Export subsidies decision was on the cards

massey-university

Tue May 26 2009 12:00:00 GMT+1200 (New Zealand Standard Time)

Export subsidies decision was on the cards

Tuesday, 26 May 2009, 12:04 pm
Press Release: Massey University

Tuesday, May 26, 2009
Export subsidies decision was on the cards

The United States government's decision to reintroduce export subsidies on dairy products is disappointing and could prompt the European Union to further increase its subsidies, says agricultural trade policy specialist Professor Allan Rae.

Professor Rae, director of the Centre for Agribusiness Strategy and Policy in the College of Business, says the move by the United States – prompted by falling dairy prices – was foreshadowed in last year's Farm Bill. The bill outlined plans to use dairy export subsidies to the maximum consistent with World Trade Organisation obligations.

Professor Rae says neither the United States nor the Europe Union has found it necessary to subsidise dairy exports in recent years due to very high world prices, which had now fallen markedly.

He says as long as the subsidies in total remain below the levels agreed by the United States in the Uruguay Round of the General Agreement on Tariffs and Trade their actions are WTO-consistent.

"However, it is disappointing that these export subsidies should be reintroduced at a very sensitive time for both international trade in general, and the WTO Doha Round of trade negotiations,” says Professor Rae.

“It is to be hoped that their impacts on world prices are not great, otherwise there is the danger that the EU will reciprocate by further increasing their own dairy export subsidies."

The United States introduced export subsidies on dairy products in the Dairy Export Incentive Programme of 1987 and its decision to reintroduce subsidies follows a similar move by the European Union in January. The effect of this is to increase supply in export markets and drive down world prices further, which hurts unsubsidised exporters, such as New Zealand.

Professor Rae says many countries, but primarily the EU, have made use of export subsidies in agri-food trade to encourage a greater volume of exports.

ENDS

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