U.S. and E.U. Olive Oil Sectors Anxiously Await Trade Ruling

The World Trade Organization (WTO) is set to hand down a rul­ing by the end of next month, which will deter­mine whether the United States can impose a 100 per­cent tar­iff on up to $15 bil­lion of goods imported from the European Union.

Olive oil in all of its frac­tions as well as four dif­fer­ent types of green table olives are included on the list, which is com­posed of about 400 dif­fer­ent goods, rang­ing from paint brushes to sword­fish. Once the WTO has made its rul­ing, the deci­sion will be final and can­not be appealed.

The WTO pre­vi­ously ruled that the E.U. had unfairly sub­si­dized Airbus, which hurt Boeing, an American com­pany. The United States Trade Representative (USTR), which was in charge of draft­ing the list, orig­i­nally esti­mated that the European sub­si­dies were worth $11 bil­lion. This was later revised up to $15 bil­lion.

The E.U. has called this esti­mate ​“greatly exag­ger­ated” and expects the WTO to allow retal­ia­tory tar­iffs on a far smaller amount of goods.

“Eleven bil­lion dol­lars is too high,” Steve Charnovitz, a trade law pro­fes­sor at George Washington University, told Olive Oil Times. He also said that the USTR gen­er­ally asks for more tar­iffs than it is going to get approved.

Charnovitz added that he did not know whether olive oil and table olives would be included on a final list of tar­iffs, if the full amount is not approved.

Douglas Irwin, who stud­ies U.S. trade pol­icy and teaches at the eco­nom­ics depart­ment of Dartmouth College, also said that it is very uncer­tain which goods would be removed from the list if the WTO approved a lower amount of retal­ia­tory tar­iffs.

“If the U.S. goes for a lower num­ber, either because the WTO sug­gests it or the admin­is­tra­tion wants to, it is very uncer­tain which goods will make the cut or not,” he told Olive Oil Times. “[Olive oil] may stay on for strate­gic rea­sons, [for exam­ple] to hit Spain or Greece par­tic­u­larly hard to get lever­age to change the Airbus sub­si­dies.”

The U.S. cur­rently imports about 95 per­cent of the olive oil that is con­sumed domes­ti­cally. Of that, 65 per­cent comes from E.U. coun­tries, which include Croatia, France, Greece, Italy, Slovenia and Spain.

In the 2017/18 har­vest sea­son, E.U. coun­tries exported 194,570 tons of olive oil to the U.S., with an esti­mated value of roughly $1 bil­lion.

The uncer­tainty has many European pro­duc­ers wor­ried. Exports to the U.S. made up 35 per­cent of European olive oil exports in 2017/18. It is unclear to many where the olive oil that will not end up in the U.S. can be sold instead.

Assitol, the Italian Association of the Olive Oil Industry, has warned that pro­duc­ers could lose $200 mil­lion per annum if the tar­iffs are approved. The U.S. is one of Italy’s largest export mar­kets for olive oil.

Producers in Spain, which has already been in a trade spat with the U.S. over table olive exports, are con­cerned too. The U.S. is also one of its largest mar­kets and, with his­tor­i­cally low prices already plagu­ing the coun­try, offi­cials fear any more lost rev­enue could fur­ther dam­age pro­duc­ers’ bot­tom lines.

“It is a Sword of Damocles” – refer­ring to an Ancient Greek anec­dote, which epit­o­mizes the ever-present dan­ger faced by those in a posi­tion of lead­er­ship – ​“that hangs over the entire sec­tor,” Mariano Íñigo, an econ­o­mist at the EAE Business School in Madrid, told El Mundo.

“Exports would be reduced by 25 per­cent and there would be over­pro­duc­tion in Spain,” he added. ​“It is a sec­tor with a nar­row mar­gin, which would be the end of many farms that would stop pro­duc­ing because they were not prof­itable. It would be a cat­a­stro­phe.”

The pic­ture does not look very rosy on this side of the Atlantic either. Tariffs often serve as a regres­sive tax on con­sumers, mean­ing any price increases to European olive oil would likely be paid by Americans.

The North American Olive Oil Association (NAOOA), a trade group that strongly opposes the tar­iffs, claims that the tar­iffs would increase the price of a $15 bot­tle of extra vir­gin olive oil up to $40. It is still unclear exactly how much prices would increase, but is inevitable that they would do so.

“We’re look­ing at a dire short­age of olive oil,” Joseph R. Profaci, the exec­u­tive direc­tor of NAOOA, said. ​“Prices will go up astro­nom­i­cally.”

The NAOOA esti­mates that imports from other non-European sources would not be able to fill the gap left by European pro­duc­ers.

“By our cal­cu­la­tions based on International Olive Council pro­duc­tion and con­sump­tion data for 2018/19, even if all the non‑E.U. coun­tries were to flick a switch and send all net sur­plus to the U.S., there would be a short­fall of about 30 per­cent vis-à-vis nor­mal U.S. demand,” Profaci told Olive Oil Times.

There is also spec­u­la­tion that American olive oil pro­duc­ers may raise their prices if the tar­iffs are imposed. While there is no evi­dence that this will hap­pen, once a domes­tic indus­try is pro­tected from for­eign com­pe­ti­tion, there is no incen­tive to keep prices low.

“American pro­duc­ers would be expected to raise their prices as would sup­pli­ers from other non‑E.U. coun­tries because they can and because demand will far exceed sup­ply,” Profaci said.

The pre­dicted rise in prices is also esti­mated to have a large impact on Americans’ con­sump­tion of olive oil, which has more than dou­bled in the past two decades.

According to a joint study con­ducted by the NAOOA and American Olive Oil Producers Association last year, 36 per­cent of the 2,000 con­sumers inter­viewed already said that olive oil prices were too high and that price was some­thing that pre­vented them from buy­ing olive oil.

“An increase of $10 to $20 per bot­tle will cer­tainly result in lower con­sump­tion, revers­ing all the efforts we have made over the past years to grow con­sump­tion,” Profaci said.

Perhaps most wor­ry­ing for mem­bers of both the U.S. and European olive oil sec­tors is how dif­fi­cult any tar­iff impo­si­tions would be to reverse.

“The tar­iffs would go into effect by exec­u­tive order and can­not be over­turned by Congress, or at least it would be very dif­fi­cult to do so and unlikely that they would do so,” Irwin, the pro­fes­sor of eco­nom­ics at Dartmouth College, said.

“The next admin­is­tra­tion would have the option of revers­ing the deci­sion, but that might be unlikely,” he added. ​“The most plau­si­ble out­come would be some U.S.-E.U. agree­ment on sub­si­dies that would allow the tar­iffs to be removed.”

The WTO is expected to make its deci­sion by the end of August. Until then, European olive oil pro­duc­ers and exporters as well as American importers and con­sumers will have to wait and see what hap­pens.