In Olive-Trade Fight With Trump, EU Braces for Farm-Subsidy Test

(Bloomberg) -- Forget banana peels. Europe is at risk of slipping on olives.

A trade dispute with the U.S. over Spanish ripe olives may pose a litmus test for European Union agricultural policy as a whole. President Donald Trump’s administration accuses the olive industry in Spain, the world’s top exporter of the ancient fruit used in pizzas, salads and sandwiches, of receiving trade-distorting EU aid and harming two California-based producers.

In Olive-Trade Fight With Trump, EU Braces for Farm-Subsidy Test

The EU rejects the allegation, saying three decades of overhauls to European farm support including for olive growers make it compliant with World Trade Organization rules. The bloc must decide whether to challenge U.S. anti-subsidy duties on Spanish ripe olives at the WTO or hold off lest even a partial legal defeat encourage countries around the world to introduce similar levies on a range of European agricultural goods including wine and beef.

“If the EU doesn’t act or doesn’t win in clear-cut fashion at the WTO, it could open up a Pandora’s box of more unilateral action,” said Hosuk Lee-Makiyama, director of the European Centre of International Political Economy in Brussels.

While largely in the shadow of trans-Atlantic tensions over Trump’s protectionist actions on metals and cars, the EU-U.S. dispute over olives has the potential to cause a long-term headache for policymakers in Europe.

In short, Spanish olive shipments to the U.S. worth $67.6 million in 2017 may raise questions about billions of dollars a year of EU agricultural aid across the board. The EU farm budget is more than 50 billion euros ($58 billion) a year, or around 40 percent of the bloc’s total annual spending.

In Olive-Trade Fight With Trump, EU Braces for Farm-Subsidy Test

Since the early 1990s, Europe has been scaling back production-linked support for farmers to help advance global market-opening efforts. Agricultural aid has been a pillar of the EU since its creation, making cuts to farm subsidies politically sensitive and explaining why the policy revamp in the bloc has been done over 30 years.

With EU agricultural aid facing more reductions from a Brexit-induced budget hole, and with domestic producers still shut out of Russia after it retaliated against sanctions prompted by the encroachment in Ukraine, the last thing Europe wanted was a Trump administration challenge to farm policy.

While the test stems from the anti-subsidy duties, the U.S. has also imposed a parallel set of levies on Spanish ripe olives on the grounds they were sold below fair value -- or “dumped” -- in the American market. The anti-subsidy -- or “countervailing” -- levies are as high as 27.02 percent and the combined rates are up to 44.48 percent, depending on the Spanish exporter, according to final calculations this past week by the U.S. Department of Commerce.

“In addition to the economic hardship for the Spanish farming communities directly affected by these abusive measures, we also fear the systemic consequences this decision can have,” Jean-Luc Demarty, director-general for trade in the European Commission, the EU’s executive arm, said on June 20. “Our pleas not to open a Pandora’s box on domestic support for farmers were bluntly ignored.”

The U.S. duties on ripe olives from Spain aim to help producers Bell-Carter Foods Inc. and Musco Family Olive Co. hold on to their shares of a domestic retail market featuring the likes of Walmart Inc.

In Olive-Trade Fight With Trump, EU Braces for Farm-Subsidy Test

The targeted imports, also known as table olives, are the black, plump and mild-flavored variety processed from raw olives. Bell-Carter and Musco, the two main U.S. producers of ripe olives, buy raw olives from growers in California while supplementing those purchases with supplies from abroad.

“Spain is providing countervailable subsidies to its producers of ripe olives,” the Department of Commerce in Washington said in June. “Enforcement of U.S. trade law is a prime focus of the Trump Administration.”

Under WTO rules, duties to counter subsidies are allowed as long as three conditions are met. The subsidies must be:

  • specific to an industry
  • passed on to the export market
  • injurious to producers in the export market

The EU believes the aid in the case of Spanish olives isn’t specific because, like most European farm payments, it’s unrelated to the type or volume of production (so-called decoupled direct payments). The bloc also has doubts about any links to the U.S. market and the alleged injury to Bell-Carter and Musco.

The Spanish association of table-olive exporters is pressing the EU to complain to the Geneva-based WTO.

“Bringing a case to the WTO is vital to protect the interests of Spanish ripe-olive producers,” said Antonio de Mora, secretary general of the association, which is known as Asemesa. “It’s also necessary to prevent the U.S. and trade authorities in other countries from using the American reasoning in the future for other agricultural products.”

For Lee-Makiyama of the ECIPE research group in Brussels, the case leaves Europe with no easy choices.

“The EU is probably right that its aid for olive producers is not actionable under the WTO rulebook, but what do you do if you’re dealing with a U.S. administration that sees few merits in that rulebook?” he said. “Challenging the U.S. measures would add fuel to the fire of the Trump narrative that Europe cheats and the WTO rules constrain American sovereignty to defend its jobs.”

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