News and Analysis • Volume 13 • Number 2 • June 2009

10 - Dairy Subsidies Raise Storm of Protest

Both the EU and, more recently, the US have reinstated export subsidies for dairy products. The moves have been strongly condemned by many WTO Members.

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The European export refunds have been in effect since January. In March, the EU also restarted buying excess butter and milk from farmers at intervention prices set respectively at €2,218 and €1,698 per tonne. The US subsidies - primarily for milk, butter and, to a lesser extent, cheese - were announced on 22 May.

Ironically, the EU and the US renewed their pledges to refrain from raising new barriers to investment or to trade in goods and services at the G-20 summit in April (see page11). Both have now taken advantage of the caveat in this declaration: measures to stimulate exports are not covered by the commitment if they are WTO consistent.

US Agriculture Secretary Tom Vilsack said the subsidies would support the dairy industry, which had “seen its international market shares erode, in part due to the reintroduction of direct export subsidies by the European Union earlier this year.” EU Agriculture Commissioner Mariann Fischer Boel called it ‘very unfair’ of the US to use Europe’s reinstatement of export subsidies “as an excuse to go ahead in this direction.”

WTO Members Call for Leadership, Reversal of Decisions

At the May General Council meeting, a number of delegates made it clear that they considered both countries in the wrong, although they did not dispute that the measures were within WTO export subsidy limits.

That, Australia’s WTO ambassador Peter Grey said, was not the point. “If other economies follow the example set by the US and the EU and raise tariffs, domestic support and export subsidies toward their maximum WTO commitment levels, it would undermine the effectiveness and credibility of the WTO system.” He also warned that “subsidy wars only drive prices even lower, thereby delaying economic recovery further. They punish those trying to compete without the help of subsidies, and particularly damage unsubsidised farmers in developing countries, jeopardising their agricultural production, food security and their most competitive export sectors.”

In a press release, Australia’s trade and agriculture ministers Simon Crean and Tony Burke charged that the US move flew in the face of the commitments made by G-20 leaders not to impose protectionist measures. Australia had protested strongly at the time of the EU decision, and warned that it would invite retaliatory action. “Now, both the EU and US are using export subsidies and setting a poor example for the rest of the world. We strongly reaffirm the need for the US and the EU to show better leadership,” the ministers thundered.

The G-20 coalition of developing countries called the US reintroduction of dairy export subsidies a sign of ‘murky protectionism’, not directly violating WTO obligations and yet potentially weakening the WTO system at a time of economic crisis. “Protectionism is not about raising tariffs or controlling imports only. Protectionism also includes any form of government intervention, such as subsidies, which artificially tilts the field in favour of domestic enterprises, to the detriment of competitors abroad. In this case, the unsubsidised farmers in the developing world will also be negatively affected,” the group stated.

New Zealand’s trade minister and former chair of the WTO agriculture negotiations Tim Groser said in a press statement that the long-term solution was clear: “We need to complete the Doha Round in order to secure the elimination of agricultural export subsidies. In the meantime, restraint is needed, not a resumption of retaliatory subsidisation.” The G-20 and the Cairns Group of agriculture exporting countries also said the tit-for-tat action highlighted the importance of concluding the round, and urged the EU and the US to withdraw the subsidies as soon as possible (see page 4 for more on the General Council meeting).