Tag Archives: subsidies

US farm subsidies in no danger

Even in a year when U.S. farm­ers’ incomes are like­ly to be the sec­ond high­est in 35 years, Obama’s mod­est bud­get pro­pos­als to cut US farm sub­si­dies by about a quar­ter over the next decade is unlike­ly to win sup­port from the Repub­li­can major­i­ty in Con­gress “The Oba­ma administration’s pro­posed 2012 fed­er­al bud­get released today […]

EU launches debate on farm subsidies

Expenditure on the CAP

Fol­low­ing sev­er­al weeks of con­sul­ta­tions, the Euro­pean Com­mis­sion is expect­ed to draw up a report on poten­tial changes to the CAP in mid-sum­mer. ” Extract from ICTSD • EU Farm Com­mis­sion­er Launch­es Debate on Sub­si­dies

I bet there are no sur­pris­es.

The over­all strat­e­gy for the Com­mon Agri­cul­tur­al Pol­i­cy beyond the next bud­get hori­zon (2013) is already evi­dent in the chart. It shows that nom­i­nal expen­di­ture in €bil­lions is being held near­ly steady—or ris­ing just slight­ly— despite the enlarge­ment of the Union. But the val­ue is falling in real terms (and as a pro­por­tion of GDP). This strat­e­gy plays to the cash illu­sion of farm­ers (assum­ing they still have such illu­sions) while keep­ing the lid on their incen­tive to expand pro­duc­tion, which only adds to pub­lic stock woes and diverts the bud­get into dis­pos­al expens­es (export sub­si­dies).

But At 0.4% of GDP, the CAP still rep­re­sents six­ty per­cent of all expen­di­ture by the Union. So six­ty-years on from its launch, the mad­ness of this giant re-dis­tri­b­u­tion machine con­tin­ues.

The more ‘vari­gat­ed’ dis­tri­b­u­tion of the funds diplayed in the chart—illustrating ‘CAP reform’—is a bit of fur­phy. The ‘cou­pled’ and ‘de-cou­pled’ pay­ments direct to farms and the ‘rur­al devel­op­ment’ expen­di­ture are near­ly fun­gi­ble sources of income for farm­ers. They all pay to keep farm­ers in a busi­ness where world mar­ket prices tell them they should not be (or would tell them were it not for the import bar­ri­ers).

It’s iron­ic that the Com­mis­sion has enti­tled this pub­lic con­sul­ta­tion as “2013, Your Ideas Mat­ter…”. Because ideas have long been junk where the CAP is con­cerned; only inter­ests have any force.

Motor vehicle subsidies wasted on Ford

Carr and Rudd sign the IOU

Ford Aus­tralia made just over a quar­ter (60,000) of all the cars made in Aus­tralia last year and less than one-fifth of all the new cars+light trucks reg­is­tered in Aus­tralia in 2009 (a total of 302,400: see the ABS Motor Vehi­cle Cen­sus)

Ford is not going to be a prof­it cen­ter for its glob­al par­ent any time soon.

‘As soon as choic­es have to be made, Ford is the next Mit­subishi,’ said John Wormald, prin­ci­pal of inter­na­tion­al con­sul­tant Autopo­lis, refer­ring to the Japan­ese company’s deci­sion to shut down its Ade­laide fac­to­ry two years ago.

Mr Wormald, who is in Aus­tralia to advise the Vic­to­ri­an gov­ern­ment, said the replace­ment for the Fal­con, due in about five years, could be import­ed cheap­ly and the car­mak­er did not need its Mel­bourne plant. ‘Ford isn’t short of assem­bly capac­i­ty in oth­er places,’ he said. ‘Where’s the plan to inte­grate Aus­tralia?’ ” Extract from Ford will be next car­mak­er to quit Aus­tralia | The Aus­tralian

Wormald con­firmed what every­one except Kevin Rudd and Kim Carr has under­stood for decades about the Aus­tralian car indus­try. Refer­ring to the mas­sive $6 bil­lion bribes extend­ed by the Rudd gov­ern­ment (includ­ing $13 mil­lion to prop up Ford’s Gee­long fac­to­ry), he said

Sub­si­dies were doomed to fail because the indus­try lacked a vision for the future and Ford was most vul­ner­a­ble because it was iso­lat­ed from its parent’s glob­al oper­a­tions.

EU ramps up farm subsidies

EU farm subsidy spend has grown rapidly


The lat­est offi­cial noti­fi­ca­tion to the WTO shows that total EU sup­port lev­els have returned to lev­els not seen since the pre­vi­ous decade, with €90.7 bil­lion of sup­port being report­ed to the glob­al trade body for 2006/2007 — up from €75.6 bil­lion in 2002, when sup­port was at its low­est in the last fif­teen years.” Extract from ICTSD
So-called ‘Green’ box sub­si­dies were grow­ing dra­mat­i­cal­ly (see the graph) in 2006/7 as the more dis­tort­ing ‘Amber’ and ‘Blue’ box spend declined. There’s no WTO con­straint on the total farm sub­sidy spend, only only spend­ing in a trade-dis­tort­ing way, essen­tial­ly by manip­u­lat­ing prices using tax­es, quo­tas or import restric­tions.

