English ver Chính sách trợ cấp của Châu Âu đối với hàng nông sản và bài học dành cho Việt Nam

EU Governments subsidy polices towards their agricultural products and the application to Vietnam... All things considered, we decide to choose the topic “EU Governments subsidy polices

EU Governments subsidy polices towards their agricultural products and the application to Vietnam

CONTENTS

Today, thanks to the global integration, the world is becoming smaller andsmaller with many FTAs connecting countries together An international market willbring about opportunities of changes and sustainable development to Vietnam.However, along with the bright side, we should be aware of upcoming challengesconfronting us, especially in the battle of exporting Thus, with the comparativeadvantages in agriculture products, it is urgent tasks that Vietnamese governmentshould enforce subsidy policies to boost its exporting activities so that we can keeppace with our partners all over the world

On the other hand, Vietnam and EU have built up a long-last relationship foryears, cooperating in many aspects including economics, politics, culture and societiesTherefore, in the current circumstances, we have more golden chances to learn fromtheir experiences, especially from their exporting subsidy policies Besides, it isobvious that the EU government has always been clever and determined at passingpolices that can support their agricultural export The effectiveness of their policies hasbeen proved by the stable growth of EU’s economies Thus, seeing what EU haveaccomplished and applying to Vietnam is of great importance if we want to raise thetrade surplus and enrich our country

All things considered, we decide to choose the topic “EU Governments subsidy polices towards their agricultural products and the application to Vietnam”

to analyze in our thesis under the construction of PhD Vu Huyen Phuong – Lecturer

of International Trade Policy

We do hope thanks to this thesis; we can have the general outlook about thetrade policies of both EU and Vietnam In addition, we can see how EU countriesmotivate its free trade activities through appropriate subsidy policies and how we canapply to better the situation of free trade in Vietnam

This thesis comprises four main parts:

I Overview of EU market

II Overview of agricultural subsidy policies in EU

III Current situation about EU’s subsidy policies and their impact on Vietnamese market

IV The application to Vietnam

I OVERVIEW OF EU MARKET

1 The foundation and development của EU

The EU (European Union), is a politico-economic union of 28 member statesthat are located primarily in Europe It covers an area of 4,324,782 km2, with anestimated population of over 508 million

The foundation of EU is illustrated by the graph below:

In addition, EU is the leading economic center of the world The position of EU

is expressed by the table below

GPD (billion USD - năm 2004) 12690.5 11667.5 4623.4The proportion of export in GDP (% - in2004) 26.5 7.0 12.2The proportion of EU exports in world exports

European Atomic EnergyCommunity (Euratom)

in 1958

European EconomicCommunity in 1957

European Coal and Steel

Community (ECSC)

in 1951

European Community(EC) in 1967

European Union in 1993

2 Some characteristisc of the EU’s market.

Firstly, each country always has its own consuming customs because the need

of all members in the EU is abundant and diversified EU consumers want to choosethe products with well-known brands in the world They speculated these products willadapt to customers’s requirement and make them feel secure EU market show thatvery few people choose the products from less prestigous brand or less well-knownbrand Thus, price’s negotiation seems not an optimal solution to approach this hotmarket EU Market is a difficult and highly selective market Importers from EU tend

to have high expectation for products imported from other countries

Secondly, to EU, the distribution network is an important element whenimporting and exporting products Corporational distribution channel is thatmanufacturers and importers of a corporation provided goods for only its system storesand its supermarkets That is main consuming trend The second distribution is non-corporational distribution channel Manufacturers, importers of a corporationprovided goods not only for retail systems of its coporation but also provided goods ofother independent retail stores

Finally, as EU is the most developed market in the world, everything aboutconsumers' health and safety always comes first To keep the consumers safe, theyexamine the products right at the producting places EU has made national oreuropean-standard regulations to prohibit selling products from nations that haveproducting conditions that do not meet EU standards

II OVERVIEW OF AGRICULTURAL EXPORT SUBSIDY POLICIES IN EU

1 Agricultural products

EU market divided agricultural products into four main groups:

