US, Asian powers call for gradual end to subsidies


Posted at Jun 07 2008 06:24 PM | Updated as of Jun 08 2008 02:24 AM

Agence France-Presse

AOMORI - The United States and Asia's four largest economies called here Saturday for a "gradual" end to fuel price subsidies, but India and China signaled they would not move soon.

US Energy Secretary Samuel Bodman met with leaders of Japan, China, India and South Korea in Aomori, Japan, for talks that come one day after the highest single-day rise in crude oil prices.

"We recognize that, moving forward, phased and gradual withdrawal of price subsidies for conventional energies is desirable," the five nations said in a joint statement.

They said subsidies "should be replaced wherever possible by better targeted policies for intended beneficiaries."

Developing economies tend to heavily subsidize fuel costs in a bid to ease the burden on the poorest members of society.

India and Indonesia have recently been forced to hike prices amid soaring global crude oil costs, triggering large anti-government demonstrations in the two countries.

India's oil minister, Murli Deora, cancelled his attendance at the talks in Japan at the last minute. He was replaced by India's ambassador to Japan, Hemant Krishan Singh.

Singh said it was not "accurate or correct" to describe the statement as an agreement to remove subsidies now.

"This matter was raised in the meeting and responses and comments were exchanged. But no, there was no agreement to remove subsidies," he said.

"We are still not in the position to move to the fully market determined pricing. In the long-term, I would say each country would have to devise its own plans with regard of levels of subsidies," he said.

He said the minister could not come to Japan "because of the important, difficult but essential decisions which we have been taking back home" regarding fuel price hikes.

Zhang Guobao, vice chairman of China's National Development and Reform Commission, also did not indicate any time frame for moving towards lowering subsidies.

"China is still a developing country and has weak industries, such as agriculture, and public transport, such as taxis," Zhang told reporters.

"We have to move while giving careful consideration to social and political stability," he said. "We need elaborate political preparations."

Japan, which imports nearly all of its oil, has pushed for an easing of subsidies, arguing that they artificially move prices on the market.

Akira Amari, Japan's energy minister and host of the talks, said what they agreed upon was "the need" to remove subsidies.

He said removing subsidies was "a painful decision," but "there is great significance in that we agreed to tackle this matter with courage."

"There would be difference in speed (of abolishing subsidies) depending on situations individual countries are facing," Amari acknowledged.

The joint statement said "undistorted and market-based energy pricing" would help "enhance energy efficiency and increase investment in alternative sources of energy."

"This could also lead to reduction in the government cost and greater integration of the domestic and global energy economies," it said.