EU Foreign Ministers adopted the Commission's guidelines for the forthcoming ACP-EU trade negotiations on June 17th 2002. In a press release announcing Ministerial endorsement of the mandate, the Commission maintained that EPA negotiations will broaden trade co-operation with the ACP by 'tackling non-tariff barriers to trade, strengthening regional trade integration and enhancing the competitiveness of ACP economies through a comprehensive package of aid and trade measures'. Commissioner Nielsen maintained that EPAs would extend the 'fight against the fragmentation of the markets and economies of developing countries', which 'discourages investment and hinders trade'. The Commission highlighted 'the ambitious time frame' for negotiations and the 'flexibility' to respond to 'the differing needs and conditions within each ACP country or region'. It identified a number of key elements in its negotiating strategy, namely:
- enhanced market access for EU or ACP exports;
- gradual and managed liberalisation of ACP economies;
- support for regional integration;
- encouragement of more beneficial investment;
- discussions on trade in services;
- adoption of a comprehensive approach linking trade and development co-operation.
- Commission Press Release
- Text of EU Negotiating Directives as adopted on June 17th 2002
ACP Ministers met in the Dominican Republic in mid-June and provisionally approved guidelines for the conduct of negotiations with the EU on future trade arrangements.
The ACP guidelines emphasise that the ACP-EU partnership is focused on the creation of a framework for promoting 'economic development, the reduction and eventual eradication of poverty, and the smooth and gradual integration of ACP states into the world economy'. However the guidelines also highlight the need to structurally transform ACP economies and the basis of their integration into the world economy. It is explained how Economic Partnership Agreements will be negotiated between the EU and those 'ACP countries which consider themselves in a position to do so'. On the other hand the guidelines make it clear that given the possible adverse effect of reciprocity on domestic production the ACP cannot uncritically accept reciprocity as the main objective of the forthcoming negotiations.
The ACP favour a two-phased approach to the forthcoming negotiations. The first phase would be conducted at the pan-ACP-EU level and would address substantive issues of common concern of which no fewer than 24 have been identified in the ACP mandate. This would then be followed by a second phase which would deal with tariff negotiations and specific sectoral issues at national and regional level.
The ACP assert that existing WTO rules are unbalanced and need to be more flexible in order to better accommodate moves towards reciprocal preferential trade arrangements between developing and developed economies. They would therefore like to see the EU and the ACP co-operate in the WTO to bring about a change in its rules on regional trade arrangements, and spell out the types of changes the ACP believe need to be made in the rules. The guidelines also call for better co-ordination in positions adopted in Brussels and Geneva in order to ensure that WTO rules are developed which more effectively address other areas of concern to the ACP (e.g. the external effects of the reformed Common Agricultural Policy).
Significantly, the ACP guidelines highlight how ACP countries need to give priority to the building and consolidation of intra-ACP regional co-operation before entering into free-trade area agreements with the EU. The mandate explicitly notes how ACP countries must 'first consolidate their own regional integration processes' and how ACP countries 'do not have the capacity to liberalise in parallel and concurrently with the EU'.
Under ACP regional integration initiatives 'special and differential treatment' is accorded to the less developed or more vulnerable members of a regional grouping. The ACP would like to see this principle fully applied in the negotiation of economic partnership agreements.
They also urge that in establishing future trade arrangements with the EU no ACP country should be left worse off than under current arrangements. Areas relating to market access which will need to be addressed are set out in some detail. The importance of ensuring that the adjustment costs associated with EPAs are minimised whilst the benefits are maximised, is also stressed. This is seen as essential if future trade arrangements with the EU are to be sustainable at the political, economic and social levels.
Issues in the spheres of trade in services and trade-related areas are also set out for attention in the forthcoming negotiations.
Finally the ACP guidelines recognise the need for the forthcoming negotiations to comprehensively address:
external effects of the CAP;
supply-side constraints facing ACP producers:
fiscal consequences of moves towards free trade with the EU.
Unlike the EU mandate the ACP guidelines explicitly call for the 'involvement of all stakeholders in the negotiation process' and 'public scrutiny of the negotiations, including parliamentary follow ups'.
- Draft ACP Guidelines for negotiations
The ACP guidelines are firmly committed to a two-phase approach to negotiations, although this position has been watered down compared to the initial draft ACP guidelines. The initial draft called for the first phase to run from September 2002 through 2004. It was felt that this would enable the ACP to have a better understanding of the wider context within which detailed EPA negotiations were to be conducted, since by 2005 a number of important outstanding issues relating to WTO rules and the EU's new GSP system should have been resolved. However, following discussion in the ACP Group, this position was modified with provision being made that 'the second phase could start in September 2003'.
Implicit in the ACP negotiating guidelines is the belief that future ACP-EU trade arrangements should contribute to the structural transformation of ACP economies so that the basis for their integration into the world economy is altered.
