EC Agricultural Subsidies for Mediterranean Products and the WTO

1
EC Agricultural Subsidies for Mediterranean
Products and the WTO

• June 2006
• Montpellier, France

2
The WTO Agreement on Agriculture

• Green Box
• Single Farm Payment not green box because of
  fruit and vegetable restriction
• Blue Box
• Less important after 2003 reform (if SFP is
  notified as green box)
• Amber Box
• EC AMS limit is 67.2 billion
• Applied AMS is far lower, reforms in 1999 and
  2003
• Notified Export Subsidies
• Still important for sugar, dairy, pigmeat, rice
  and alcohol
• Declining use for other products

3
The WTO Agreement on Subsidies and Countervailing
Measures (SCM Agreement)

• Disciplines the provision of subsidies by WTO
  Members
• Prohibited Subsidies
• Local content subsidies
• Unscheduled export subsidies
• Actionable Subsidies
• Any subsidy that involves a financial
  contribution that confers a benefit and is
  specific

4
Prohibited Subsidies

• Article 3.1 of the SCM Agreement
• Except as provided in the Agreement on
  Agriculture, the following subsidies shall be
  prohibited
• (a) subsidies contingent, in law or in fact,
  whether solely or as one of several other
  conditions, upon export performance
• (b) subsidies contingent, whether solely or as
  one of several other conditions, upon the use of
  domestic over imported goods.

5
Prohibited Subsidies

• Prohibited Fruit and Vegetable Processing
  Subsidies
• 2005 Outlays in millions
• Tomato Products 298 Canned Peaches
  20 Citrus Products 261 Canned
  Pears 15 Raisins 114
  Dried Figs 1.6 Dried
  Plums 45
• Total - 755 million
• Subsidies are contingent on the use of products
  harvested in the Community for the production
  of the processed products.

6
Prohibited Subsidies
Processing subsidies for tomatoes, peaches,
pears, citrus fruits and raisins
EC
payments
supervision
supervision
Grower
Processor
subsidized products
7
Prohibited Subsidies
Processing subsidies for prunes and figs
EC
payments
supervision
supervision
Processor
Grower
products
minimum price
8
Prohibited Subsidies

• Title III of the Wine CMO includes distillation
  subsidies, private storage aid, and aid for the
  use of must.
• 2005 Title III expenditures in millions
• Distillation Subsidies 512
• Private Storage Aid 67
• Aid for the Use of Must 156
• Total 735 million
• Article 78(3) of the Wine CMO
• The subsidies may only be granted in respect of
  products produced in the Community from grapes
  harvested in the Community.

9
Actionable Subsidies

• Article 5 of the SCM Agreement
• No Member should cause, through the use of any
  subsidy adverse effects to the interests of
  other Members, i.e.
• (a) injury to the domestic industry of another
  Member
• (c) serious prejudice to the interests of
  another Member

10
Injury to the Domestic Industry

• Article 5(a) of the SCM Agreement is similar to a
  CVD proceeding under Part V of the SCM Agreement
• For a determination of injury there must be
• Imports of a subsidized product
• Material injury to the domestic industry
  producing the like product
• A causal link between the subsidized imports and
  material injury to the domestic industry.
• Examples of Potential Claims
• EC canned peach exports to the United States
• EC olive oil exports to Morocco

11
Serious Prejudice

• Article 6.3 of the SCM Agreement
• Serious prejudice in the sense of paragraph (c)
  of Article 5 may arise in any case where one or
  several of the following apply
• (a) the effect of the subsidy is to displace or
  impede imports into the market of the
  subsidizing Member
• (b) the effect of the subsidy is to displace or
  impede exports from a third country market
• (c) the effect of the subsidy is significant
  price undercutting or significant price
  suppression, price depression or lost sales in
  the same market
• (d) the effect of the subsidy is an increase in
  the world market share of the subsidizing
  Member

12
Serious Prejudice

• Components of Serious Prejudice
• Level of EC subsidization
• EC market share
• Nature of EC subsidies (and reform)
• EC costs and returns
• EC tariff levels and other import barriers (e.g.
  SPS)
• Product differentiation issues

13
Serious Prejudice Fresh Fruits and Vegetables

• Operational Funds for Producer Organizations
• Expenditures are between 500 million to 700
  million per year
• Their purpose is to improve product quality and
  boost products commercial value
• Where is this money going? Which products are
  benefiting?
• Compensation for Withdrawals
• Which products are receiving these funds?
• Processing subsidies
• Do processing subsidies benefit the market for
  fresh fruits and vegetables?

