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EU Massively Under-notified its Subsidies, Argues Paper

Agriculture: EU massively under-notified its subsidies, argues paper
Published in SUNS #7511 dated 25 January 2013

Geneva, 24 Jan (Kanaga Raja) -- The European Union has so massively under-notified its agricultural subsidies to the World Trade Organisation (WTO) such that it will not be able to comply with its proposal to reduce by 80% its allowed overall trade-distorting domestic support (OTDS), a paper by the French non-governmental organisation (NGO) Solidarite has argued.

The paper dated 24 January and authored by Jacques Berthelot, comments on the state of play in the Doha negotiations, focusing in particular on the issue of domestic support in agriculture.

According to the Berthelot paper, the stalemate in the Doha negotiations is largely due to agricultural issues, not only because it was the main breaker of the negotiations in New Delhi in July 2008 but, "more largely, because the DCs (developing countries) think that the developed countries' demands on non-agricultural products market access (NAMA) and services are disproportionate with the feasibility of their offers on agriculture."

The paper argues that the December 2008 draft modalities text on agriculture (DMA) is full of inconsistencies with the Agreement on Agriculture (AoA) and that the EU made massive under-notifications of its subsidies so that it cannot comply with its proposals to cut by 80% its allowed OTDS because it is lower than the level it has calculated whereas its applied level is much higher than the level it has notified.

It notes that the allowed OTDS that the EU agreed to cut by 80% at the end of the Doha Round implementation period is that of the base period 1995-2000, which was the Uruguay Round (UR) implementation period.

On 22 May 2006, Canada circulated a report on "Agriculture domestic support simulations" (JOB(06)/151) with this introduction: "Representatives of Australia, Brazil, Canada, China, the European Communities, Egypt, India, Japan, Kenya, Malaysia, Norway and the United States have undertaken a data simulation exercise on various reduction options for the Total AMS and the Base for the Overall Commitments, using information provided by the European Communities, Japan and the United States. This effort was based on assumptions and indicators agreed by these Members for purposes of this statistical exercise alone. It was undertaken without prejudice to the positions of the Members involved. These Members would now like to share the results of this simulation exercise, including the data, assumptions and results, with the WTO Membership as a whole".

The Berthelot paper said that from that date on most Members, the media and NGOs have based their comments and negotiating positions on these simulations, without taking care of their huge flaws.

According to Canada's simulations, endorsed by the EU and the WTO, the EU's authorised OTDS (at that time it was the EU15) would be of 110.305 billion euros [67.159 for the Final Bound Total AMS (Aggregate Measurement of Support on 30 June 2001) (FBTA) + 11.129 (product-specific de minimis, PSdm) + 11.129 (non-product specific de minimis, NPSdm) + 20.888 (blue box, BB)] and its reduction by 80% would lower it to 22.061 billion euros at the end of the Doha Round (DR) implementation period.

However, says the Berthelot paper, this calculation contradicts the AoA rules on two points: the allowed product specific de minimis (PSdm) is not 5% of the value of the whole agricultural production (VOP) and the EU feed subsidies conferred PS AMSs to all animal products.

Therefore, the authorised OTDS is only 90.496 billion euros and its reduction by 80% would lower it to 18.099 billion euros at the end of the DR implementation period.

The paper said that these OTDS data must be revised to take into account the revised FBTA notified to the WTO at 72.244 billion euros for the EU27 after the adhesion of the EU12 New Member States (NMS), but the EU did not revise and notify the value of its total agricultural production (VOP) of the EU27 for the years 1995 to 1997, by lack of data for some NMS so that it could not revise the de minimis NPS AMS.

Berthelot, in his Solidarite paper, has however actualised these data relying on FAOSTAT values of all agricultural products (VOP) which, for the base period 1995-00, was 271.947 billion euros in the EU27, so that, according to Canada's simulations endorsed by the EU, the PSdm and NPSdm were each of 5% of that VOP value, i. e. 13.597 billion euros.

