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NZ challenges US farm subsidies

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New Zealand is questioning whether Donald Trump’s payments of billions of dollars to American farmers go beyond the limits allowed under international trade rules.
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Kimberly Crewther | November 09, 2020 from GlobalHQ on Vimeo.

The Trump administration forked out US$12 billion in subsidies in 2018 to buffer American farmers from the fallout of the President’s trade war with China. It topped that up with another US$16bn in 2019.

Billions more were set aside after covid-19 dealt a further blow to US farm incomes, which are forecast to drop this year by 15% even after subsidies are accounted for.

According to one US report, payments from the federal government will make up 36% of American farm incomes this year – the highest share since 2001.

At the most recent meeting of the World Trade Organisation’s (WTO) Committee on Agriculture in late September, officials from NZ asked US counterparts when the committee could expect formal notification of the payments and whether they expected the amounts to exceed the WTO’s annual limit for the US of US$19.1bn.

NZ officials also asked if more subsidies were in the pipeline and how the US planned to reduce programmes already in place.

American officials responded that the WTO would be notified in due course. The most recent subsidies were short-term measures to mitigate the impacts of the pandemic on US farmers and consumers, they said.

Similar questions of the US came from the European Union, China, India and Canada.

The barrage of questions led one former top American trade official to speculate that countries could be preparing a lawsuit against the US.

The Dairy Companies Association of NZ’s (DCANZ) executive director Kimberly Crewther says the questions were designed to find out the exact nature of the payments and whether they were likely to exceed the limits allowed for by the WTO or fall into some other category.

“If it is a case of the commitment (by the US) not being lived up to, then the process is that the countries can seek a consultation on that which is a precursor to lodging a dispute,” she said.

Crewther says the US could be expected to argue that the subsidies fell into a category that did not distort international trade and did not need to be notified to the WTO.

“The question around whether they should be notifying it … is NZ officials suggesting that from what they are seeing it does look like it fits into that category and should be notified,” she said.

NZ has long argued subsidies distort agricultural trade by sending a signal to foreign farmers to keep on producing even when prices are falling. 

Prices take longer to recover their former levels while excess production is worked through as was the case in 2018 and 2019 when the EU dumped subsidised skim milk powder on the global market. 

Crewther says while other countries had propped up their farmers since the start of the pandemic the US was “way out in front” with the size of its support programmes. 

That was concerning given the growth trajectory the US dairy industry was currently on.

“They have the potential to become the world’s largest dairy exporter, but that is going to come at a high cost to unsubsidised producers and not just exporters like NZ if that growth is coming from subsidies,” she said.

The NZ dairy industry was concerned the subsidies could become permanent.

Ironically, the US industry had loudly criticised the abuse of subsidies by rivals in recent times.

In May America’s National Milk Producers Federation slammed the EU for restarting “government-incentivised stockpiling” of dairy products, which it said had disrupted global markets in recent years.

The US also won a WTO case last year against China after complaining the country had exceeded its limits on subsidies to cropping farmers.

“You do wonder sometimes whether these people own mirrors,” Crewther said.

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