October 2017. The political shock of Brexit has yet to be translated in actual economic and commercial terms, but the clock is already ticking. End March the UK notified its intention to withdraw from the EU, opening up the two-year period for negotiating the terms of the withdrawal and the terms of the future EU-UK […]
THE HEAVILY IMPACTED AGRICULTURE SECTOR SHOULD GET MUCH NEEDED HELP
The US retaliation list has been published, and as unfortunately I had anticipated it is loaded against EU agriculture exports to the US.
Although the dispute is on aircraft subsidies, agriculture leads the list of the products targeted, with roughly the double of the trade impact than all the others products added together, including aircraft.
The retaliation list is also heavier on additional tariffs for the agriculture products than for aircraft – 25% as compared to 10%.
The US has been careful to minimize the impact on its economy by exempting some items that are imported bulk and bottled in the US. It has also left room for expansion and/or deepening of the sanctions, either by expanding the product coverage, or by increasing the amount of the additional tariffs. That might be a tactical move to prevent or anticipate any EU retaliation prior to the expected decision on the “sister” case against Boeing, and to increase its negotiation leverage then after.
Dairy is heavily impacted, as are wine and whiskey, olive oil and olives, pork, hams, biscuits, jams and some fruits.
The EU dairy sector, including many cheese GIs, bears most of the blunt. The impact of a 25% additional tariff on EU exports is not easy to anticipate. It will be a mix of lower exports as products become more expensive in the US, and a reduction of margins for EU exporters, eager to minimize loss of volumes and markets even if that means giving up on profits.
In the end there is little doubt that the negative impact will be passed on to the producers, negatively impacting their incomes.
What also strikes me as well is the lack of support to cushion the sector from this blow. Whereas in the US the negative effects of the US-China trade war on US farmers were compensated twice by sizeable subsidies, in the EU there is no such talk, no initiative on sight from the European Commission. Could the fact that the current Commissioner for Agriculture will be the next Trade Commissioner help in proposing a package of support to those affected, in particular to the farmers? Let us not forget that they had no part on the subsidies found illegal by the WTO, but they are the ones who will lose the most.
The European Commission should calculate the actual loss of agriculture exports targeted by the retaliation list to the US, in the months to come, and devise a support package that would compensate the farmers affected. It should not just monitor the EU domestic markets and intervene only when drastic price drops are on the record, as that will miss the actual losses of those affected by the trade retaliation.
By Joao Pacheco