As very few notifications of BB (Blue Box) payments were made by the EU12 NMS in 1995-00 - only Estonia, Slovakia and Slovenia notified BB payments, and only in 2000 for Estonia and Slovenia -, contrary to the EU12, their applied BB was much lower than 5% of their VOP so that their allowed BB is only of 5% of their average VOP of 35.316 billion euros in the base period, i. e. of 1.766 billion euros - so that the EU27 allowed BB amounted to 22.654 billion euros and the allowed EU27 OTDS was, on the lines of Canada's simulations, of 122.292 billion euros [72.244 (FBTA) + 13.597 (PSdm) + 13.597 (NPSdm) + 22.654 (BB)] and the 80% reduction gives an allowed OTDS of 24.418 billion euros at the end of the DR implementation period.

The paper also argues that the PSdm support is not 5% of the value of the whole agricultural production.

It cites paragraph 1 of the December 2008 draft modalities text on agriculture (DMA) as stating: "The base level for reductions in Overall Trade-Distorting Domestic Support (hereafter "Base OTDS") shall be the sum of: (a) the Final Bound Total AMS specified in Part IV of a Member's Schedule; plus; (b) for developed country Members, 10 per cent of the average total value of agricultural production in the 1995-2000 base period (this being composed of 5 per cent of the average total value of production for product-specific and non-product-specific AMS respectively)".

According to the Berthelot paper, this statement contradicts paragraph 30 of the DMA on de minimis support confirming the AoA definition of the PSdm: "The de minimis levels referred to in Article 6.4(a) of the Uruguay Round Agreement on Agriculture for developed country Members (i. e. 5 per cent of a Member's total value of production of a basic agricultural product in the case of product-specific de minimis and 5 per cent of the value of a Member's total agricultural production in the case of non-product-specific de minimis) shall be reduced by no less than 50 per cent effective on the first day of the implementation period".

In other words, as soon as a product-specific (PS) coupled support reaches 5% of the production value of a product, it loses its PSdm for that product and gets a PS AMS which is added to the total applied AMS, and the production value of that product is added to the production value of all the products with PS AMSs.

The hidden reason for which Canada's simulations and the DMA violated the AoA rule on the PSdm is that Japan up to 2009 (last notified year) and the EU up to 1999-00 did not notify the production value of products for which they calculated a PS AMS.

Therefore, they were unable to check if those PS AMSs were lower than 5% of the production value of those products during the base period 1995-00. It is only from 2000-01 that the EU notified the production value of each product.

That is why paragraph 12 of the DMA proposed the new requirement that "The data on value of production shall, for all Members undertaking OTDS reduction commitments, be annexed to these modalities".

"The WTO Secretariat should have asked the EU and Japan to rectify their notifications by adding the production values of all products, which would not have been impossible since Solidarite was able to assess them," said Berthelot.

According to Berthelot, the consequences of the false interpretation of the AoA rule on the PSdm support are felt mainly when it is combined with the refusal of the EU and the other developed Members to consider feedstuffs as inputs.

The developed countries have refused to consider their subsidies to feedstuffs (COPs: cereals, oilseeds, pulses) as inputs subsidies to be notified in the PS AMS of the animal products (meats, eggs, dairy products) fed by these COPs.

The EU notified in the PS AMS some feed subsidies such as to dry fodder (374 million euros on average from 1995 to 2000 and 121.9 million euros for 2009-10, the last notified year; the OECD database showing that they were 141 million euros in 2010 and 97 million euros in 2011), and to skimmed milk fed to calves (513 million euros on average from 1995 to 2000, and subsidies only eliminated since 2008), showing that the EU is quite aware that feed subsidies are coupled subsidies.

These feed subsidies confer PS AMSs to all animal products which consumed the feed, increasing the production value of products with PS AMS and reducing consequently the production value of products without PS AMSs.

Thus, the EU15 average production value of products with PS AMSs was not 122.922 billion euros in the 1995-2000 base period but 201.323 billion euros, so that, given the 222.577 billion euros of the average whole agricultural production value (VOP), the average value of products without PS AMS collapsed to 21.253 billion euros and the allowed PSdm, which is 5% of that value, fell at 1.063 billion euros.