In their internal dealings the ACP apply special and differential treatment according to the vulnerabilities of particular economies within regional groupings. In the context of ACP-EU negotiations this principle would appear to be of considerable importance to mono-crop ACP economies, whose prospects can be profoundly affected by developments in individual commodity markets (e.g. bananas or sugar).
The ACP's emphasis on the need to 'first consolidate their own regional integration processes', constitutes an implicit rejection of the Commission's concept of 'open regionalism' which underpins its current approach to EPA negotiations.
The ACP guidelines place far greater emphasis on addressing the external effects of the CAP, supply-side constraints and fiscal adjustment issues than is the case under the EU's negotiating directives.
A comparison of the major components of the ACP and EU positions on issues in the forthcoming trade negotiations, along with a brief commentary, has been produced by the European Research Office at the request of the NGO network, the Cotonou Monitoring Group. Areas covered include: the approach to EPAs; the underlying objectives which EPAs should promote; the approach to the negotiations; the relationship between EPAs and WTO rules; how the principle of special and differential treatment should be applied; market access; the approach to the external effects of the CAP; the approach to addressing adjustment costs; the approach to the issue of fiscal adjustment; the scope of discussion on trade related areas and trade in services; the perceived costs and benefits of EPAs; the respective approaches to sequencing of intra-ACP regional arrangements and EPAs; the approach to involving concerned stakeholders.
- ERO Comparison of EU and ACP mandates
COMESA and SADC have formally agreed to pursue a common approach to their negotiations with the EU, the USA and in the WTO.
- Outcome of COMESA Summit
The WTO mini-Ministerial meeting in Rome on June 14th 2002 highlighted the importance of addressing non-trade concerns. The current EU approach emphasises the legitimate right of states to pursue non-trade objectives, such as strengthening socio-economic viability and the development of rural areas. The EU stresses how in the forthcoming negotiations 'non-trade concerns of both developing and developed countries are elements of vital importance to be duly taken into account in order to establish an agricultural trading system which is fair as well as market orientated.'
In Rome the discussions focused on what policy measures should be adopted in order to address non-trade concerns, particularly such issues as rural development, food security, and protection of the environment. It was recognised that 'a one size fits all' approach would not be appropriate given the diverse situations and priorities of WTO members. In spite of this diversity it was recognised that all countries need to develop the economic and social environment necessary to maintain the rural population, and that countries need to ensure food security for their people through a mixture of domestic production, imports and, where appropriate, public stockholdings.
It was further recognised that these non-trade concerns cannot adequately be addressed without viable domestic agricultural production and that for vulnerable developing countries - especially least developed, land-locked and small island economies - preferential market access is the key to obtaining the necessary resources for addressing non-trade concerns.
- Commission Press Release
Among the important issues which are likely to arise in the forthcoming negotiations are: how to define non-trade objectives; and more importantly how to assess their impact on trade. For example, the EU emphasis on strengthening the socio-economic viability and development of rural areas is currently allowing investment subsidies to be given in order to increase local value-added processing for new markets, including export markets. Clearly these investment subsidies to food processing, under the guise of rural development, provide European exporters of value-added food products with a competitive edge and thus have clear trade implications. How these trade implications of rural development measures are to be dealt with is likely to be an important issue in the forthcoming discussion of non-trade concerns and one which could have important implications for ACP value-added food product industries in the context of moves towards free trade with the EU.
The European Commission has adopted a proposal to register Greek 'feta' cheese as a Protected Designation of Origin. This means that cheese designated as 'feta' must be produced in certain regions of Greece in ways respecting strict product specifications. Producers in other member states are given five years to change the name of their products or stop production. This follows nearly six years of dispute over the right of 'feta' cheese to be protected , which has gone all the way to the European Court of Justice. With other EU member states having a production interest in 'feta' cheese it has proved difficult to secure a qualified majority for designation of 'feta' as a Protected Designation of Origin.
- Commission Press Release
The EU's long term objective is to secure WTO protection of such designations of origin. What the case of 'feta' cheese illustrates is that the scope of this system is likely to be substantially expanded over the coming years. In considering this issue ACP governments will need not only to look at the products currently falling under protected designation in which they have a production interest, but also products which could well be brought within an extended scheme.
The EU submitted two communications on geographical indications to the WTO TRIPS (Trade-Related Intellectual Property Rights) Council in Geneva on June 26th 2002. It proposes the establishment of a multilateral register to guarantee the origin of those high-quality products associated with a specific geographical designation of origin and the extension of protected designation status to other products deserving of such status including agri-food products and possibly textiles.
It also proposes that geographical indications could be used, in certain instances, for products that incorporate traditional knowledge. The Commission emphasises how this initiative will benefit producers from both the developed and developing world. ACP co-sponsors of this communication include Mauritius, Nigeria and Kenya.
