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August 1999
European Union Export Subsidies for Pork Distort World Trade
Abundant pork supplies and precipitating prices in the latter half of 1998 elicited the European Unions (EU) most aggressive export subsidy campaign since 1990. Historically, the EU has used only 30 percent of its annual World Trade Organization (WTO) pork export subsidy commitment levels. However, by March 1999, the EU exhausted its annual commitment of 482,000 tons. The EU proceeded to tap into an additional 270,000 tons of rollover subsidies, bringing total subsidized exports to more than 750,000 tons by the end of the 1998/1999 GATT year. Resulting trade distortions were directly felt by U.S. pork producers and exporters through losses in price competitiveness, market share, and potential export growth.
While U.S. and EU pork prices
fell sharply between May and December 1998, EU prices declined
much more gradually than in the United States and were less
volatile. The relative stability of the EU market during that
period is largely attributed to the EUs
extensive use of export subsidies. Export subsidies, which increased five
times over a period of 8 months, encouraged exports of
competitively priced EU pork. Export gains supported EU prices by
lifting excess pork off the domestic market. Restitutions reached
their highest levels in December 1998 when U.S. live hog prices
fell to 57-year lows.
In December 1998, the EU
implemented a framework of export subsidy destination zones,
enabling exporters to target specific export markets. High
subsidies
allowed EU exporters to severely undercut not only U.S. pork, but
also U.S. poultry, traditionally the most price competitive of
U.S. meat exports.
The republics of the Former Soviet Union (FSU) were most heavily targeted, with export subsidies to those markets averaging 60 percent of the EU carcass price. Export subsidies have since been reduced (July 1999) and now account for roughly 45 percent of the EU carcass price.
Markets outside of the FSU and Eastern Central Europe (ECE) are captured under a single export destination zone. Export subsidies to this zone, which includes Korea, Hong Kong, and the United States, represent roughly 35 percent of the EU carcass price. Export subsidies to ECE are the lowest, averaging 10 percent of the EU carcass price.
EU gains from export subsidies are clearly
seen in increased market share overseas. Although the Russian market has declined
since the ruble crisis in August 1998, EU commercial pork exports
have remained strong while U.S. exports have slowed to a near
trickle. Post reports indicate that competitively priced EU
subsidized pork currently undercuts food aid pork sold on the
Russian market. While U.S. market share fell from 11 percent in
1997/1998 to an estimated 3 percent in 1998/1999, EU exporters
have increased their hold by roughly 13 percent. While GSM credit
supported U.S. pork exports to Korea in 1998/1999 (leading to a
6-percentage point gain in U.S. market share) competitively
priced product allowed EU exports to gain nearly 16 percentage
points over the same period. U.S. market share in Hong Kong fell
from 8 percent in 1997/1998 to 4 percent in 1998/1999, while EU
market share doubled over the same period. EU pork exports to the
United States increased 22 percent in 1998/1999 over the previous
GATT year.
The EU has a 462,000-ton export subsidy commitment level for pork in 1999/2000. With an additional 450,000 tons of available rollover, EU export subsidies could total more than 900,000 tons in the1999/2000 GATT year. Given expectations for increased U.S. pork production in the 3rd and 4th quarters of 1999, the large 1999/2000 EU export subsidy potential projects a rather ominous picture for U.S. pork export competition and domestic prices.
The United States needs to remain steadfast in its goal of reducing, and eventually eliminating, export subsidies during the upcoming WTO round of multilateral negotiations. Without international commitment to the principles of a free-trade environment, U.S. products will continue to face trade distortions. This example of EU pork export subsidies clearly demonstrates the need to establish a more level playing field in international agricultural trade.
For more information contact the author, Melissa Schmaedick, of the Dairy, Livestock and Poultry Division at (202) 720-7715. You may also wish to visit the DLP home page.
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