Correlatively, the average blue box (BB) was reduced to 11.145 billion euros instead of 20.888 billion euros because 9.743 billion euros of direct payments to the EU COPs used as feed were transferred to the PS AMSs of animal products having consumed these feedstuffs.

Therefore, the EU15 allowed OTDS for 1995-00 fell at 90.496 billion euros [67.159 (FBTA) + 1.063 (PSdm) + 11.129 (NPSdm) + 11.145 (BB)] instead of 110.305 billion euros according to Canada's simulations. And the 80% reduction gives an allowed OTDS of 18.099 billion euros at the end of the Doha Round (DR) implementation period instead of 22.061 billion euros.

The Berthelot Solidarite paper assessed the allowed EU27 OTDS in 1995-00. Having availed already of the revised FBTA of 72.244 billion euros, of the revised VOP of 271.947 billion euros, of the NPSdm of 13.597 billion euros and of the revised BB of 12.911 billion euros (11.145 for the EU15 + 1.766 for the EU12), the PSdm remains to be assessed.

For this, Solidarite said that there is need to find the PS AMS of the EU12 animal products having consumed the share of COPs used as feed. Here, a problem is faced in the lack of data in Eurostat for the years 1995 to 1997 for which the value of meats, milk and eggs is not available for all NMS, and FAOSTAT here cannot help.

So that, given that we avail of the EU12 VOP from 1995 to 2000, we assume that the average distribution of the 34.204 billion euros in the total production value of animals+milk+eggs for the years 1998 to 2000 between the three products holds also for the years 1995 to 1997.

Therefore, we get 16.008 billion euros of additional PS AMS of animal products issued from the EU12 feed subsidies, to be added to the 201.323 billion euros of the EU15 PS AMS, making a total of 217.331 billion euros.

So that, given the 271.947 billion euros of the EU27 VOP, the average value of products without PS AMS fell at 54.616 billion euros and the allowed PSdm, which is 5% of that value, fell at 2.731 billion euros.

Finally, the allowed EU27 OTDS for the 1995-00 base period fell at 101.483 billion euros [72.244 (FBTA) + 2.731 (PSdm) + 13.597 (NPSdm) + 12.911 (BB)] instead of 110.305 billion euros according to Canada's simulations for the EU15 only. And the 80% reduction gives an allowed OTDS of 20.297 billion euros for the EU27 at the end of DR implementation period.

The paper also underscores that the EU's applied OTDS in the 1995-2000 period and up to now is considerably larger than the notifications already made to the WTO. Indeed, on the one hand, the applied PS AMS was much larger and, on the other hand, the Single Payment Scheme (SPS) and the Single Area Payment Scheme (SAPS) since 2005 are not fully decoupled and are therefore in the AMS.

As for the BB, the WTO framework agreement of 31 July 2004 decided that it should be considered as a coupled payment. Besides, the EU has hugely under-notified to the WTO its NPS AMS comparatively to that notified to the OECD. Therefore, the fact that the remaining BB payments and the PS AMSs continue to be transferred to the SPS does not change the applied OTDS.

The EU15 applied PS AMS was on average of 60.973 billion euros in the base period 1995-00, not 48.425 billion euros as notified. The transfer of the BB going to COPs used as feedstuffs had the double effect to reduce the BB and to increase the PS AMSs of the animal products having consumed those feeds, and we got an average actual PS AMS of 60.973 billion euros in the 1995-2000 period, instead of the notified 48.425 billion euros.

The additional 12.548 billion euros came from: (1) on the one hand, the PS AMSs of the animal products linked to the subsidies to the feed integrated into these products: milk (4.078 billion euros), bovine meat (2.630 billion euros), pig meat (2.522 billion euros), poultry meat and eggs (1.358 billion euros); and (2) on the other hand, the PS AMS conferred to oilseeds meals processed from the EU oilseeds (800 million euros) and pulses (525 million euros), and the subsidies to the fat content of milk (428 million euros) and to the skimmed milk for casein (207 million euros), that the EU did not notify.

