EU Quotas Raise Trade War Threat

Itar-TassRussian and Ukrainian wheat exports to the EU would be slashed under the quota.
KIEV -- Emerging grain exporters Ukraine and Russia will have to slash shipments to Europe if the European Union imposes a new global wheat import quota and high import duties, raising the specter of a trade war, analysts said Tuesday.

Russia could retaliate by launching a trade war with the EU by drastically limiting meat and poultry imports, analysts said.

"If the European Union imposes such a system, Ukraine's grain exports to the region will fall to zero because there is no sense to trade with such a high duty," said Marina Moiseyeva from ProAgro consultancy in Kiev.

"This measure will badly affect Russian grain exporters and gives Russia's government an excuse to respond with dramatic measures to ban imports of EU meat and poultry," said Andrei Sizov of Russia's leading agricultural analyst, SovEcon.

An EU source said earlier Tuesday that the commission planned to revise the current wheat import system in a bid to curb a surge in wheat imports mainly from Eastern Europe.

The proposed quota covering soft wheat and durum is derived from average imports and duties from the 1998-2000 campaigns and would carry a duty of some 42 euros per ton for soft wheat and 17 euros for durum.

In addition to the new 2.3 million ton wheat quota, the EU would impose a duty of 95 euros per ton on soft wheat imports and 148 euros per ton on durum imports into the 15-member bloc.

Sizov said Russia and Ukraine exported around 5 million tons of grain to European states last season, when EU imports almost tripled to around 10 million tons compared with previous seasons.

"The fact that the European Union does not want to include the 2001-02 season to calculate the quota means Russia and Ukraine are likely to get a tiny portion inside this 2.3 million ton wheat quota," he said.

"This proposal shows that the EU plans to throw us out of this European market," said Serhiy Feofilov, director of Ukraine's leading agriculture consultancy, UkrAgroConsult.

Ukraine plans to export about 12 million tons of grain in the 2002-03 season, up from 9.2 million tons in 2001-02, while Russia plans to boost exports by half to around 8 million tons.

In Europe, volumes are mainly sent to Italy, Greece, Spain and Turkey, but analysts say severe droughts in major exporters and booming prices enabled Russia and Ukraine to find new clients, including in North Africa and possibly even Canada.

Drought in some of the world's key suppliers of wheat, such as Canada, the United States and Australia, has taken its toll, while many European states had crops damaged in August floods.

Sizov said the main reason behind the move was last season's high competitiveness of grain from Russia and Ukraine.

The current system for calculating EU grain duties is based on prices quoted on U.S. markets. The higher the U.S. market, the lower the tariff is.

"Last season the European Union discovered that import quotas for grain from Russia and Ukraine sometimes were close to zero and EU producers were not ready to compete with those prices," he said.

Ukrainian analysts said they hoped the country would still be able to enjoy high grain exports to Europe this season, as new measures were unlikely to be put in place before 2003.

But ProAgro's Moiseyeva said exports to Europe were still very dependent on grain prices and a price decline in the United States, causing an immediate jump in the EU import duty, could bring down Ukraine's grain exports in 2002-03.