U.S. breaks G-20 promise on trade


Just to remind you of what they said in April:

We reaf­firm the com­mit­ment made in Wash­ing­ton not to raise new bar­ri­ers to invest­ment or to trade in goods and ser­vices, includ­ing with­in exist­ing WTO lim­its, not to impose new trade restric­tions, and not to cre­ate new sub­si­dies to exports.” G-20 Com­mu­niqué empha­sis added

By any mea­sure the re-intro­duc­tion of an export sub­sidy for the cod­dled U.S. dairy­farmer is a new sub­sidy, even if with­in the terms of the 1994 WTO agree­ment on sub­sidy ceil­ings (cooked-up by the USA and EC in 1992). It’s out­ra­geous and dam­ag­ing. But fore­see­able.

The US Agri­cul­ture Depart­ment said it will sub­sidise about 92,000 tonnes of dairy prod­ucts head­ed for the world mar­ket. A spokes­woman said the sub­si­dies would help US farm­ers hit by plung­ing inter­na­tion­al prices and trade vol­umes and was the first time in five years the pro­gram would be used.” Extract from The Age

Trade, cars and the great recession

Carr and Rudd sign the IOU

One of my favorite trade econ­o­mists, Joe Fran­cois, has been work­ing with Julia Woerz on the rea­sons we have seen such a dra­mat­ic (minus 20%) fall in nom­i­nal trade val­ues in the past two quar­ters when the fall in out­put over the same peri­od was seri­ous but much small­er (minus 5%).

The prob­lem is not trade finance, but rather finance, full stop. This reces­sion has been char­ac­terised by a mas­sive col­lapse of cred­it mech­a­nisms that has hit the cap­i­tal goods and vehi­cle sec­tors par­tic­u­lar­ly hard. It turns out that motor vehi­cles are also the dri­ver of much of the recent trend in OECD trade data. ” Extract from Vox EU

The trade data holds an old (but how often for­got­ten!) les­son for Min­is­ter for Inno­va­tion, Kim Carr.

G20 communiqué an improvement

If you read the under­tak­ings on trade and protectionism—with only a mod­er­ate­ly skep­ti­cal eye—as a firm under­tak­ing, it is not as “wooly” as the crit­ics claim. On the con­trary, it is a sub­stan­tial improve­ment on oth­er recent efforts and streets ahead of the wob­bly para­graph 13 of their Novem­ber 2008 com­mu­niqué.

The under­lined phras­es (my empha­sis) are the sig­nif­i­cant parts. They make the under­tak­ings more effec­tive, (although not water-tight). I dis­cuss their sig­nif­i­cance over the fold.

An open glob­al econ­o­my

“11. World trade is falling for the first time in [25 years]. We need to sus­tain the ben­e­fits of glob­al­i­sa­tion and open mar­kets, and pro­mote trade as a cru­cial dri­ver of growth in the world econ­o­my. There­fore:
  • We reaf­firm the com­mit­ment made in Wash­ing­ton not to raise new bar­ri­ers to invest­ment or to trade in goods and ser­vices, includ­ing with­in exist­ing WTO lim­its, not to impose new trade restric­tions, and not to cre­ate new sub­si­dies to exports.
  • We will rec­ti­fy prompt­ly any such mea­sures. We extend this pledge for a fur­ther 12 months;
  • we will noti­fy prompt­ly gov­ern­ments and oth­er rel­e­vant insti­tu­tions of any mea­sures which have the poten­tial to cause direct or indi­rect trade dis­tor­tions;
  • we will min­imise any neg­a­tive impact on trade and invest­ment of our domes­tic pol­i­cy actions includ­ing action in sup­port of the finan­cial sec­tor. We will not retreat into finan­cial pro­tec­tion­ism;
  • we com­mit to con­duct our eco­nom­ic poli­cies respon­si­bly with regard to the impact on oth­er coun­tries and to refrain from com­pet­i­tive deval­u­a­tion of our cur­ren­cies.
12. We call on the WTO, togeth­er with the IMF and oth­er inter­na­tion­al bod­ies as appro­pri­ate, to report on our adher­ence to these under­tak­ings on a quar­ter­ly basis.
13. We are com­mit­ted to reach­ing rapid agree­ment, on the basis of progress already made, on modal­i­ties lead­ing to a suc­cess­ful con­clu­sion of the Doha Round which would boost the glob­al econ­o­my by at least $150 bil­lion per annum.”
Extract from the Finan­cial Times account of the G20 draft com­mu­niqué

Here’s how I read the under­lined bits.