January 26, 2005

 

 

EU wheat refunds could face WTO backlash

 

The European Union's reopening of export refunds for wheat could provoke retaliation by trade partners, even though the subsidies are technically legal under World Trade Organization guidelines, a person familiar with the matter said.

 

The E.U.'s cereals management committee Thursday opened a tender for export refunds for two million tons of wheat, the first since June 2003. By returning cash to exporters, the E.U. aims to make its wheat more competitive on world markets and clear a backlog from the large 2004 harvest.

 

However, a WTO member state could bring a challenge against the E.U., "if it can be shown that the point of giving refunds was to suppress world market prices in order to export more of their own grain," a trade attorney in Geneva who is familiar with WTO disputes said recently.

 

Claims under "serious prejudice" have been allowed since after Dec. 31, when the "Peace Clause" of the 1995 Agreement on Agriculture under the Uruguay Round expired.

 

The attorney said such a claim could be put forward if the complainant can show the E.U. action has suppressed world prices for a "sustained period." The agreement doesn't define the period, he said.

 

But, for example, the Chicago Board of Trade's drop in wheat futures price on the news Thursday that the E.U. would allow export subsidies for wheat wouldn't be enough to bring a case against the E.U.

 

"The activity has to go on for a sustained period showing a downward trend in world prices that can be directly attributed to the amount of export subsidies," the attorney said.

 

E.U. spokeswoman for trade Claude Veron-Reville said the refunds will help the E.U. to compete with other countries that give export subsidies.

 

"We consider that we are matching prices with the competition, not undermining them," Veron-Reville said. The reinstatment of refunds is only for a limited period of time, she said.

 

Veron-Reville said the refunds, also known as restitution, don't exceed the ceiling.

 

The level at which export refunds will be granted will be set by the cereals management committee. Traders say anything from EUR10/ton or more would be helpful in getting European wheat back on the world market.

 

"Export refunds for wheat are below the schedule limit for what is allowed" under the WTO Agriculture Agreement, said Veron-Reville.

 

The E.U. plans to issue weekly tenders for wheat refunds until the marketing year ends in June. E.U. wheat exports have been especially hampered during 2004-05 by the euro's strength against the dollar and high ocean freight rates.

 

The WTO said the U.S. or other members of the organization could dispute the refunds if the amount of subsidies put the E.U. over its permitted limit under the WTO agriculture agreement.

 

"The implications (of export refunds) depend on whether or not the export subsidies are within the E.U.'s allowed (subsidy) ceiling they're committed to from 2000 under the WTO," a WTO spokesman said.