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April 2003

Revision of Harbinson first draft

20 May 2004

A number of pro-developing country modifications were contained in the revised Harbinson draft of March 18th 2003, with respect to market access, the special safeguard mechanism and trade preferences. With regard to market access the original tariff band ranging from 20% to120% (requiring an average cut of 33% and a minimum cut of 23%) was split into two bands: 60-120% and 20-60%, with average cuts of 35% and 20% respectively and minimum cuts of 20% and 15% respectively. Cuts in tariffs below 20% would be less than in earlier drafts (an average cut of 25% with a 15% minimum).
In addition the 'best endeavour' clause dealing with fullest liberalisation for LDC exporters of tropical products was made mandatory in the revised draft. This draft also called for a further elaboration of the new special safeguard mechanism and provided for more flexibility in areas where developing countries benefited from traditional preferences from developed countries. The revised draft also called for preference providers to 'undertake targeted technical assistance programmes and other measures, as appropriate, to support preference-receiving countries in efforts to diversify their economies and exports'.

Danish study on the Harbinson proposals

20 May 2004

A study by the Danish Research Institute for Food Economics has analysed the first draft of the Harbinson proposals, concluding that:

  • 80% of the expected gains of US $100 billion in increased global real income would accrue to OECD countries, while the remaining 20% would be spread amongst a relatively large number of developing countries, including least-developed countries;
    net food-importing developing countries will be negatively affected as a result of higher food import prices;
    traditional beneficiaries of preferences (such as the ACP) would be negatively affected by multilateral trade liberalisation.

Editorial comment

The most significant finding of this study is the fact that preferred partners like the ACP will be negatively affected by a new agreement on agriculture, while OECD exporters like the EU will gain the bulk of the benefits.

The EU is critical of the Harbinson text

20 May 2004

EU criticisms of the revised Harbinson text focussed on:

  • a failure to differentiate between the trade-distorting nature of different types of support;
    the disproportionate benefits accruing to the strongest exporters and the limited benefits accruing to developing countries;
    the formula used for tariff reductions, with the EU favouring the Uruguay Round formula, with across-the-board reductions;
    the insufficient emphasis on full access for LDC exports to OECD markets;
    the extent of loopholes on export credits and bogus food aid;
    the failure to address non-trade concerns;
    the absence of a peace clause.

Commission focuses on the extent of trade distortions

20 May 2004

In his meeting with the Chair of the Agricultural negotiations, Stuart Harbinson, EU Agriculture Commissioner Franz Fischler sought to highlight the importance of differentiating between the trade-distorting impact of different forms of agricultural support measures. He expressed the view that the key issue in the negotiations was the direction of movement in the degree of trade distortion arising from agricultural support and not the level of support per se. Commissioner Fischler urged the use of more discerning tools for assessing the trade-distorting impact of different agricultural support tools rather than the simple level of agricultural support and drew attention to the work that the OECD was undertaking on this issue. Commissioner Fischler's remarks were aimed at US agricultural support, which he maintained, was increasing trade-distorting forms of support, while the EU has systematically been shifting to less trade distorting and non-trade-distorting forms of agricultural support (moving from amber box to more blue box measures).
The press release of Commissioner Fischler's speech following his meeting with Stuart Harbinson provides a number of graphics in PDF format setting out the EU's case.

Editorial comment

To a certain extent the extent of trade distortion is an academic point. From an ACP perspective the issue is simple enough: do EU agricultural-support programmes allow EU companies to win markets from ACP producers which they would not otherwise be able to supply in the absence of agricultural support (either because they could not compete on price, or because there would be a lower level of total EU production). If WTO rules tolerate EU agricultural-aid instruments which are judged less trade-distorting than US agricultural-aid instruments, yet this still allows EU companies to win markets away from ACP producers, then the new WTO rules on agricultural support bring no material benefits to ACP countries.
This forms part of the EU's efforts to secure international recognition of the definitions it is using of what are trade distorting, less trade distorting and non-trade distorting forms of support. It should be borne in mind that these EU definitions do not always accurately reflect the trade impact of individual measures.

Background on the state of agricultural negotiations

20 May 2004

An ICTSD/IISD Briefing on the negotiations on Agriculture at the WTO since Doha is now available. It covers:

  • the background to the negotiations established by the Doha agreement;
    mandated deadlines;
    the progress of negotiations up to 2003, with particular reference to market access, export competition, domestic subsidies, special and differential treatment and implementation issues.