Group 1 - Very sensitive product: consists mostly of agricultural products and

a few industrial consumer products such as fresh bananas, dried banana chips ,pineapple, pineapple box, readygarments, raw tobacco pipe, silk, This group ofproducts is taxed in GSP, equaling 85% of MFN export tax This is a group ofproducts which EU limit to export

Group 2 - Sensitive products: mainly food, beverages, chemicals, materials,

crafts (tiles and porcelain), footwear, consumer electronics, bicycles, cars, toys aretaxed in GSP, equaling 70% of MFN export tax This is a group of items that the EUdoes not encourage to import

Group 3 - Less sensitive products: including frozen seafood (shrimp, crab,

squid frozen, fresh chilled fish) some ingredients and chemicals (Air conditioners,washing machines, refrigerators) enjoy GSP tariff rates by 35% tax rate MFN EUencourages to import these products

Group 4 - Insensitive products: mainly some foods, drinks, (water minerals,

beer, wine), raw materials (coal, crude oil, rubber), agricultural products (coconutshell, cashew nut), are taxed in GSP tariffs equaling from 0% to 10% of MFN rates.This is the group which EU totally encourage to import

2 Agricultural subsidies in EU

The Agreement on Agriculture has three pillars—domestic support, marketaccess, and export subsidies Agricultural subsidies are divided into 2 groups:domestic supports and export subsidies

Reason for the division into 2 groups is of purpose of usage of such support Ifthe support aims to stimulate exports, it is called export subsidies But the generalsupport for agriculture, for specific products or a certain number of agricultural areasknown as domestic support The mechanism applied to each group is different, sodetermining a form of subsidy is crucial

a Domestic support

The first pillar of the Agreement on Agriculture is "domestic support" TheWTO Agreement on Agriculture negotiated in the Uruguay Round (1986–1994)includes the classification of subsidies into "boxes" depending on their effects onproduction and trade: amber (most directly linked to production levels), blue(production-limiting programmes that still distort trade), and green (minimaldistortion) Domestic support includes the measures and the policies whichgovernment uses to maintain the price of the agricultural products So, the domesticproducers receive the price at the level higher than the market price In WTOterminology, subsidies in general are identified by “Boxes” which are given thecolours of traffic lights: green (permitted), blue (reduced), amber (forbidden)

• The green box

The green box includes subsidy measures in one of 05 groups identified andmust fully satisfy the 3 specific conditions

Group 1 - Subsidies for General Services

Group 2 - Subsidies aimed at food security reserves

Group 3 - Subsidies domestic food

Group 4 - Support for Disaster Reduction

Group 5 - Direct support to producers: Income support, Financial support to

the program of the State Security, income insurance for farmers, support to offset thedamage caused by natural disasters; support pension for agricultural producers

To be considered as "green box subsidies," subsidy measures must fall into one

of five groups mentioned and must meet the following conditions: As measures withlittle or no impact squeeze trade distortion; through programs sponsored by thegovernment; no effect of subsidies for producers

• The blue box

The blue box includes direct payments from the state budget that are associatedwith the production The countries are not committed to cut down these measures,which means that the domestic support of this group does not need to be cut off orterminate Although these measures are put in the blue box which can distort trade, it

is still allowed to be maintained (still green) because of belong in the narrowframework of agricultural production However, it will have to sustain the adjustment(should be blue)

These subsidies based on fixed surface or yield.