In a speech to the Foreign Trade Association in Brussels on June 5th, EU Trade Commissioner Lamy highlighted the growing importance of regulatory barriers to trade. He argued that new post-Uruguay round issues required a significant upgrading of the institutional infrastructure in many developing countries. He noted the disappointment of many developing countries with the consequences of the Uruguay Round and that many felt 'the bargain they struck in Marrakech turned out to be a bum deal; the burden of the new obligations they had accepted turned out to be more onerous than initially expected, and access to developed-country markets was harder than expected to realise in practice'
According to the Commissioner the trade agenda is about 'market access vs rules' with better and more focused technical assistance being necessary if developing countries are to meet higher standards. He also expressed concern at the pace of progress in the talks in Geneva since Doha. In its efforts to promote an acceleration of discussions the EU is planning further position papers on industrial market access, regional trade agreements, trade facilitation, investment, trade defence instruments, and competition.
Significantly Lamy maintained that the Commission was committed to mainstreaming development concerns by ensuring that special and differential treatment is accorded 'as appropriate' and that 'those developing countries that need it will receive the trade-related technical assistance necessary for the implementation of existing WTO commitments, the negotiation of the new commitments and for the implementation of these new agreements'. The Commission also wants to look at the problems faced by some developing countries in achieving an effective capacity to trade.
- Lamy FTA Speech, From Doha to Cancun
Significantly, while recognising that many developing countries felt they had struck a 'bum deal' in Marrakech, Commissioner Lamy continues to place emphasis on the provision of technical assistance to ensure that the commitments entered into by developing countries are fully implemented. But he does appear to give some priority to revising those existing commitments which are proving particularly onerous to developing countries.
Speaking in the UK House of Commons on June 27th 2002 EU Trade Commissioner Lamy sought to set out how the EU could make its trade policy more development friendly. Lamy acknowledged that 'trade liberalisation has not benefited all regions of the world or all layers of society in an equal manner', but he expressed the view that 'the key to success lies first and foremost with the domestic policies of the developing countries themselves ?. sound domestic policies are indispensable to create the stability predictability and security that is needed to stimulate investment'. This being said, he acknowledged that this 'does not absolve developed countries from their responsibility for supporting sound policies'. He acknowledged how developed countries need to 'provide more access for products in which developing countries have a comparative advantage and which are produced in respect of core labour standards and environmental provisions'.
The Commissioner asserted that WTO rules allow for progressive liberalisation at a pace which each country can handle. He recognised, however, the need for 'flanking policies' which support economic development, implying that if the wider policies are right then investment and technology transfers will flow. Finally, Lamy pointed out that the EU was looking to go beyond existing WTO commitments in the EPA negotiations with ACP countries
- Lamy speech from Doha via Johannesburg to Cancun
Domestic policies will always be the foundation of ACP development. However, even where domestic policies are sound and an investment-friendly climate is created, the promised benefits arising from trade liberalisation may not materialise. This may be because of the intrinsic supply constraints which inhibit competitive production in many ACP countries but also because of the distortions which exist as a result of public aid programmes to the agricultural sector in OECD countries. . Significantly, Commissioner Lamy made little or no reference either to the need for comprehensive programmes of assistance to ACP developing countries to help them address the supply-side constraints on competitive production, or on the need for fundamental reform of agricultural programmes in OECD countries in order to remove the negative effects they have on developing country producers.
A review of international responses to the US Farm Bill has been provided in the ICTSD BRIDGES Weekly Trade News Digest of May 15th 2002. The World Bank referred to the date of adoption of the US Farm Bill as 'a sad day for world farmers'. According to its data, cotton exporters in west and central Africa alone would gain a further US$250 million per annum if the USA - the world's biggest cotton producer - stopped subsidising domestic cotton production. In contrast, the increase in US farm support could further depress world commodity prices, making imports cheaper than local products in the developing world and ultimately forcing domestic farmers out of business. ICTSD notes in particular how according to the WTO US subsidies under the 'amber box' could exceed US$19.1 billion annually. While the US administration is nominally committed to ensuring that the new farm bill does not violate WTO rules, it is an open question whether they would take on Congress for WTO principles.
- ICTSD summary of Responses to US Farm Bill
- US Department of Agriculture web site on the new US Farm Bill
The US Farm Bill would appear to make the Marrakech agreement even more of a 'bum deal' for developing countries, with the burdens becoming even more onerous and the benefits of integration into world markets even more remote.
The USA has called for a five-year deadline for the elimination of agricultural export subsidies at an informal meeting of the WTO Committee on Agriculture on June 3rd-4th 2002, according to the ICTSD BRIDGES Weekly Trade News Digest. . In its report it noted, however, that this demand came at a time of heavy criticism of the US Farm Bill, and pointed out that the EU rejected the establishment of such deadlines as inconsistent with the Doha commitments. These refer only to reductions in all forms of export subsidies, with a view to phasing them out. The EU for its part has consistently sought inclusion of export credits and the activities of state-trading enterprises in discussions on export competition.
On the issue of food aid, proposals were made for all food aid to be controlled by an independent body such as the World Food Programme, so that it could not be used as a tool for dumping.
