Essentially, this category served to exempt the US deficiency payments and CAP direct income area- and headage-based payments from these reduction commitments . EU officials considered it highly likely that these payments, since they were not fully decoupled from production, and thus remained trade distorting, and the blue box more broadly, would come under fire in future negotiation rounds, with some speculating that the blue box might be eliminated entirely. Adding to the concern over the survival of the “blue box” was the United States’ adoption of the Federal Agricultural Improvement and Reform Act, also known as the Freedom to Farm Act. The FAIR Act introduced a system of direct payments, completely decoupled from production, that replaced the existing deficiency scheme. In addition, the FAIR Act stipulated that these payments would be reduced over a period of seven years . With the passage of the FAIR Act then, the blue box existed only to provide special status and exemption for the CAP payment system. Despite concerns about what future rounds of WTO negotiations might mean for some core components of the CAP, it was not enough to push the member states into undertaking meaningful reform. The MacSharry Reform negotiations were concurrent with actual GATT talks, while Agenda 2000 began, was negotiated, and concluded before the new WTO round was even launched. For Agenda 2000, trade-related concerns had ultimately little impact because they were all hypothetical: the special status of CAP payments could disappear; partially decoupled payments might not fit within the new WTO scheme; the US’s FAIR Act might be a sticking point between the US and the EU.

In addition,vertical hydroponics the trade conflicts between the US and the EU at this time were not really about the operation of the CAP as they had been in the GATT UR. In sum, the major events and issues that disrupt politics and allow for extensive reform to be achieved did not operate during Agenda 2000. Enlargement was thought to be a non-issue, and any potential trade issues were, at best, hypothetical. As a result, Fischler had to negotiate his reform under politics as usual. The importance of disruptive politics to achieving meaningful reform is clearly illustrated by the case of Agenda 2000, since no major adjustments to CAP policy were achieved, with major initiatives either being made optional or rejected outright.Fischler and the Commission had four main objectives for the Agenda 2000 reform: 1) to extend the systems of price cuts and direct income compensation started under MacSharry in 1992; 2) to reduce the CAP budget and improve financial discipline, particularly in light of the transition to the Euro and the financial strictures involved with that transition; 3) to rebalance the distribution of CAP benefits across member states and sectors of production; and 4) to overhaul and simplify the CAP’s rural development and environmental schemes by putting them into a single framework, the so called “second pillar” . The first objective was particularly important with Guy Legras, still head of DGVI, stating, “you might call [the new reform proposal] MacSharry Mark II” . To extend MacSharry, the Commission sought to continue to reduce price supports, in order to bring prices closer to the world level, and to increase direct income payments. Objectives 2 and and 3 followed the same model as they had in previous negotiations- cut CAP costs to the extent possible and attempt to adopt a system that would limit the payments received by the largest farmers, facilitating better distribution of payments across countries while also improving support for small farmers. This latter point, directing more support to small farmers, was seen as important to preserving the social acceptability of the CAP to the broader public.

Finally, the fourth objective, like the first, was part of a continuation of a bigger project, begun under MacSharry.They sought to direct more funds to agri-environmental measures so as to better support sustainable rural development and better meet the growing environmental demands of the broader public . A major discussion of a potential CAP reform occurred in the late summer and early fall of 1997, after the Commission had formally launched Agenda 2000 in a document called “Agenda 2000: For a Stronger and Wider Europe”. In reference to the CAP, the general document on Agenda 2000 called for compensated price cuts to arable crops, beef, and dairy, a commitment to rural development and agri-environmental measures, and ceilings on income payments in an effort to mitigate perceived inequalities in the system . Reform along the lines proposed by Agenda 2000 would, the Commission argued, increase the EU’s agricultural competitiveness, improve food safety and quality, advance the fundamental CAP goal of stable farm incomes , promote sustainable agriculture, and simplify EU legislation . Under this initial Agenda 2000 announcement that set the scope for thenegotiations, agriculture would remain the single largest program in the EU, consuming roughly 45% of the budget, with structural funds remaining the second largest, accounting for just over 35% of EU spending . Agricultural Commissioner Franz Fischler publicly defended the need for reform, arguing in an editorial in the Frankfurter Allgemeine Zeitung, that: “acting as though everything would stay the same as in the past without reform is verging on a lie” . He further stated that the reform’s main objective was protecting farmer incomes, and predicted that Agenda 2000 would improve farmer welfare. Beyond making this public defense of the CAP in the German press, Fischler also undertook a tour of the member state capitals, much like MacSharry did before the 1992 reforms. In so doing, Fischler hoped to get some sense of the political acceptability of his reform goals. In addition, he began to negotiate some elements of the reform in the hope of making the general Commission proposal more acceptable and limiting negative reaction.