The maximum subsidy equal to 85% or less than the level of production basisLivestock subsidies based on a fixed number of head

This is the form of subsidies that many developed countries applied inproduction limitation programmes

• The amber box

Subsidies of the amber box are all the subsidies in a country that's not belongthe green box and the blue box

b Export subsidy

Export subsidies are the third pilla For developing countries, the required cutswere 14% (by volume) and 24% (by value) over ten years.The governmentexpenditure for the producer or exporter in the country to export their goods orservices is called export subsidies According to the 1995 agreement on agriculture,developing countries must reduce 21% subsidies (in the amount of subsidies) and 36%(in cash) within 6 years, developing countres is 14% (by volume) and 24% (in cash)within 9 years The process of cutting, the countries can be flexible depending on thevolatility of the market from 2 to 5 years, allowing the country can continue to exportsubsidies However, if this happens, the amount of subsidy in subsequent years must

be cut further to ensure that the total reduction in the whole process is not affected

III CURRENT STUATION ABOUT EU’S SUBSIDY POLICIES AND

THEIR IMPACT ON VIETNAMESE MARKET

1 The implementation of agricultural subsidies policy of the EU

In 2009, subsidy to agriculture in EU increased to approximately 10000 EURand it decreased about 7% and 16% for the industry which received subsidies of

300000 euro In trade policy, EU enhanced the protection of agriculture,environmental protection and protection of consumer health Beside subsidy policy foragricultural production, EU applied high taxes and impose quotas on some agriculturalimports such as rice, sugar, bananas, cassava The requirement standards safety of food

was strict implementation The market-opening commitments of agriculture in the

WTO, EU countries maintain using tariff quotas for some products, descending thevalue and quantity of the products which are subsidized to export

EU Union had set the Common Agricultural Policy - CAP, from the early 1960s toprotect the border and created the mechanism subsidy for the agricultural sector It wasintroduced in 1962 and has undergone several changes since then to reduce the cost(from 71% of the EU budget in 1984 to 39% in 2013) (Source:https://en.wikipedia.org/wiki/Common_Agricultural_Policy) and to also consider ruraldevelopment in its aims This policy split most domestic subsidy from production in

EU, which means subsidy paid to farmers do not for producing or farming and pricesfor the products that farmers produce With this reform, 90% of EU agriculturalsupport have been transferred to Green Box On export subsidies, the EU proved toreduce the support in recent years (although that value is still quite large in somesectors, such as dairy products, sugar and beef) To beat against the strengtheningnarrow agricultural export subsidies, the EU offer to negotiate conditions tightenedregulations on food aid and on the promotion of US exports CAP support foragriculture through three forms: support domestic prices, export subsidies and directassistance (supply money) to compensate the lost income The aim is to make moremoney available for environmental quality or animal welfare programmes “For moredetail, each cows receive $ 2.70 subsidies per day, which is more than double thesalary of a poor farmer Thus, milk production in EU become surplus lead to the cheapexport price, which affect milk production sector in a number of developing countriessuch as India, Jamaica (2003) In the autumn of 2007 the European Commission was

reported to be considering a proposal to limit subsidies to individual landowners andfactory farms to around £300,000 Some factory farms and large estates would beaffected in the UK, as there are over 20 farms receiving £500,000 or more from the

EU In 2012, the budget for the CAP is also about 50 billion euro The tools of theCAP application include export subsidies, direct payments and high import duties 50billion euro budget of the CAP is used to support the domestic industryunconditionally For some European farmers, even 50% of their income comes fromthe CAP subsidies.” (Source: http://www.trungtamwto.vn/wto/cam-ket-ve-tro-cap-nong-nghiep )

EU claims to have an open export markets for agricultural products withdeveloping countries, allow 50 developing countries free to access the markets andimport agricultural product of developing countries The European Commission is nowdiscussing the next reform of the CAP, which will coincide with the next financialperspectives package, as from 2014 The Commissioner responsible for Agricultureand Rural Development Dacian Cioloş, has outlined seven major challenges that thefuture CAP needs to address: food production, globalization, the environment,economic issues, a territorial approach, diversity and simplification This agreementwill have a strong impact on overall global trade, including Vietnam It is probablyregarded as a great benefit for developing countries Besides, EU promised to end thewhole agricultural subsidies, had market opening to the developing countries

2 The impact on agricultural subsidy policies of EU to Vietnam:

Generally, the Vietnam - EU relationship is developing in a positive directionespecially on commercial economic which is in line with Vietnam strategic interests