However no agreement has been reached on future disciplines on the use of export subsidies, export credit guarantees, and insurance; food aid, the operations of state trading enterprises and export restrictions and taxes as noted in The June 26th BRIDGES report. Widely divergent views were apparent over the whole range of issues discussed.
- Members warm up for debate on export competition
- Export Competition Debate: Little Progress
With OECD countries using different tools to support their agricultural sectors, the major players want to see stricter disciplines in those areas which others use, whilst allowing continued scope for support in the forms most favoured by their own policy makers. In the mean time ACP countries without the resources to support such export competition can find their markets flooded by subsidised products from one OECD supplier or another.
At the EU Agricultural Council meeting of May 27th 2002 the French delegation questioned what the likely effects of the US Farm Bill would be on world market prices and how far it would be compatible with the multilateral undertakings of the USA. Commissioner Fischler responded by stressing the importance of undertaking a full assessment and indicated that the forthcoming annual review of the prospects for agricultural markets would seek to factor in the effect of the Bill in its projects for the next six years. In view of the importance of this issue, the Commissioner indicated that the Council's discussions of the CAP mid-term review would be rescheduled for July 10th which would allow the implications of the Bill to be fully taken into account.
On the broader question of the review the French delegation argued that it should not call into question the principles and mechanisms agreed on at the 1999 Berlin Summit, although the approach in certain sectors will need to be adapted to take account of the international environment.
- Memo on Outcome Agricultural Council meeting 28th May 2002
- Outcome 28th Council meeting - Agriculture
The US Farm Bill has already had an influence on the EU's position on the market access offer to ACP countries in the context of the forthcoming ACP-EU trade negotiations. The Commission's initial draft negotiating instructions proposed to 'grant duty-free access to its markets to all products originating in the ACP countries, as from entry into force of EPAs.' However, the Commission's final draft mandate was less forthcoming, restricting the Commission's commitments on market access to an assertion that: 'the Community should further improve current access to its markets for products originating in the ACP countries'.
This in many respects reflects DG Agriculture's concern that the US Farm Bill will depress world market prices for major products subject to reform, and undermine the EU's efforts to close the gap between EU and world market prices. Should EU prices remain above world market prices it would be more difficult for the EU to remove import restrictions, since it is feared this could suck in imports and undermine the functioning of the EU markets concerned.
On May 15, 2002, the EU posted a detailed critique of the US farm Bill on its web site. This memo pointed out that:
it will result in a 70-80% increase in US agricultural expenditures over the next six years;
it will allow US farmers to be subsidised to the full extent of WTO limits;
it will guarantee farmers a given level of income and reduce responsiveness to market signals;
it could mean farmers gain more when prices are low, providing no disincentive to over production;
it will increase production on marginal land;
it will provide greater subsidies when prices are low and over stimulate production;
it will drive down prices on world markets.
The memo gives a detailed breakdown of the subsidies contained in the Farm Bill, which also includes rather vague environmental programmes. The EU's major criticism is that payments to farmers are directly production related.
The EU memo outlines the various ways in which the US is seeking to "stretch" WTO rules to accommodate the new Farm Bill. Nevertheless, the price depressing effects of the Bill will probably mean that US expenditure ultimately exceeds WTO ceilings.
The memo outlines the likely external effects of the new Bill, including:
greater volumes of cheap subsidised US products on world markets;
a less attractive US market for third country exports as domestic prices are dragged down;
more competitive US food processing industries through the availability of cheaper raw materials.
The memo also strongly criticises the food aid components of the Bill and the predatory use of export credits and export promotion programmes. The memo seeks to compare EU and US farm aid programmes and raises the following points:
The value of EU and US agricultural production was almost identical at about US $ 190 billion.
In 2000, the producer subsidy equivalent in the US was US $ 49 billion compared to US $ 90 billion in the EU.
Support per full time farmer was US $ 20 000 in the US and US $ 14 000 in the EU.
The per capita cost in the US was US $ 338 per annum compared to US $ 276 in the EU.
The EU receives 75% of agricultural exports from developing countries.
The EU exports far less to the developing world than the US, whose market share in $ terms is increasing, while the EU's is falling.
The EU's system of export subsidies is transparent and disciplined by WTO reduction commitments. Export subsidies are declining in importance and no longer a major source of trade distortions. On the other hand, the US system of export credits is considered a major source of trade distortion.
In addition to the EU, the Cairns Group has roundly condemned the new US Farm Bill, maintaining it "will hurt farmers around the world" and "undermine efforts to achieve global reform of this heavily subsidised and distorted sector". Since reducing agricultural subsidies was seen as a key element in any "Development Round", the US Farm Bill does not bode well for post-Doha agricultural negotiations. Particular concerns have also been expressed in Africa, where it is feared the Bill will drive down the prices of commodities on which Africa economies depend. Caribbean governments also feel let down by the new US Farm Bill particularly since their rural economies are already being undermined by cheap subsidised imports. According to Roger Clark, the Jamaican Agricultural Minister, the Bill will require Caribbean governments to "re-think our strategy".
