Apec hits subsidies but EU holds key

By Philippa Stevenson

Apec trade ministers' resolve to push the abolition of export subsidies has heartened the New Zealand company that suffers more than most from the trade distortion - the Dairy Board.

The board's external policy manager, Nigel Mitchell, said the dairy industry's number one priority for improving the international environment for its business was the removal of export subsidies.

Only 5 per cent of world dairy products are traded internationally - 95 per cent are consumed by producing countries - but only 3 per cent is freely traded.

Tariffs are paid to export to virtually all markets, costing the board $500 million last year, and in the remaining 2 per cent of the market, access is controlled by quota.

Internationally - except in New Zealand - subsidies are paid to companies exporting domestic surpluses to overcome high prices paid for domestic product.

The European Union and the United States offer some of the biggest subsidies, creating artificial pricing levels which distort the market, and fail to reward efficient production.

On Friday, Trade Minister Lockwood Smith, who chaired the Apec ministerial meeting, said among recommendations to go to the leaders' summit would be that the abolition of export subsidies be part of Apec countries' common goal at the World Trade Organisation in November.

Mr Mitchell said the recommendation was positive because it indicated a strengthening of views throughout the international community that export subsidies had to be dealt with effectively.

"That hasn't always been the case," he said. "It is certainly something we are encouraged by and see as a positive step forward, but we are not going to bank the farm on it. Because there is no agreement until everyone has agreed."

Mr Mitchell said as the major subsidiser of dairy products, and other goods, the European Union's reaction to the Apec move would be critical. "The European Union's position will ultimately determine what progress can be made on this"

Mr Mitchell said there would be "no bolts out of the blue" to transform the international market, but the growth the New Zealand dairy industry had experienced in the last five years reflected the disciplines placed on export subsidies at the Gatt, now WTO, Uruguay Round.

"Up until 1995, there were no limits at all on the methods countries could use to subsidise exports by volume, or expenditure. We were totally exposed.

"Now we have a system of rules, and of specific commitments that all the major trading countries have entered into. The EU and US, for instance, are being forced to reduce the volume of their subsidised exports."

Mr Mitchell said the process of change was very slow but the important thing was that progress was being made.

"It's a bit like putting fertiliser in the pasture. You have to have time for it to show through."