch drama over the ratification of the EU-Canada trade agreement isn’t actually over. A verdict is still due from the country’s upper house, where the government lacks a majority.

Charting the Trade War

American farmers are set see higher incomes again this year thanks to the trade truce, potentially shoring up economic confidence for a key Trump constituency going into the November election. Profits will climb 3.3% from 2019 and depend less on government aid following President Donald Trump’s initial trade deal with China, according to a projection from the U.S. Department of Agriculture presented this month. Meanwhile, China is back in the market for American agricultural commodities after issuing a list of products that will be eligible for tariff waivers, according to people familiar with the matter.