- [further information]
A number of interesting points emerge from the EU memo on the new US Farm Bill. Firstly, even after the increase in US expenditures, the EU will still be spending more on agricultural support than the US in terms of total production value. Secondly, while EU exports to developing countries declined between 1998 and 2000 from US $ 16.8 billion to US $ 16.5 billion, this is largely due to the Euro's depreciation against the US Dollar, which also accounts for the declining US $ denominated value of EU imports from developing countries over the same period.
Thirdly, although well founded, the criticisms of the US Farm Bill regarding the effects of the new Farm Bill simply mirror the effects of CAP reform. Beef prices for ACP suppliers have dropped 28-30% since the Agenda 2000 reforms in the beef sector. Likewise EU cereal prices have dropped 50% since 1992, improving the competitiveness of EU cereal-based food processing industries and the domestic and export competitiveness of the EU feed-based livestock industry: poultry exports have increased 150% over the period. There has also been a greatly reduced need for export refunds.
It is very clear that when the elephants fight, the grass suffers. Hence African and Caribbean governments are deeply concerned by the effects of the US Farm Bill. The situation emerging seems to be that if subsidised EU producers do not get your market, subsidised US producers will.
Proposals for the mid-term review of the Common Agricultural Policy were set out in a Communication issued by the European Commission on July 10th 2002. They can be divided into two categories: those extending the current process of reform initiated since 1992; those for completing the shift from product support to producer support. The extension of the 1992 reform process calls for:
a final 5% cut in the cereals intervention price (involving a reduction from Euro 101.31 to Euro 95.35 from 2004/5, with compensation in line with the Agenda 2000 formula), and a modification of the EU's import regime for cereals and rice (see accompanying article);
a modification of special payments for durum wheat to encourage quality production for manufacturing purposes;
a reduction of the rice intervention price by 50% to bring it into line with world market prices (to Euro 150 per tonne by 2004/5), with compensation being paid equivalent to 88% of the reduction in line with the Agenda 2000 cereals sector reforms;
in the beef sector a major simplification of the direct aid payments to encourage safer and more quality focused production methods;
an extension of reforms in the dairy sector.
It is believed that in the cereals sector these final modifications will bring prices into line with world market prices and allow exports (except for rye) without any need for export refunds. In the beef sector it is believed that by decoupling the headage payment and replacing it with a single income payment per farm based on historical entitlement, less intensive forms of beef production will be encouraged.
The overall aim of these reforms is to 'enhance the competitiveness of EU agriculture by setting intervention as a real safety-net measure, allowing EU producers to respond to market signals while protecting them from extreme price fluctuations'.
The longer term objective involves finalising the shift from product support to producer support through 'the introduction of a decoupled system of payments per farm, based on historical references and conditional upon cross compliance to environmental, animal-welfare and food-quality criteria.' This will take account of the Agenda 2000 reforms and will cover as many sectors as possible. Under this scheme EU farmers will have complete flexibility to determine what they produce in response to market signals.
In the first stage the scheme will cover all products currently subject to reform, with the dairy sector being added when the Agenda 2000 decisions have been implemented. Other sectors still scheduled for reform, such as the sugar, olive oil and certain fruit and vegetable regimes will be incorporated into this wholly decoupled farm payment scheme later on. According to the Commission proposals 'although the new scheme will not cover all sectors at this stage, farmers revceiving the new decoupled farm payments will have flexibility to farm all products on their land including those which are still under coupled support, except if these productions have been exceptionally and explicitly excluded.'
A system of farm audits to ensure cross compliance with the various standards established will be supported through payments of Euro 5000 per annum made available for this purpose. A system of compulsory long term environmental set-aside will also be introduced. A system of 'dynamic modulation' is also being proposed through which 'all direct aid payments will be reduced progressively in arithmetic steps of 3% per year to reach 20%, the maximum agreed in Agenda 2000'. However, this is to be applied selectively on the basis of farm size in order to rebalance the current flow of resources between larger and smaller EU farms. By the end of these changes the 'maximum sum paid to a farm will be Euro 300,000'. Direct aid beyond this amount will be transferred to the rural development pillar of the CAP, which is to be considerably strengthened.
Both the scope and level of funding for rural development is to be expanded. New chapters will be added to the rural development regulation dealing with food quality-assurance and certification schemes and support to producer groups for the promotion of products produced under quality-assurance and certification schemes (including geographically designated and organic products). These new elements will allow for the payment of 'temporary and degressive [progressively declining] aid to farmers to help them implement demanding standards based on Community legislation in the fields of environment, food safety, animal welfare and occupational safety standards' and are intended to promote good farming practices. Payments will start at Euro 200 per ha in year one and be phased down over five years. This reflects EU concerns over the difficulties of 'simultaneously enhancing the competitiveness of EU agriculture and rural areas while responding to the higher costs resulting from requirements of promoting higher environmental, food safety, food quality and animal welfare standards'.
