Subsidy Reduction Brings Uneasy Lull : U.S. and Italian Firms Ensnarled in Pasta War
An uneasy lull has developed in the sticky trade dispute between U.S. and Italian pasta makers.
Although the European Economic Community, or Common Market, recently agreed to reduce a pasta subsidy that U.S. producers contend is illegal, the domestic pasta industry is not yet ready to celebrate.
Italian pasta imports are likely to continue growing at record levels because of the strong U.S. dollar, pasta producers say. And if the dollar’s strength declines, they fear, the subsidies could rise again.
“This is a ruinous subsidy,” says Robert William, president of Los Angeles-based Western Globe Products, the largest pasta manufacturer in the West. “We’re losing millions of pounds of sales to the Europeans.”
“Food retailing is a penny business, basically, and (the Italian pasta makers) have a 6-cent or 4-cent advantage going in,” says Joseph Lichtenberg, president of the National Pasta Assn., a Washington-based trade group with nearly 50 pasta-producing members.
“What bothers me is we can’t compete the same way,” says Joseph P. Pellegrino, president of Lowell, Mass.-based Prince Co., the nation’s largest independent pasta maker. “I think the best pasta in the world is not Italian, and I would love to sell my product in Italy.”
While foreign pasta accounted for only about 7% of the estimated 2.5 billion pounds of pasta consumed in the United States last year, U.S. manufacturers say they are concerned about the rapid growth of exports from Italy, Europe’s biggest pasta exporter.
Italian exports to the United States rose nearly 600% between 1975, when the Common Market pasta subsidies began, and 1983, the pasta association said, citing U.S. Census Bureau data. The association estimates 1984 exports at 110 million pounds, up 51% from 1983.
The subsidy has ranged between 3 cents a pound and 12 cents a pound, ending 1984 at a little more than 6 cents a pound, the association said.
At its December meeting in Brussels, the 10-nation Common Market adopted a new method of computing the subsidy--which the ECC prefers to call a “refund.” The new method focuses on the actual price that pasta manufacturers pay for wheat rather than on an artificially established “threshold” price that is often higher, according to Derwent Renshaw, first secretary of agriculture for the European Community’s delegation in Washington.
As a result, the subsidy paid to pasta manufacturers declined about 35% under the new formula to about 4 cents a pound from nearly 6.5 cents a pound under the old formula, based on December prices, Renshaw says. To ease the shock for European pasta manufacturers, the cut was introduced in three steps, which will be completed Feb. 1.
But U.S. pasta manufacturers say the reduction isn’t enough. The subsidy should be eliminated, they contend, because subsidies on processed products are illegal under international trade law.
The Common Market believes that the subsidy is legal because rules set by the General Agreement on Tariffs and Trade, a multinational organization created to settle international trade disputes, permit subsidies on primary agricultural products, Renshaw says. In the pasta case, the subsidy is actually being paid on the durum wheat used in making pasta, he says.
U.S. manufacturers point to a 3-1 vote by a GATT panel in April, 1983, supporting the argument that the pasta subsidy does violate GATT regulations. While that vote was seen at the time as having broad implications for other agricultural trade cases, “it was a hollow victory for us” because the full GATT Subsidies Code Committee has never acted on the complaint, Lichtenberg says.
Now the National Pasta Assn. is surveying its members to determine whether they have been economically hurt by the increase in imports, he says. If enough evidence of damage is gathered, the association may return to the GATT, or it may turn to the International Trade Commission for relief.
William of Western Globe Products says he is frustrated by the lack of action from Reagan Administration.
No White House Response
William says he was a publicist for Warner Bros. in the 1940s when President Reagan was with the studio. “Reagan’s favorite dish was macaroni and cheese, and yet we have appealed to the White House (for help) and have gotten no response, which infuriates me,” he says.
“I should have thought the 35% cut would satisfy these guys--apparently it wasn’t,” says Renshaw, adding that European pasta makers see the subsidy reduction as “a pretty Draconian cut.”
“Perhaps they (U.S. pasta producers) should look at things like the strength of the dollar” rather than the subsidy to explain the increase in Italian exports, he says.
Lichtenberg acknowledges that the strength of the dollar relative to European currencies has been responsible for part of the increase in imports. But if the dollar slips, he said, subsidies could return in another form.
‘Imported Cachet’
Pellegrino says some consumers are buying Italian pasta because of its “imported cachet.” But pasta made in the United States is of a consistently higher quality than imported pasta because many of the small firms that export to the U.S. market can’t always afford the best-quality wheat or state-of-the-art equipment, he says.
“The fact that Italians are noted for pasta doesn’t mean that the American pasta industry has not kept up with them or, in my opinion, surpassed them,” he says.
“Obviously they’re going to say that U.S. pasta is better,” Renshaw counters. “I know the kind of pasta I buy in my Safeway--imported pasta.”
“We’re not going to get into a war of words over quality,” Lichtenberg says . “Our primary concern is getting the playing field level so that our members in the United States can compete on an even ground.”
