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WTO Agreement To End Ag Subsidies Gives Confident Boost
March 25, 2016

The World Trade Organisation’s (WTO) agreement to end agricultural subsidies has given Australian dairy exporters a confident boost that they will be more competitive on the global market.

The decision by 163 WTO members, which came at the end of last year, will eliminate $15 billion worth of export subsidies. These include direct payments, loans, tax breaks and other financial arrangement. About 90 per cent of the subsidy entitlements are in Europe and North America – Australia has not subsidised its agricultural exports for decades.

Under the new agreement, developed countries will “immediately” remove government export subsidies from agricultural products, with developing countries agreeing to phase out subsidies by 2018.

The exception to the immediate phase out of export subsidies for developed countries (some nations qualify for a five-year phase out) applies only to processed products, dairy products and swine meat. This particularly protects the interests of Canada, Switzerland and Norway, which use export subsidies on such products. However, conditions apply, including:

These countries cannot increase the quantity of goods that benefit from export subsidies beyond their average level in a 2003-2005 base period.

These countries cannot apply export subsidies to new markets or to new products.

They cannot provide export subsidies for products destined for least-developed countries after January 1, 2016.

Dairy Australia’s group manager trade and industry strategy Charles McElhone said the agreement was a positive step forward for the industry, after export subsidies had distorted the international dairy market for many years. “The commitment to phase the subsidies out is a significant win for our industry,” Mr McElhone said.

“Where the price for whole milk powder might be worth $3000 a tonne today, if the export subsidy comes on and it’s worth $1000 a tonne, overnight the export price will be $2000 a tonne. Those are mechanisms by which they undercut the world price for dairy products, and which have been used quite widely within the dairy industry over many years.

“To see that we can no longer return to those days is a real confidence boost for Australian dairy exporters.”

However, Mr McElhone said the WTO deal did not cover a number of items, including delivering a market access outcome.

“The vast majority of the potential gains from trade liberalisation can be found in improvements to market access,” he said.

How does an export subsidy work?

An export subsidy is a government policy to encourage export of goods and discourage sale of goods on the domestic market.

An export subsidy reduces the international price of commodities on which it is imposed and masks market signals to farmers and exporters from countries receiving the subsidies. The most destructive use of export subsidies in dairy has been by the European Union and United States Governments, particularly in the 1980s and 1990s.

Export subsidies have been less commonly used in recent years within the dairy industry, but re-emerged following the Global Financial Crisis in 2009 when global dairy prices plummeted.

By: Dairy Australia


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