- Commission communication to the Council on the CAP Mid Term Review
- Commission press release on the CAP mid term review (10th July)
- EU business summary of the major proposals in the July 10th CAP reform proposal of the Commission
The final cereals-sector price reduction will complete EU efforts to enhance the competitiveness of cereal and cereal-based value-added food products, by bringing EU prices into line with world market prices. This, along with the modification of direct aid payments for durum wheat will do away with the need for export refunds and will fuel the continued expansion of simple EU cereal-based value-added food-product exports, which has been underway since 1996. The 50% reduction in the rice intervention price will greatly reduce the value of the trade preferences extended under the Cotonou Rice Declaration and the EBA initiative.
The proposed reforms will also seek to insulate EU farmers from the cost-increasing effects of higher EU standards. ACP suppliers will however have to carry these extra costs on the sale price of their products and this will squeeze profit margins at a time of declining EU prices.
The introduction of wholly decoupled farmer support will make the EU's farm support programmes more WTO compatible, whilst protecting EU farmers from extreme price fluctuations. As the European Commission has pointed out with reference to the US Farm Bill, this is likely to shift the burden of price fluctuations onto third-country producers, who enjoy no such safety net protection. ACP governments will need to look carefully at the implications this will have for the positions they adopt in both the on-going WTO agriculture negotiations and the forthcoming economic partnership agreement negotiations with the EU.
In the run up to the Ministerial consideration of the Commission proposals for the mid-term review of the CAP on July 15th 2002, divisions between EU member statesemerged. Spain's Agricultural Minister and major farming unions rejected the proposals, while in Austria the Minister and farming unions were concerned that the proposals would strike at the heart of Austrian agriculture, resulting in a major down-sizing. In France there was opposition to the proposals on the grounds that they went beyond the 1999 Berlin agreement.
Italian agricultural unions have however welcomed the proposals while the Dutch Agricultural Minister has described them as 'courageous'.
- EU business report that EU Split over CAP reform plans
The Commission proposals are likely to be subjected to considerable modification within the EU Agricultural Council. However, the proposals do signal clearly the direction in which EU agricultural policy is moving. The time frames may change subject to the individual positions of EU member states, but the direction is wholly consistent with the trajectory for reform set out in 1992. The pressures arising from the WTO and enlargement are likely to counterbalance efforts of EU member states to ameliorate the impact of individual reforms on sectors of importance to their economies.
On May 24th it was announced that two-thirds of ACP states had now ratified the Cotonou agreement and lodged the legal instruments. This is the minimum level of support necessary for the entry into force of the Agreement. However, the Agreement can only enter into force when all 15 EU member states have ratified it. To date only six have done so.
- [further information]
Two years after its signing the Cotonou Agreement has not yet fully entered into force. This primarily affects the financial co-operation provisions since no 9th EDF funds can legally be spent until the process of ratification has been completed.
The Foreign Agricultural Service of the USDA has forecast that EU beef exports in 2002 will rebound by 20% from reduced 2001 volumes to 638,000 tonnes, as previous key markets such as Egypt and Russia reopen with the ending of concerns about BSE and FMD. EU beef production is forecast to increase in 2002 by 3% to 7.2 million tonnes, while beef consumption should recover by 5% to 7.1 million tonnes. Beef imports are expected to rise by 14% to 467,000 tonnes as imports from traditional South American suppliers are resumed after their suspension due to FMD outbreaks. From March 2002 the USDA expects the EU to begin to release onto the market beef previously bought up under the Special Purchase Scheme.
- [further information]
While EU beef production fell by 1.8% in 2001 (to 7.26 million tonnes) from the already low levels of 2000, beef consumption was down 12% compared to 1999 (to 6.7 million tonnes). This exerted strong downward pressure on EU beef prices, which dropped below intervention-price levels and even in some countries below the safety-net level. Consequently intervention-stock levels grew rapidly to around 259,000 tonnes by mid-December 2001. Prices only slowly recovered but were still below the intervention level by year end. Production is expected to increase in 2002-2003 as purchase for destruction schemes are discontinued, to reach 7.7 million tonnes by 2004. It will then fall back slightly before rising to 7.75 million tonnes by 2009. While consumption is recovering from the BSE-related consumer scares, there remains a downward trend in per capita beef consumption in the EU.
Beef imports are set to grow slightly over the period as 'double zero' agreements with pre-accession countries come into effect. The re-opening of major export markets following the FMD crisis is leading to a recovery in EU beef exports (to 500,000 tonnes in 2001). Exports are projected to grow to 740,000 tonnes in 2003-2004, after which they may fall back slightly.
- Executive Summary: Prospects for Agricultural Markets 2002-2009
- Chapter 1: Prospects for Agricultural Markets in the European Union
Total EU beef exports are heavily dependent on the Russian market. Any changes in the Russian import regime or any economic problems in Russia can leave tens of thousands of tonnes of beef each month looking for temporary export markets. ACP beef producers will have to stay alert to these temporary fluctuations in the destination of EU beef exports and try to establish the capacity to effectively protect their markets when sudden import surges from the EU might undermine the functioning of national and regional markets important to ACP beef producers.
