The end of export subsidies?

Well, not quite. But with the publication of the final texts of the CAP political agreement last week we can now scrutinise the detail and fine print. Changes to the language on export subsidies in the single Common Market Organisation regulation go further than before in limiting the future use of export subsidies, without quite taking the final step of eliminating them altogether.
I previously discussed the EU’s use of export subsidies in this post last year. I highlighted both the sharp fall in the use of export subsidies by the EU, the high cost to taxpayers and citizens of using this instrument to support market prices and farm incomes and the growing political support for their abolition.
I argued in the post that the EU should use the opportunity of the revision of the CMO regulation to eliminate export subsidies, while recognising that a less satisfactory outcome would be a self-denying ordinance by the Council and the Parliament not to make use of the instrument after 2013. In effect, this latter option is partially reflected in the June political compromise.
When export subsidies can be used

The relevant changes concerning export subsidies are set out both in the preambular material to the regulation and in the text of the regulation itself.
The Commission’s draft set out the role and objectives of export subsidies in the CMO regulation’s preamble in the following terms:

A single market involves a trading system at the external borders of the Union. That trading system should include import duties and export refunds and should, in principle, stabilise the Union market…. (Recital 94).
Provisions for granting refunds on exports to third countries, based on the difference between prices within the Union and on the world market, and falling within the limits set by the commitments made within the WTO, should serve to safeguard the Union’s participation in international trade in certain products falling within this Regulation. Subsidised exports should be subject to limits in terms of value and quantity (Recital 107).

This language in the preamble is changed in the political agreement to the following:

Refunds on exports to third countries, based on the difference between prices within the Union and on the world market, and falling within the limits set by the commitments made within the WTO, should be retained as a measure which may cover certain products to which this Regulation applies when conditions of the internal market fall under the scope of those described for exceptional measures. Subsidised exports should be subject to limits in terms of value and quantity, and, without prejudice to the application of exceptional measures, the refund available should be zero.

There are important differences in the two formulations. The idea that the EU’s trade policy should be used to stabilise the Union market has been removed. Yes, export subsidies are retained as a market management instrument for a limited number of commodities in the future. But this is accompanied by a commitment that, in normal circumstances, the value of refunds will be zero. In future, export subsidies can only be activated where internal market conditions satisfy the requirements for exceptional measures.
This self-denying ordinance is reflected in the language of Article 133 of the political agreement:

To the extent necessary to enable exports on the basis of world market quotations or prices when conditions on the internal [market] are such as described in Article 154(1) or Article 156 and within the limits resulting from international agreements …, the difference between those quotations or prices and prices in the Union may be covered by export refunds for [there then follows a list of selected products including some processed products].
Without prejudice to the application of Article 154(1) and Article 156, the refund available for the products referred to in paragraph 1 shall be EUR 0. (bolding added)

Defining when exceptional measures are justified
Article 154 defines that a situation of market disturbance is a situation caused by significant price rises or falls on internal or external markets or other events and circumstances significantly disturbing or threatening to disturb the market, where that situation or its effects on the market is likely to continue or deteriorate. It empowers the Commission to take the measures necessary to address that market situation.

Such measures may to the extent and for the time necessary to address the market disturbance or threat thereof extend or modify the scope, duration or other aspects of other measures provided for under this Regulation, or provide for export refunds, or suspend import duties in whole or in part including for certain quantities or periods as necessary (bolding added).

Article 156 deals with specific problems likely to cause a rapid deterioration of production and market conditions which could justify taking necessary and justifiable emergency measures. It is a blunderbuss provision in that it authorises the Commission to take whatever measures it wants, including measures that derogate from the provisions of the CMO regulation “although only to an extent that is strictly necessary and for a period that is strictly necessary”.
Limits on export subsidies are tightened

In trying to gauge how frequently export subsidies will be used in the future, it all depends on how the Commission assesses a market disturbance (Article 154) or a specific problem likely to cause a rapid deterioration of production and market conditions (Article 156).
But looking at the recent past, it is likely that the dairy export refunds briefly re-introduced in 2009 in response to the fall in milk prices in that year would have been authorised under the new legislation. However, it is unlikely that the export refunds which were paid in recent years on pigmeat, poultrymeat and processed products (in the latter case, these have mainly offset the higher cost of sugar for EU processing firms) would be justified under the new regulation as there was no evidence of market disturbance or a specific problem on those markets.
Currently, the only limits on the EU’s use of export subsidies are the value and volume limits set out in the EU’s WTO schedule of commitments under the Uruguay Round Agreement on Agriculture. We can conclude that the new regulation setting export subsidies to zero in all circumstances except where there is a market disturbance or a market emergency does represent a further tightening of the limits on using this policy instrument. This conclusion assumes that the Commission will adopt a strict approach in evaluating when a market disturbance or emergency occurs in the future.
Picture credit: Wageningen UR Frontis Series

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