KEY POINTS:
Trade Minister Tim Groser says he has reminded his counterparts at the European Union, and at a world economic forum in Davos, Switzerland of strong concerns over re-instated dairy subsidies.
Groser, who is on his way back from Brussels, said today he did not want to see the European Union's decision to re-start dairy export subsidies trigger further protectionist measures in other countries.
"I related our desire to see an early end to the recently reintroduced EU dairy export subsidies, and of the growing concerns expressed - including by the Cairns Group - of the risk that the EU action could lead to an escalation of trade protection," he said in a statement.
The EU export subsidies for butter, cheese and milkpowder were suspended due to high dairy prices in 2007 but with commodity prices now falling the EU new payments may be funded from part of the 1.5 billion euros ($NZ3.7 billion) earmarked to help rural communities weather the recession gripping much of Europe.
His counterparts, both in Brussels and at Davos, were reminded that G20 and Apec leaders last year had explicitly directed trade ministers to conclude the Doha Round of trade talks and not to resort to protectionist measures during the economic crisis.
"A retreat to protectionist policies is not the way forward," he said.
Governments around the world should show they were committed to seeing an end to protectionism by concluding the Doha Round, said Groser.
He spoke to Pascal Lamy, director-general of the World Trade Organisation, a former EU trade commissioner, who has said the EU dairy subsidies are sending the wrong political signal, whatever the technicalities.
But other protectionist tendencies are already evident, including restrictions on drugs sales and ports of entry in Indonesia and safeguard duties on steel in India.
Doubts have been expressed about economic stimulus packages with an element of protectionism: the United States has framed a US$900 billion ($1.7 trillion) economic stimulus bill that allows only US-made iron and steel to be used in any public works projects which it funds.
A dairy industry lobbyist, Michael Howard from Dairy Australia, has warned that the US was looking at export subsidies for its dairy industry.
New Zealand has been subsidy-free since 1985, but Fonterra sells nearly 40 per cent of the milk traded internationally, and farmers are worried that the northern hemisphere subsidies could spread.
"Subsidies have a habit of spreading to other food commodities or morphing into tariff barriers," said Federated Farmers economics and commerce spokesman Philip York.
"It's a literal can of worms once opened."
Fonterra's managing director of global trade, Kelvin Wickham, has said the EU subsidies have the potential to distort the market and signals to milk producers.
But a senior figure in the Irish dairy industry has criticised Fonterra's online auction system, claiming it has accelerated the fall in international prices and pushed prices to a level lower than they would have been.
The deputy president of the Ulster Farmers' Union, John Thompson, said on The Country Channel that the auctions were effectively benchmarking milkpowder prices and claimed the EU subsidies were a "direct result" of the way Fonterra handled the auction system.
"Traders stop buying product, waiting for Fonterra's next auction which they know will be cheaper than the one before. It has disturbed the market quite a lot."
- NZPA
