Sep 30, 1992

U.S.- EC ASSAILED IN GATT OVER EXPORT SUBSIDY COMPETITION.

GENEVA, 29 SEPTEMBER (CHAKRAVARTHI RAGHAVAN) GATT Contracting Parties assailed the United States and the European Community in the GATT Council Tuesday over their policies of competitive subsidies on agricultural exports with major harm caused to other exporters who could not afford to provide subsidies.

In summing up the discussions, GATT Council Chairman, Amb. Balkrishan Zutshi of India, noted the "widespread concern" expressed in the Council on the issues under discussion. While there was a general view that early agreement on the Uruguay Round was necessary for a settlement of the issue, many contracting parties appeared "to wish to engage in informal consultations on a more urgent basis" and he would hence conduct these consultations, Zutshi added.

Earlier, Australia had requested that the Chairman of the GATT Council should hold informal consultations with interested parties as a matter of urgency to consider what action could be undertaken as a matter of urgency to mitigate the adverse effects of the EC and U.S. export subsidies on each other and on other contracting parties.

The criticism of the U.S. and EC actions by a succession of the membership who took the floor, came after Australia raised the issue over the recent announcement of U.S. President George Bush of the expansion of the U.S. Export Enhancement Program (EEP) and making available subsidies for export in all of 29.1 million tonnes of U.S. wheat targeted to 28 export markets.

The prolonged debate brought out a unanimity of view that the problems thrown up underlined even more than before the need for early conclusion of the Uruguay Round and, perhaps with the exception of the two main culprits in the subsidy war, that the U.S. and EC actions were complicating the conclusion of the Round. And while the EC noted that the current GATT rules did not prohibit the subsidised exports of the primary products, and only the Uruguay Round and its agreements could introduce some discipline, both Australia and Argentina brought out that even the limited GATT provision - that no CP use subsidies to export primary products shall apply subsidies in a manner which results in gaining "more than an equitable share of world export trade in that product".

Citing UN data, Argentina's Amb. Archibald Lanos, brought out that as a result of their subsidised exports, the share of the two in the world markets for wheat had increased from 27.8 percent in 1970 to 52.3 percent in 1989. The U.S. share had increased from 33.3 percent of world exports in 1970 to 35.5 percent in 1989, while in the case of the EC, it had changed from a net importer (5.5 percent of the world imports) to that of an exporter with 16.8 percent of the world market share. The U.S. and EC actions, thus breached even existing Article XVI provisions.

Australia's Amb. David Hawes, in raising the issue noted that the U.S. and EC who accounted for over one-half of the world's wheat exports were now engaged in intense competition with each other for world market share and what they were doing was not "fair commercial competition". Both had subscribed to government intervention in the form of export subsidies, which had become institutionalised in world wheat trade. As a result, increased market share could only be acquired at the expense of fair trading nations.

The EC, through its common agricultural policy and use of subsidies, from a net importer had increased exports. Its exports in 1990-1991 accounted for 20 million tonnes or 18 percent of world wheat exports, while its stocks stood at 24 million or a quarter of world wheat trade.

In 1985, the U.S. introduced export subsidies which, coming on top of EC subsidies, effectively created a two-tier market, with more than half the wheat traded sold at "predatory, subsidy-discounted prices".

The situation had been aggravated by the 2 September announcement of President Bush on an expansion of the EEP to additional markets, and displacing EC subsidised grain to an ever widening range of markets previously not "polluted" by subsidised exports.

As against commercial wheat prices of $ 150 per tonne, the EC's 19.5 million tonnes of exports had been subsidised to the extent of $ 100 to $ 115 per tonne.

Any objective examination would lead to the conclusion that the subsidising practices of the U.S. and EC had caused real damage to the economies of non-subsidising producers. Despite the Punta del Este Standstill and Rollback commitments there did not appear to be "any circuit breakers". The Draft Final Act of the Uruguay Round would begin to address these problems, and Australia hoped agreement would soon be reached for implementation of the solutions.

However, in the meantime the Council could not stand aside from the global problem. Without being legalistic, fundamental GATT principles and norms were being undermined or ignored and the actions and statements of the U.S. and EC did not constitute "reasonable or acceptable behaviour".

While there was an imbalance between GATT rules on agricultural export subsidies and export subsidies in general, it did not follow that there were no GATT disciplines on agricultural export subsidies or that GATT rules and basic principles did not cover Agriculture.

All CPs, whatever their size or status, as developed or developing countries, had the right to expect the application of GATT principles to trade valued at more than $ 20 billion and to a GATT-based respect for their trade in that commodity, the Australian added.

For the U.S., Amb. Rufus Yerxa said the views expressed in the Council would be transmitted to Washington. He however argued that there would be "no significant increase" in level of U.S. programmes of subsidised exports, neither in tonnage nor in amount of subsidy. The Bush announcement had merely grouped together separate announcements over coming periods into a single one, he explained.

Blaming the EC for the state of affairs, Yerxa argued that even with the EEP, the U.S. market share had been eroded because of the current EC subsidy of $ 125 per tonne as compared to U.S. subsidy of $ 40 per tonne. While the U.S. would continue to work for the conclusion of the Round, in the absence of an agreement "we will not stand back and allow the practices of the EC to continue unchallenged", he said.

For the EC, Amb. Tran Van-Thinh underlined that no GATT rules now prohibited export subsidies for primary products. The EC had itself undertaken domestic reforms to deal with the problem. As of now GATT had no means now to deal with the situation and the only solution lay in the concluding the Uruguay Round.

While Argentina challenged the view that the existing GATT provisions had not been breached, Canada condemned the subsidy war. The U.S. and EC were going in the opposite direction to that of the Uruguay Round and Canada did not consider it important whether the U.S. announcement was significant or mere repacking of future announcements. Its timing could not have come at a worse juncture.

Chile, Mexico, Pakistan, Colombia, India, New Zealand, Philippines (for the Asean), El Salvador for the Central American countries, Japan and South Korea were among those who took the floor to condemn the two major trading partners.

In a second round of replies, Tran said the EC was conscious of the problem, and would not oppose the idea of informal consultations but questioned the idea of some negotiations parallel to that in the Uruguay Round (through the Chairman's informal consultations). Yerxa for his part claimed that the United States was not a part of the problem but the solution and was ready to conclude the Round on the basis of the DFA, and had even offered to go beyond it in curbing subsidised exports. Tran however noted that subsidised exports were only one part of the issue and agriculture reform covered other aspects too.