At the end of 2001 the USDA Foreign Agricultural Service reported a dramatically smaller EU crop and little demand for EU wheat given the relative high price of unsubsidised EU wheat compared to the abundant supplies of cheaper wheat from eastern Europe. As a consequence in 2001 EU exports of wheat were down 30% compared to 1999. Indeed, falling EU import duties and relatively high internal prices were stimulating flows of wheat into the EU. This trend continued into 2002. In February 2001 the USDA FAS reported that the EU was importing unusually large quantities of wheat, barley and rye, Import licences for the first six months of 2002 have therefore exceeded export licences. In 2002 EU barley imports are expected to double, while the EU is now expected to become one of the world's largest importers of rye, despite its continued status as one of the world's largest exporters, and the fact that it is holding 5 million tonnes of rye in intervention stocks.
- US Assessment of EU Role Global Wheat Markets
- US assessment of the EU Cereals Market From February 2002
No explanation is offered for this paradoxical situation on the EU cereals market. This could be a transitional situation arising from the process of reform and the uncertainties which arise when markets are increasingly exposed to world market prices, even on the basis of large levels of direct aid payments. The current situation on the EU cereals market is raising concerns over the impact of the US Farm Bill on world markets.
The EU is to revise the basis for the calculation of tariffs applied to cereals and rice. The existing system is based on US commercial exchange prices, but in recent years new exporters have started to sell grain at prices well below other 'world market' prices. This has led to abnormally high EU imports of cereals and rice.
The new system of tariffs that the commission is proposing will be based on a more representative calculation of actual world-market prices. The new system may use fixed duties and tariff quotas, but will have to be negotiated with concerned exporters in the WTO. The Commission asserts that the EU has 'no intention to be more restrictive concerning access for cereals and rice to the EU market.' The aim it claims is merely to 'improve the system to more accurately fulfil our WTO obligations and protect our rights'.
The USA has complained about the new EU proposals, which it sees as restrictive. The Commission however sees it simply as an administrative measure designed to bring representative prices used for calculating import duties more into line with actual world-market prices. The Commission maintains that the new system will be WTO-compatible since it will be negotiated with the concerned trading partners.
- Press Release on Commission proposals to modify cereals and rice duties
- Press release announcing EU has no intention to restrict access for cereals and rice
This EU measure follows high EU imports of cereals and demonstrates the willingness of the EU to revise its import regime whenever the implementation of the existing regime threatens the disruption of EU markets. Within the EU principles of liberalisation and open markets are always applied in the light of the practical realities.
The long-awaited annual report on the 'Prospects for Agricultural Markets: 2002-2009' was released on June 19th 2002. The report suggested that :
world agricultural markets were expected to emerge from a prolonged down turn;
EU consumption of cereals was expected to rise in response to lower prices;
EU exports of cereals would experience a sustained increase;
there would continue to be a structural imbalance in the EU rye market.
However the prospects outlined did not take into account the impact of the US Farm Bill on world markets, although the report did acknowledge that the US Farm Bill would be likely to increase US production and exert a downward pressure on world-market prices particularly in the cereals sector.
- Press Release on Commission projections on Prospects for Agricultural Markets
- Executive Summary
- Chapter 1: Prospects for Agricultural markets in the European Union (Arable Crops, Meat and Livestock, Milk and Diary products)
- Chapter 2: Prospects for Agricultural Markets in Candidate Countries (Arable Crops, Meat and Livestock, Milk and Diary products)
- Chapter 3: Prospects for World Agricultural Markets (Arable Crops, Meat and Livestock, Milk and Diary products)
Despite Commissioner Fischler's assurances that this year's report would take into account the impact of the US Farm Bill this was only done in the form of an add-on commentary, and the effects of the US Farm Bill were not incorporated into the basic projections made.
Since 1996/97 EU rice production has increased strongly, as have imports of rice. This has led to a rapid increase in EU rice stocks, which stood at over 600,000 tonnes in 2001/02, equivalent to one-third of current domestic EU rice consumption of 1.8 million tonnes. The situation is expected to deteriorate gradually up to 2006/07. The European Commission maintains that increased imports of rice from least developed countries under the EBA will 'dramatically worsen the overall outlook', with imports capable of almost entirely satisfying current EU demand by 2009/10 (imports of 1.7 million tonnes). Trendsdiffer, however, between the japonica and indica rice markets. Favourable demand trends for indica rice are predicted in the medium term (total EU rice demand is set to rise to 2.1 million tonnes in 2009/10). Overall however by 2009 rice held both privately and in public stocks (though mainly in public stocks) is projected to substantially exceed total domestic consumption (total stocks 2.8 million tonnes).
