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TPR provides useful summary of situation of EU farm policy

26 August 2013

In July 2013, the WTO Secretariat published the latest Trade Policy Review (TPR) of the EU, which provides a useful, if somewhat dated, summary of EU agricultural policy.

In terms of agricultural support, the WTO Secretariat noted that “as a result of past reforms and higher international prices for agricultural commodities, the total level of support to the agriculture sector has declined over the past few years, and for most products there is now little difference between EU and international prices.”

The OECD-calculated Producer Support Estimate (PSE) for the EU – expressing the value of transfers to agricultural producers – “has declined steadily over the past few years” to €74 billion in 2011 (17.5% of gross farm receipts), down from “its peak of €105 billion or 38% of gross farm receipts in 1999”. However, support for individual commodities varies considerably: OECD data indicate that considerable support is provided for beef and poultry producers, while support to sugar and milk producers is declining.

The EC, however, which clarified a number of points on its trade policies and practices before finalisation of the WTO TPR report, pointed out that “at 18%, the EU PSE as a share of gross farm receipts remains close to the OECD average (19%), and the EU [total support estimate] as a share of GDP, at 0.7%, is below the OECD average of 1.0%.”

In terms of the use of specific agricultural support tools, the WTO noted that while most domestic support is now decoupled, coupled payments are still allowed for suckler cows, sheep, goats and cotton. The WTO highlighted the decline in the use of intervention buying as a market support tool and the EC’s claim that intervention buying now serves solely a ‘safety net’ function. However, aid to private storage remains available for certain products, with the actual commodities stored remaining the property of private operators.

The use of export subsidies has also declined, falling by 87.6% between 2007 and 2011, although export subsidies are still being used for products such as poultry meat (45.6% of 2011 expenditures), beef and veal (25.8%), live cattle (5.4%), pig meat (10.7%), milk and dairy products (3%), eggs (1.6%) sugar (0.8%) and some non-Annex I products – i.e. prepared foods containing eggs (7.1%).

These changes in EU agricultural policy, however, have not yet led to any significant reductions in agricultural tariffs. The WTO noted that tariffs on agricultural products remained higher than those on non-agricultural products (on average 8.6%, compared to 6.5%). This average masks considerable variation in levels of tariff protection across agricultural products, with some products subject to high non-ad-valorem duties and to seasonal duties applied extensively in the fruit and vegetable sector. In addition, in the cereals sector the EU retains considerable flexibility in the duties applied, enabling it to respond effectively to volatile world market prices. When prices are high, import duties are even sometimes set at zero.

In terms of other trade policy tools, the WTO report identified no fewer than 112 separate tariff quotas notified by the EU. How these quotas are applied, along with the level of use of those quotas, was found to vary considerably (30% of the quotas are fully utilised, while for 28% of them, less than 1% of the access granted is utilised). The WTO report also highlighted that the EU “reserved the right to use special agricultural safeguards (SSG) on 539 tariff lines”, but noted that “actual use… has been on a more limited range of products”. Nevertheless, “the price-based SSG has been made operational for chicken, turkey, and sugar products almost continuously.”

The WTO Secretariat noted that Sanitary and Phytosanitary (SPS) and technical requirements are now largely harmonised at the EU level.

The WTO report also noted that changes in market access arrangements have primarily occurred through bilateral agreements and GSP reforms, although the Geneva Agreement on Trade in Bananas also affected market access. This being stated, “relatively few countries trade with the EU on an MFN basis,” given the many bilateral and multilateral trade agreements that the EU has in place – for example, the ‘Everything But Arms’ and general GSP regimes.  

Editorial comment

The main areas of interest in the WTO report relate to the range of trade policy tools that the EU retains the right to use. Of particular relevance is the extent to which the EU reserves the right to use special agricultural safeguards. The right of ACP governments to make use of similar safeguards has been an issue at contention in a number of Economic Partnership Agreement negotiations. A similar situation pertains as regards the use of tariff-rate quotas, which the EU uses extensively to manage trade in particularly sensitive products (e.g. the poultry trade).

Equally, while the use of export subsidies has been greatly reduced, figures show that the EU has actually increased export subsidy support for individual products, where it considered that market conditions necessitated such support.

The flexibility the EU retains in the actual tariffs applied in the cereals sector has also proved extremely valuable in an era of price volatility. This may provide interesting lessons for the ACP governments in terms of retaining similar flexibilities.

With the WTO negotiations largely stalled, the EU’s growing network of bilateral trade agreements actually constitutes the principal source of erosion of traditional trade preferences. This requires a case-by-case analysis to see to what extent individual trade agreements materially affect ACP exporters.

Looking beyond the WTO analysis, the EU’s June 2013 political agreement on CAP reform appears to increase the scope for coupled support in certain particularly sensitive commodities, notably cotton. This potentially sets back ACP efforts to secure an agreement on eliminating cotton subsidies in the WTO.

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