Export Competition

Whether Turkey and the EU would have a joint schedule on export subsidies or keep to their individual schedules would probably not have strong policy implications as Turkey's commitments on export subsidies are already low. In addition, export subsidies are a policy model which is becoming quite outdated.

The First Draft of Modalities for the Further Commitments (WTO, 2003) presented by the Chairman of the Committee on Agriculture in the current Doha Round negotiations foresees the complete elimination of export subsidies within 9 years for developed and 12 years for developing countries.

In the 1995 EU enlargement, commitments on export subsidies were simply added up and bilateral subsidized trade between the original EU and the new members was netted out (TANGERMANN, 2000). From a mercantilistic Turkish and EU perspective, it could therefore be advantageous to stick to individual schedules, as the netting out could possibly be avoided and total bindings would therefore be higher. Turkish and EU commitments on export competition are presented below.

Turkey has bound export subsidies in the WTO for 44 product groups. These bindings, surprisingly, are made on a more disaggregated level than necessary according to the level specified in the Modalities.²⁶ Table 4.4. shows product grouping by Turkey and the EU compared to the standard established in the Modalities.

26 The Modalities paper of the Uruguay Round (GATT, 1993) laid down specific rules for the preparation of country schedules but, was not a legal document itself.

Table 4.4: Comparison of Product Groups Specified by Turkey, the EU, and the WTO Modalities

Product groups

specified by the EU Product groups specified in

the Modalities Product groups specified by Turkey

Wheat and wheat flour Wheat and wheat flour Wheat, wheat flour, semolina

Rice Rice

Coarse grains Coarse grains Barley, maize, malt

Rapeseed Oilseeds Groundnuts

Olive oil Vegetable oils Olive oil, sunflower seed oil, maize oil, margarine

Butter and butter oil Butter and butter oil Butter Skim milk powder Skim milk powder

Sugar Sugar

Cheese Cheese Cheese

Other milk products Other milk products Milk, cream, yoghurt Bovine meat Bovine meat Bovine meat

Pig meat Pig meat

Sheep meat Sheep meat Poultry meat Poultry meat Poultry meat

Eggs Eggs Eggs

Wine Wine

Fruit Citrus, apples, frozen fruit, Fresh fruit and

vegetables homogenized fruit, prepared

fruit

Vegetables Potatoes, tomatoes, onions, frozen vegetables,

Processed fruit and veg. dried vegetables, frozen potatoes

Raw tobacco Tobacco Tobacco

Alcohol, incorporated

products Products which are not specified in the Modalities Not covered by the AoA Prepared fish Source: GATT (1993, 1994).

The level of final bound export subsidies for Turkey is at $95 mill., only about 4 percent of the annual export value of agricultural products and 0.25 percent of the agricultural production value. In contrast, final bound export subsidies in the EU are at €7 billion, about 20 percent of agricultural export value and 3.5 per cent of agricultural production value. The actual budgetary outlays of Turkey and the EU for export subsidies and the number of products covered are presented in Table 4.5 below.

Table 4.5: Turkish and EU Budgetary Outlays

Sources: WTO (various issues), Turkish WTO Notifications; own calculations.

Table 4.5 shows that total budgetary outlays for export subsidies in Turkey are low and vary between €19 and 30 million, less than 1 percent of the EU level in all years. Furthermore, rates are low for most products in Turkey. Summarizing these findings, explicit export subsidies in Turkey are, in sharp contrast to the EU, not an important element of agricultural policy.

Turkey exports some products with a high protection level without having notified or bound any export subsidies in the WTO. Examples for these products are tea, sugar, tobacco, and barley. Even if no export subsidy is explicitly announced, export subsidies implicit in the losses made by state owned companies exist if the domestic purchasing price is above the selling price at the world market. Table 4.6 shows year 2000 data for these products.

Table 4.6: Implicit Export Subsidies, 2000 Export quantity

Sources: SIS (various issues), External Trade Statistics 2000; SIS (various issues), Agricultural Structure 2000; SIS (various issues), Wholesale Price Statistics 2000; own calculations.

For tea the domestic price is the SIS reported wholesale price, and the export price is the export unit value for tea in containers larger than three kilograms.

Part of the enormous difference between domestic price and trade price could be due to quality differences. For sugar and barley, prices are taken from OECD (2001a, 2002a), and for tobacco the domestic price is the SIS reported farmgate price multiplied by the factor 1.8 (according to a tobacco producing company) in order to represent the price for cured leaves at wholesale level. Table 4.6 shows that implicit export subsidies, especially in the cases of sugar and tobacco, far exceed explicit subsidies.

Summarizing these findings, Turkey has little scope for applying export subsidies in the current situation as well as in a potential situation with a joint Turkey-EU schedule, at least for those products for which the EU makes full use of its export subsidy bindings. In some cases, Turkey appears to already hurt its export subsidy commitments in the form of implicit subsidies, and in the future other WTO members could challenge Turkey on this issue. Sugar seems an especially problematic case as the EU itself applies a supply control system and makes full use of its export subsidy bindings so that there would be no potential to maintain Turkey's current net exporting status without reducing EU production quotas.