EU number one provider of trade-distorting cash support

By Ahmed ElAmin

- Last updated on GMT

Related tags Cent International trade European union Agriculture Eu

The EU provides the largest amount of trade-distorting support to
farmersas measured by dollar value, with the US a distant second
and Japan adistant third, according to a report this month bythe US
government's Congressional Budget Office (CBO).

Meanwhile farmers in the European Free Trade Association (EFTA) receivethe highest rates of such support, measured as a percentage of totalagricultural output value, followed by the EU, with theUS falling further down.

EFTA is made up of Iceland, Norway, Switzerland andLiechtenstein.

The CBO​ report providesan insight for international processors into how various subsidiescontribute to the higher prices they pay for foodingredients, depending on the countries in which they operate.

The report also outlines some of the issues that are sure to crop up ascountries attempt once more to negotiate a reduction in agriculturaltrade-distorting practices at a World Trade Organisation(WTO) summit being held this December in Hong Kong.

The WTO's Doha round of trade negotiations, which began in November 2001,aims to liberalise world agricultural markets. Subsidies fall into threemajor categories: those restricting or regulatingimports, those providing support to domestic producers, and those that aremeant to boost exports.

The CBO statistics indicate that policies that distort agricultural trade remain much more pervasive and substantial around the world than policies that skew trade in other goods.

Domestic subsidies for agriculture added up to $200bn (€163bn) per yearworldwide, accounting to roughly one-sixth of value-added agriculturalproduction. A total of 64 out of 76 countries havereported to the WTO that they granted subsidies of some kind in at least oneof the years from 1998 through 2004.

The EU and the US each grant about one-third of the world's total. The EU grants a little more than the US because its agricultural sector is a littlelarger. Japan grants about 15 per cent. HongKong and Singapore provide no subsidies while Australia grants less thanone-half of one per cent of the world's total.

The US and the EU have such large subsidy totals in part because they andtheir agricultural sectors are so large, the CBO stated.

The ranking by subsidy rates provides a different picture ofthe situation. Among countries for which such rates can be calculated,members of the EFTA are all in the top ranking, with average reported subsidies ranging from 140 per cent down to 83 per cent of the values of their agricultural outputs since 1998.

Japan, the United States and the EU have had subsidiesaveraging 37 per cent of their agricultural outputs over the same period.

The EU's much criticised Common Agricultural Policy (CAP) is the bloc'smain funnel for domestic subsidies. CAP eats up about 44 per cent, or€43bn, of the bloc's spending. CAP guarantees aminimum price to producers through a direct payment of a subsidy for cropsplanted. The system is currently being reformed to include a phased transferof subsidy to land stewardship rather thanspecific crop production from 2005 to 2012.

CAP has resulted in inflated prices within the bloc - with analystsestimates ranging from 25 per cent to 80 per cent - while tariffs have keptout cheaper imports, mainly from developingcountries.

The EU is also by far the dominant provider of exportsubsidies, providing 85 per cent to 90 per cent of the world's total, theCBO stated.

High agricultural import tariffs are most prevalent in East Asiancountries. Korea and Taiwan top the global list for high average importtariffs, followed by India, China, Vietnam and Japan.

The US, along with Australia, New Zealand, Hong Kong and Singapore sit atthe bottom of the list, while the EU's average is in the middle.

The trade-weighted US average in 2001 was 2.4 per cent. By comparison,the EU's 25 members and the EFTA together averaged 13.9 per cent.

A substantial portion of agricultural production is protected frominternational competition by extreme tariffs - tariffs of over 100 per cent.Extreme tariffs protect about 50 per cent of easternEuropean agricultural products, 39 per cent of EU production and 26 per centof the US'.

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