14
Serious Prejudice Tomato Products
  Canned Tomatoes Tomato Paste Tomato Sauce/ Ketchup
Value of World Exports 224 million 869 million 320 million
EC  
Exports as world total 84 percent 38 percent 17 percent
Imports as world total 13 percent 14 percent 3 percent
Production as world total 70 percent 36 percent NA
Estimated value of EC market 900 million 980 million NA
EC Support  
Import Tariffs 14.4 percent 14.4 percent 10.2 percent
Subsidization of primary input 65 percent 65 percent 65 percent
Trade data based on average of 2000-2004.
Excludes EC internal trade. Value of EC market
based on the product of consumption (production
minus net trade) and unit export values.
15
Serious Prejudice Tomato Products

• Processing Subsidies
• Expenditures are 300 million in total
• Grower receives 34.5 per tonne unless quantity
  overrun
• Contract price for processing tomatoes 50 -
  55 per tonne
• Subsidization rate 65 percent
• Compensation for Withdrawal
• Benefit to processed tomato products unknown
• Operational Funds
• Benefit to processed tomato products unknown
• Countries that export tomato products, such as
  the United States, China, Chile, Tunisia and
  Morocco, can claim that EC subsidies impede or
  displace their exports to third countries and
  cause price suppression.

16
Serious Prejudice Canned Peaches
  Canned Peaches
Value of World Exports 231 million
EC  
Exports as world total 41 percent
Imports as world total 17 percent
Production as world total 48 percent
Estimated value of EC market 300 million
EC Support  
Import Tariffs 15 to 19 percent
Type of Subsidy Prohibited
Subsidization of primary input 20 percent
Trade data based on average of 2000-2002, Greek
crop failure in 2003 changed EC production and
export/import share substantially. Excludes EC
internal trade. Value of EC market based on the
product of consumption (production minus net
exports) and unit export values.
17
Serious Prejudice Canned Peaches

• Processing Subsidies
• 20 million total
• Grower receives 47.7 per tonne unless overrun
• Contract price for processing tomatoes 200 -
  300 per tonne
• Subsidization rate 20 percent
• Compensation for Withdrawal
• Unknown
• Operational Funds
• Unknown
• Countries that export canned peaches, such as
  South Africa, Australia, China, and Argentina,
  can claim that EC subsidies impede or displace
  their exports to third countries and suppress
  prices in world or specific country markets.

18
Serious Prejudice Other Fruit and Vegetable
Products

• Other products include
• Dried plums - Almonds
• Raisins - Walnuts
• Canned pears - Filberts
• Grape juice - Pistachios
• Citrus products
• The EC is a net importer of these products
• Major exporters can potentially claim that EC
  subsidies impede or displace exports into the EC
  market within the meaning of Article 6.3(a) of
  the SCM Agreement

19
Serious Prejudice Olive Oil
  Olive Oil
Value of World Exports 1.5 billion
EC  
Exports as world total 74 percent
Imports as world total 25 percent
Production as world total 74 percent
Estimated value of EC market 4.8 billion
EC Support  
Import Tariffs 40 to 50 percent
Type of Subsidy Actionable
Subsidization rate 30 percent
Trade data based on average of 2000-2004.
Excludes EC internal trade. Value of EC market
based on the product of consumption (production
minus net exports) and unit export values.
20
Serious Prejudice Olive Oil

• Production aid of 2.2 billion per year
• The 2004 Mediterranean reform will shift 60
  percent of production aid into the SFP scheme.
  The remaining 40 percent will become an area aid
  for the upkeep of olive groves of economic or
  social value.
• Will reform result in lower production?
• Is the SFP needed to cover production costs?
• Are any countries in a position to challenge EC
  olive oil subsidies?
• Turkey is the second largest exporter
• Tunisia, the third largest exporter in the world,
  exports 56,000 tons of olive oil to the EC duty
  free

21
Serious Prejudice Wine
  Wine
Value of World Exports 8.404 billion
EC  
Exports as world total 54 percent
Imports as world total 25 percent
Estimated value of EC market 57.8 billion
Production as world total 60 percent
EC Support  
Import Tariffs 12 to 38 per hl
Type of Subsidy Prohibited / Actionable
Subsidization Rate ???
Trade data based on average of 2000-2004.
Excludes EC internal trade. Value of EC market
based on the product of consumption (production
minus net exports) and unit export values.
22
Serious Prejudice Wine

• Restructuring Subsidies
• Expenditures are 450 million per year
• Their purpose is to adapt production to market
  demand
• Which wine varieties are benefiting from these
  subsides? Is production benefiting from
  restructuring subsides displacing imports from
  Australia, Chile, Argentina and U.S.?
• Distillation Subsidies
• Expenditures are 500 million per year
• Distillation subsidies remove wine from the EC
  market and protect EC wine producers from low
  prices. What is the net impact on producers in
  third countries?

23
Reform of Wine CMO

• The EC is unlikely to introduce decoupled
  payments
• The EC would like to reduce emphasis on
  distillation measures.
• How will surplus wine be dealt with?
• How will the existing distillation infrastructure
  be dealt with?
• Restructuring subsidies will likely remain
• Are their effects alone enough to support a
  serious prejudice?

24
Reform of the Fruit and Vegetables CMO

• Operational funds for producer organizations are
  likely to remain
• Processing subsidies will likely be reformed
• Decoupled processing aid?
• Probably result in a large decline in production
• Area payments?
• May continue to constitute a prohibited local
  content subsidy

25
Preparing for WTO Cases

• Prohibited subsidy claims are easier to prosecute
  
• Actionable subsidy claims are factually
  intensive. The following information is needed
• Trade data
• Subsidy amounts and recipients
• Costs and returns data
• The EC is far less transparent than the US
• No centralized source of information (e.g. USDA)