Taking into account the EU12 data, the EU27 total AMS of the 1995-00 base period was 61.766 billion euros, of which 61.282 billion euros was for the PS AMS.

For 2009-10 (the last notified year for the EU27), to the notified PS AMS of 8.764 billion euros we must add first the PS AMSs of the animal products linked to the subsidies to the feed of EU27 origin integrated into these products, for 13.733 billion euros in 2009 - of which 11.690 billion euros is to energy feed (8.926 billion euros in the EU15 and 2.764 billion euros in the EU12) and 2.043 billion euros to protein feed (1.955 billion euros in the EU15 and 88 million euros in the EU12) -, according to a report not yet published, which makes a total of 22.497 billion euros of PS AMS.

On the 13.733 billion euros of feed subsidies, 12.084 billion euros were decoupled (of which 9.479 billion euros of SPS and 2.605 billion euros of SAPS) and 1.649 billion euros were coupled (of which 1.402 billion euros in the EU15 and 247 million euros of CNDP (complementary national direct payments) in the EU12.

Any challenge at the WTO against the SPS (single payment scheme) and the future BPS (basic payment scheme) is sure to put them in the amber box (AMS) of coupled subsidies, said Solidarite, citing a number of reasons for this.

The paper also found that the subsidies of non-product-specific AMS were hugely under-notified. The main under-notifications are on subsidies to farm investments, marketing and promotion, agricultural fuels and irrigation. According to the AoA, all these subsidies are in the amber box for the developed countries.

Based mostly on the EU notifications to OECD, the EU15 NPS AMS was at least 7.924 billion euros on average in the base period 1995-00, against a notified average of 528 million euros, and 11.976 billion euros in the last notified year 2009-10.

The EU27 notified NPS AMS in 1995-00 was 1.031 billion euros and the actual applied NPS AMS was 8.434 billion euros.

The paper found that the EU15 average applied OTDS in the base period 1995-00 was 80.077 billion euros instead of the notified 69.269 billion euros. The EU27 applied OTDS was 81.442 billion euros against a notified 71.234 billion euros. The EU27 BB was not significantly different from the EU15 BB as the EU12 average BB was of only 24.6 million euros.

The EU27 applied OTDS in 2009-10, the last notified year, was 70.665 billion euros. The EU27 production value of products with PS AMSs rises from the notified 33.272 billion euros to 165.076 billion euros, after addition of 82.36 billion euros for the production value of animals plus 49.768 billion euros for the production value of milk and eggs.

As the notified production value of all agricultural products (VOP) was 302.611 billion euros, the value of products without PS AMS was 137.535 billion euros and the actual PSdm, which is 5% of that value, was 6.877 billion euros.

The other OTDS components were: 46.377 billion euros for total AMS, after addition to the notified 8.764 billion euros of 13.733 billion euros of feed subsidies, 22.003 billion euros of SPS (after deduction of 10.881 billion euros of feed subsidies from the notified 31.482 billion of SPS) and 1.877 billion euros of SAPS (after deduction of 2.605 billion euros of feed subsidies from the notified 4.482 billion of SAPS); 12.087 billion euros for the NPS de minimis; and 5.324 billion euros for the blue box.

If we compare the applied OTDS in 2009-10 with the EU commitments reflected in the DMA (draft modalities on agriculture), we see that the EU is not prepared to face such commitments, as the 2009-10 applied OTDS is 3.5 times higher than the objective at the end of the DR implementation period; it is 2.1 times higher for the total AMS; 78% higher for the NPSdm; and 5 times higher for the PSdm, even if there is a small leeway of 1.475 billion euros for the BB, the paper concluded.

(The full paper, with data tables, can be accessed at http://www.solidarite.asso.fr/IMG/pdf/Solidarite_s_comments_on_the_State_of_p lay_of_DDA_negotiations_24_January_2013.pdf)

 


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