MEPs review safeguards on Latin American bananas
15 April 2012
According to a report on ABC News, several MEPs, including Bernd Lange, the rapporteur of the EP’s International Trade Committee report on the Latin American free trade agreements (FTAs), have called for further clarification on how safeguard clauses in the FTAs with Central America, Colombia and Peru will be applied. Particular concerns have been expressed over bananas, where the aim is to ensure that European producers, who account for 15% of the market, are not harmed. The FTAs with the Central American and Andean states are among the first involving developing countries that are subject to the post-Lisbon co-decision-making of the European Parliament.
The agreements all include agricultural safeguard clauses that permit either side to increase tariffs during the first 10 years after entry into force (or during the 3 years after the tariff elimination period, if this is 10 years or more) if imports surge to such an extent as to cause, ‘or threaten to cause’, serious injury to domestic production. But these safeguards are time-limited and subject to other restrictions (which, for example, limit the extent to which tariffs can be raised).
Some MEPs have expressed concern that the safeguard clause prevents the possibility of suspending the agreement where problems arise. There is also uncertainty over what constitutes an ‘import surge’. While criteria are set out in annexes to the FTAs, the rapporteur said that he was unclear on ‘the volume reference’ and the ‘reference year’ to be used in calculating the volume of banana imports that would trigger the safeguard clause. The MEPs are worried, because the FTAs are expected to increase the competitiveness of banana imports from these countries into the EU.
It is not only European producers who are concerned. Costa Rica’s Ambassador in Brussels, Tomás Dueñas, has warned that his country could be at a disadvantage with its competitors if its legislative assembly takes too long to approve the FTA. According to the Costa Rican La Nación newspaper, Mr Dueñas has argued that ‘in the event that congresses of other countries ratify the treaty and the one in Costa Rica is delayed, the Costa Rican entrepreneurs could not sell their products to the Old World with the tax cuts which their competitors in the region would benefit from.’
Other established sources of imports may also suffer from increased competition. The Dominican Republic has managed to significantly increase its exports to the EU in recent years. National banana production increased by over 77% between 2004 and 2010 (reaching 19 million bunches), according to the president Leonel Fernández in a speech to the National Assembly. Due to the CARIFORUM EPA preferential scheme, 90% of the DR’s organic bananas are sold to EU markets.
Editorial comment
In trade agreements, the critical parts are often in the detail. The fact that MEPs have called for clarification about exactly how the safeguard mechanism works in the new FTAs with Peru, Colombia and Central America demonstrates how this detail is sometimes far from clear – and may not even be found in the trade agreement itself.
The safeguard clause in these FTAs allows tariffs to be raised back up to their pre-FTA level – but only for a limited period of time and, if the safeguard is extended, subject to payment of compensation. But at what level will the EU determine that there has been a surge that threatens domestic European interests?
The answer to this question is to be found not in the FTAs but in the EU’s banana stabilisation provisions, which are designed to adjust the volume of preferential and non-preferential imports. The provisions may determine not only the impact of the FTAs on EU producers, but also the impact on producers in the FTA signatory countries and in EPA member states.
For preferential ACP suppliers, there are two sources of concern. One is that they will not be included in any EU deliberations on whether to apply the FTA safeguard clauses – a decision that may be taken solely in relation to European interests. The other is that they could suffer collateral damage from any such EU measures instigated by a surge from the FTA states.
In the case of organic banana exports, which are of growing importance in the Dominican Republic, EU producers would be further insulated from third country competition if they were to automatically receive the 30% additional payments called for under the proposed reform of the EU’s direct aid payment scheme. ACP organic suppliers would enjoy no such direct aid payment support.
