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Wheat export subsidies



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MINISTIR FOR PRIMARY INDUSTRIES AND ENERGY PARUAMENT HOUSE CANBERRA 2600 AIDE MEMOIRE

Wheat Export Subsidies

. Australia is gravely concerned at the escalation in the wheat trade subsidy war between the United States and the EC, and its damaging effects on its farming community.

. The competitive offer of subsidies severely distorts markets and has a ratchet effect on driving down world prices, which destroys the income and prospects of efficient and unsubsidised farmers like

those in Australia.

. This trade subsidy war has now got completely out of hand and Australia asks that the EC immediately refrains the aggressive use of its export subsidies.

. Australia's concerns about the Export Enhancement Program (EEP) have been made abundantly clear to the United States Government and the people of America

- and that Australia will be holding bilateral talks with US officials next week.

. EC and Australian Ministers have agreed to reconvene the Australia/EC Trade and Marketing Experts Group and Australia hopes that a meeting can be held in September.

. Australia believes that the EC's system of export subsidies is a fundamental cause of the problem. At least for the past decade, Australia has consistently made representations to the EC on the CAP and its damaging effects on world markets.

. In the short space of just over a decade, the EC, through the CAP, has moved from a major grain importer to one of the world's largest exporters, with 20% of the export market for wheat. Its

extravagant and indiscriminate use of export subsidies has been with little regard to EC's international obligations.

COMMONWEALTH PARLIAMENTARY LIBRARY MICAH

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Since 1985, the EC's expenditure on wheat and flour export subsidies has more than trebled. EC export subsidies per tonne have recently been around $US100 per tonne, well over the price of wheat in

subsidised markets.

The current subsidy war can only further depress prices in a market which is already over-supplied with record production, partly as a result of excessive subsidies over many years.

In the last 18 months, the price of wheat has plummeted by 35%. Looking to 1991/92 and the crop now being harvested in the northern hemisphere, world wheat production will likely be down by

40 million tonnes from last year's record, but prospects are for no appreciable lift in prices - because of the subsidy war.

Recent sales into China are a classic effect of the subsidy war. Prior to the recent EC sale of 1.5 million tonnes, prices in that market were $US80 and above. The EC sale at $75 per tonne is unexplainable. The US immediately retaliated at the

same price and this has now set the tone for the international market.

Australia believes there is a clear and simple answer to this problem and that is, to ensure a successful outcome to the Uruguay Round negotiations, which will put an end to these trade subsidy wars.

Australia welcomes the Mac Sharry reform proposals, particularly on cereals, as a starting point for serious negotiations in the Round.

It is ironic that this escalation in wheat subsidies follows immediately after the London Summit, when leaders of the EC/US and other major industrialised countries, declared their recognition of the vital

importance of agricultural reform to the well-being of international economy and committed themselves to such reform.