- Executive Summary: Prospects for Agricultural Markets 2002-2009
- Chapter 1: Prospects for Agricultural Markets in the European Union
European Commission proposals to introduce a one step 50% reduction in the EU rice price, with EU farmers being compensated with direct aid equivalent to 88% of the price reduction will have an impact on these projections, since it will greatly reduce the attractiveness of the EU market.
The impact of the prolonged freeze in EU sugar prices on the economies of ACP sugar suppliers was noted with concern by ACP Ministers at their June 2002 meeting in the Dominican Republic. They called on the EU to:
recommend ways to more effectively share the burden imposed by the introduction of improved access for least-developed country sugar suppliers under the EBA;
examine the possibility of increasing the market access granted to ACP suppliers in the light of the enlargement of the EU.
- ACP Council of Ministers Sugar Resolution 25-27 June 2002
- Commission communication to the Council on the CAP Mid Term Review
The freeze in the EU sugar price has been exacerbated by the decline in the value of the Euro against the US$. This has been a particular problem for Caribbean sugar suppliers whose principal imports are all US$ denominated. The current recovery in the value of the Euro vis-à-vis the US$ (now almost at 1:1 parity) should improve US$ denominated earnings on Caribbean sugar exports to the EU.
Of more serious concern in the long term however are the current European Commission proposals for 'the introduction of a decoupled system of payments per farm', which ultimately would be extended to a reformed sugar sector. Under this scenario EU sugar prices would drop dramatically to around world market price levels. The proposals being put forward in the rice sector, involving a one-off 50% reduction in the EU rice price are indicative of how dramatic the price effects of such a reform process can be.
ACP sugar suppliers will have to consider carefully how they could respond to this type of trajectory for the future of the EU sugar regime and will need to monitor carefully the current EU Council discussions on the Commission's proposals for the mid-term review of the CAP.
The restructuring of Kenya's sugar sector continues. Sugar farmers are now being paid promptly and it seems likely that Kenya will shortly be able to fulfil its EU sugar quota.
Zimbabwe's principal sugar refiner ZSR stopped production in June 2002 as a result of a coal shortage, despite the fact that Zimbabwe has major coal resources.
Speaking to business leaders on June 6th 2002 the EU Commissioner for Health and Consumer Protection highlighted the challenge of bringing 'standards in candidate countries up to the current EU standards' when the Union is enlarged, given the objective of ensuring that European consumers have access to the safest possible food supply in the world. He pointed out how in the sphere of food safety the process of enlargement has implications for the external border-inspection capacity of the governments managing the new frontiers of the enlarged EU, given the potential threat from imports to public health, animal health and plant health.
Commissioner Byrne highlighted how, from a public health perspective, it was essential that 'candidate countries adopt and enforce the same rules applicable within the Union, prior to accession'.
A major area of concern highlighted by the Commissioner was the upgrading of agri-food establishments in the candidate countries to the required EU standards. He emphasised that the reward for compliance was access to the huge EU market but also that the sanctions for non-compliance would be heavy indeed. The EU is supporting a number of measures in this regard but more still needs to be done.
If candidate countries still have a long way to go to secure the full benefits of participation in the large economic area created by the expansion of the EU, for ACP countries the journey towards compliance with increasingly strict EU standardshas barely begun.
After further tests and consultations with the Chinese authorities and following advice from the Standing Committee on the Food Chain and Animal Health, some of the animal products banned in March 2002 are once again to be allowed entry to the EU market, pending the formal adoption of a decision by the European Commission. These products include gelatine and certain fishery products. Restrictions on other fishery products, poultry meat, rabbit meat and honey will however remain in place until satisfactory food safety assurances have been received.
In Galicia and other Spanish fishing regions, the coastal fleet has been operating almost normally despite an ongoing and indefinite sector strike that began on May 30th 2008. This was called in protest against the rising price of fuel and the unwillingness of authorities to provide subsidies. ‘It is quite clear that for the high-seas fleet, the decision to moor their vessels was a given, but for the coastal vessels, it proved to be a bit more complicated’ commented the secretary-general of Spain’s Fisheries Confederation (CEPESCA). The reason may be that, for most European small-scale coastal fisheries (SSCF), fuel costs represent a much lower percentage of the fishermen’s revenue, as highlighted by an EC report published at the end of 2007. The report says ‘oil consumption by SSCF is lower than consumption of oil by larger vessels, because SSCF mostly operate with passive gears and spend less time at sea'.
Europa press, June 4th 2008 (in Spanish)
EC report, ‘Small-scale coastal fisheries in Europe’, September 2007
The fuel crisis impacts differently on the various segments of the EU fleets. Fleets using lower amounts of oil, and travelling less far, seem less affected, as shown in this example. But consideration must also be given to the fact that these small-scale fleets must continue to fish to make a living. For ACP countries, where an important component of the fisheries sector is comprised of small-scale fleets, the lesson is that, although these fleets may have the comparative advantage of lower fuel consumption, they may need state support to be able to continue their activity given their lack of capital.