At the end of the tour, despite some divergent opinion, Fischler found that the balance of support was in favor of “maintain[ing] the status quo, with only slight modifications to the CAP” . The Commission formally made its proposals for Agenda 2000 in March of 1998. The package consisted of four main components: 1) intervention price cuts for arable goods, beef, and dairy, with partial compensation in the form of direct payments, 2) a system of modulation and price ceilings; 3) cross compliance; and 4) a package of rural development policies.Overall, the reforms sought to continue MacSharry’s legacy by cutting prices and maintaining quotas in exchange for increased direct compensation. For beef and dairy, these cuts would come in one step, but would be offset by increasing the amount that farmers received via their direct payments. In an effort to continue MacSharry’s objective of keeping milk production under control, the Commission proposed extending quotas for a further 6 years, while also allowing a 2% increase in a farmer’s production limit. Other dairy products like butter and milk powder would follow a program similar to that for beef and cereals, with the price cut offset by an increase in compensation. The Commission once again attempted to address the issue of inequality in payments and to respond to the public criticism of CAP payment operations and spending levels by introducing payment ceilings and other mechanisms to reduce the amount of funds directed towards Europe’s largest farmers. The Commission sought to impose a 20% cut on all payments over 100,000 ECUs and a 25% cut on all payments over 200,000 ECUs. The other payment-related initiative, modulation, was intended not to reduce the CAP budget but rather to redistribute aid among farmers and member states and also to reinforce the second pillar,hydroponic vertical farming systems as a portion of the money collected would be earmarked specifically for rural development and environmental programs and policies. Specifically, member states could make some adjustments to the amount of financial support a farmer received based on the number of persons employed on the farm. Those savings would then be redistributed to those farmers and member states that were disadvantaged and to support second pillar goals and programs. The Commission attempted to improve environmental accountability and to advance the perception of the CAP as promoting the multifunctional role of farmers, as both producers of food and stewards of the environment. The main tools through which the Commission sought to achieve these goals were cross-compliance and a series of reforms designed to direct funding and support to issues related to rural communities. Cross-compliance would tie the receipt of direct income payments to adherence to a set of basic environmental standards. This program was to be mandatory, applying to all farmers. Finally, a series of smaller reforms were designed to provide support for young farmers, to fund early retirement, to support training programs and opportunities, and to provide additional support for those farming in “less favored areas” and to provide compensation for farmers engaging in approved agri-environmental activities.Three broad camps emerged after the publication of the Commission’s formal proposal. The first group, the pro-reformers, was led by the UK and Sweden but also included the Netherlands and Denmark. These countries welcomed the reform, but felt that the Commission had not gone far enough.

They preferred a bigger reduction in intervention prices and the eventual elimination of subsidies and income support payments. These countries favored the development of a more market-oriented European agricultural sector. In addition, the UK expressed opposition to modulation. The second group, led by Germany, and also including Austria, Belgium, Ireland, Luxembourg, and Portugal, all had some significant problems with the reform as it was proposed. Germany was among the most staunchly opposed, preferring the status quo. The German agricultural minister Jochen Borchet stated that he could see “very few positive things” in the proposal . The third and final group included the remaining member states who, rather than take a strong position for or against the reform proposal, “emphasized the specific interests of their national agricultural sectors, and declared their firm intention to defend these interests in the upcoming reform negotiations” . For example, Spain was concerned that increasing spending on the CAP would make it more likely that structural funds would be targeted as a way to find more resources. Italy wanted an end to milk quotas, Greece and Portugal desired reform for Mediterranean products, and Finland and the Netherlands preferred changes to formulas for compensation . The French supported a reform that would continue along and expand the reform path started by MacSharry by lowering prices in exchange for a transition to direct payments, but were dissatisfied with Commission proposals for compensation. Specifically, France sought to protect and increase compensation for small, particularly livestock producers. France’s position in these negotiations was particularly interesting given that it was a period of cohabitation, with Jacques Chirac and the right-leaning Rassemblement pour la République controlling the presidency while Lionel Jospin, a member of the Parti Socialiste , was the prime minister. This configuration arguably strengthened the farmers’ hand, as neither side wanted to tip the balance in favor of their political opponent. The left wanted to find a way to distribute CAP money more equitably but was confronted with a president who, according to a former minister, was “united with the FNSEA. Chirac was their spokesman. He was most concerned with the cereal farmers from the grand Parisian basin and was forgetting everyone else19” . The co-habitation government agreed on France’s other major priorities aside from how best to distribute income support. The former government minister identified three other priorities. The first was to defend the economic interests of France in agriculture on the grounds that “the CAP was France’s program. Germany and France are the core of the EU. Industry was for Germany and agriculture was for France. France was the number one beneficiary and the CAP was the largest program. We needed to defend this status”. The second priority was to channel more money to the second pillar and rural development and environmental objectives. The third and final priority was to extend the MacSharry reforms by getting rid of price supports and transitioning to direct payment. France was arguably in a stronger negotiating position compared to Germany because the German finance and agricultural ministers were constantly at war with each other.