In the framework Vietnam is a member of ASEAN and WTO, EU policy to Vietnam isclearly established and completed step by step in recent years EU support Vietnam inmany aspects, especially development assistance, the majority of Vietnam's exportproducts receive GSP preferences but actually, EU do not admit Vietnam as a countryhas market economy

To assess the impact of EU agricultural subsidy policy affecting to Vietnam, first,

we need to see the dependence of agricultural products in Vietnam on EU market Wehave a table:

Vietnam’s agricultural products export turnover to EU

Unit: Million USD

Year 2000 2001 2002 2003 2004 2005 200

6 2008 Agricultural

products export 379.7 319.5 162 577 649.5 795.2 968 1271

(Source:

http://www.tintucnongnghiep.com/2015/01/nam-2015-xuat-khau-nong-nghiep-sang-eu-se.html )Vietnam mainly export agricultural products such as coffee, rubber, rice, tea,fruits and vegetables to the EU market The production value of agricultural, forestryand aquatic products reached 219.887 billion, increase 3% from 2008 Recently,Vietnam exported agricultural products to the EU accounted for 18-19% of our exportagriculture sector That indicates the important role of EU market in export activities

of Vietnam Since 1997, according to trade relations between EU and Vietnam,Vietnam gain export benefit from EU market

With coffee export, EU is the largest market for Vietnam's coffee, in 2008,coffee export to the EU reached 820 million USD In 2011, the volume of exportedcoffee to EU was 490 thousand tons accounting for 39% total Vietnam's exportedcoffee

And tea, EU is a potential market for Vietnam's tea industry, the highest yearexported 74,800 tons (2002) Export into the Polish market increased by 8 times,bringing the proportion of exports to the market tea of Poland from 1.92% in 2008 to2.6% in 2011

Wood products are identified as potential products developed because the EUmarket is the largest furniture The export of Vietnam's wood products to the EUmarket in 01/2008 reached 112 million

Moreover, EU is the biggest aquatic consumption in the world, with annualturnover export increase to 34 billion dollars In 2008, exports Vietnam's seafood tothe EU reached 275 thousand tons with a turnover of 910 million USD and the figureincrease to 846 million USD in 2012

All trade details above indicate the strong influence of EU market to Vietnam's export, thus, each subsidy policy in EU also has an appreciate effect on the economy of Vietnam.

2.1 Effect of subsidy policy for agricultural products of EU:

Although the policy is applied to support the producer in EU, it also creates thebarriers for products from export countries Export subsidies of the developedcountries is one of the main reasons causing the dumping on the world market in 1980.Agricultural policy keep EU agricultural goods prices low, so it is hard for Vietnamesefarmer to compete This direct influence on the growth and distribution of incomebetween developing countries In addition, in the context of world food price volatility,the CAP instruments can exacerbate the negative effects on developing countries IfCAP succeeded in stabilizing the European market, this means that the risk of pricefluctuations will turn to the world market

In contrast, expert Gail Soutar in Farmers Association UK and Wales arguesthat CAP actually bring many benefits to the developing countries “Each year nearly

60 billion euro EU import agricultural products from the developing countries,accounting for about 70% of the total value of EU agricultural imports The EU is alsothe largest importer of agricultural products from the developing countries, more thanthe US, Japan, Canada, Australia and New Zealand combined” (Source:http://finance.tvsi.com.vn/News/2012826/216283/chinh-sach-nong-nghiep-eu-lam-kho-cac-nuoc-dang-phat-trien.aspx ) In particular, agricultural products imported from

49 countries are exempted from tariffs and quotas, the remaining developing countriesenjoy preferential access to EU markets In addition, the importer to benefit from tradepolicy transparency and stability of the EU

Argues that "over 90% of domestic subsidies separated from production andtherefore are not considered trade distorting" more research was rejected, said separatepayments for farmers has led to excess liquidity in the credit markets and this is aproof of the phenomenon of "trade-distorting"

2.2 Agreement with WTO to decrease export tax and subsidy and effect

of Doha Development Agenda to Vietnam

EU agree to WTO that EU will have open market for 50 developing countries to