Commission reform regulations are presented

20 May 2004

Editorial comment

The development of the most immediate significance to the ACP concerns the rice sector, where the reduction in the EU price is likely to lead to dramatic income losses for Guyana and Surinam. According to the FAPRI study (see last edition) rice-sector reform will also lead to a 20% expansion in EU rice production, despite an estimated 41% decline in the EU market price of rice. With such an increase in production, EU exports are likely to rise substantially. These predicted developments sit uneasily with the European Commission's assertion that reform will reduce export availability.
The sustainability of the European Model of Agriculture will be achieved by reducing the attractiveness of the EU market to below that of the world market, thereby doing away with the need for both tariff protection and export refunds. It should be noted that when the European Commission asserts a reduction in production as a result of reform, this is in comparison with production levels which would have been attained without the introduction of reform and is not with reference to current production levels. With reference to current production levels, The FAPRI study suggests that post reform production levels will be higher in all major products except barley and beef.
It should be borne in mind that with the budgetary ceiling fixed, further reform is likely to be more difficult to secure agreement on, since new expenditures will need to be financed from saving elsewhere in the CAP budget. This will require hard negotiations in the EU Council and this could well slow down the pace of reform, particularly if the US$/euro exchange rate makes export refunds more expensive.

The WTO background to EPA negotiations

20 May 2004

The February 2003 ICSTD and IISD briefing on 'Negotiations on WTO Rules' provides some background to the current discussions on WTO rules on subsidies (including fisheries subsidies) and regional trade agreements. Regarding the latter it notes that despite the vital interest African countries have in this issue given the on-going EPA negotiations, no African government has yet made a submission seeking modification of WTO rules on regional trade agreements. It also notes that the EU has called for a clarification of the flexibilities already provided for within the existing WTO framework, as well as an examination of the extent to which WTO rules already take into account discrepancies in development levels between regional trade-agreement partners.
Other parties making submissions on this issue, notably Australia, have called for clear definitions of the meanings of key concepts such as 'substantially all trade' in terms of a percentage of tariff lines at the six-digit level listed in the harmonised system.
The briefing anticipates an intensification of debate and controversy as EPA negotiations get to grips with the question of whether developing countries may offer less than full reciprocity in market opening to developed countries with which they form a free-trade area. This issue is at the heart of the ACP-EU EPA negotiations.

Editorial comment

This is a matter of some concern, given the ACP countries' desire to see a joint ACP-EU initiative at the WTO to allow for greater flexibility in WTO rules on regional trade agreements involving both developing and developed countries. The type of issue at stake can be illustrated by the treatment accorded least-developed countries under the SADC Trade Protocol. Here, the extent of reciprocal trade between South Africa (classified as a developed economy) and least-developed country members of the SADC free-trade area will cover only 70% of imports into the LDCs from South Africa. The question arises: do current WTO rules of regional trade agreements allow a similar (or lower) level of tariff liberalisation in free-trade area agreements between an economic giant like the EU and ACP regions composed largely of least-developed countrie "sf not, then a joint submission by African governments proposing modification of WTO rules on regional trade agreements would appear to be essential. For its part after the Doha meeting the EU made it clear that it was seeking to tighten WTO rules on regional trade agreements.

Background note on the EU approach to EPA negotiations

20 May 2004

A European Commission background note sets out the EC's approach to the EPA negotiations. The Commission expresses the view that the 'clustering of issues in the joint discussions does not necessarily need to follow the division of labour decided between the ACP'. Against this background the Commission proposes to structure negotiation around four themes: market access, rules-related issues, the 'tool box' and procedures. It maintains that the development dimension can best be dealt with by integrating it into the relevant themes.

Editorial comment

This note makes no reference to special treatment for agricultural issues in the negotiations, in contrast to ACP proposals to discuss agricultural issues separately, given the importance of agriculture in ACP countries and the centrality of agricultural trade to the ACP-EU trade relationship. The Commission's clustering of issues allows it to avoid serious discussion of the impact of CAP reform on ACP-EU trade relations, despite its profound impact on the value of ACP trade preferences and the price competitiveness of EU agricultural and value-added food product exports.
Overall the Commission's approach downplays the development challenges which will face ACP countries in exploiting opportunities under moves towards free trade with the EU and the magnitude of the costs which will arise for ACP economies as a consequence of the developing nature of their economies. This constitutes a profound weakness in the EU's approach to the current negotiations and contrasts markedly with ACP efforts to focus discussions on this dimension by having the development issues addressed in a separate negotiating group.

Background note on market access issues

20 May 2004

A Commission background note sets out what the EU expects from the ACP in terms of market access and how it expects to handle negotiations around access to the EU market. It highlights the need for trade defence measures and the possibilities of customising these for each ACP region. While favouring similar rules of origin for all ACP regions so as to facilitate the later consolidation of regional agreements into broader agreements, the Commission expresses an openness to crafting rules of origin according to the specific needs of each ACP region. The note also outlines in summary form the likely scope of negotiations on trade in services and trade facilitation.
 The note recognises that ACP countries will face 'difficult economic and social restructuring' as a result of moves towards free trade with the EU but expresses the view that this should not allow ACP countries to defer much needed reforms which will enhance their competitiveness. The note recognises the need for appropriate EU support measures but believes that these should be funded from existing EDF resources.

Background note on rules-related issues

20 May 2004

This Commission background note sets out the EC's approach to market segmentation issues. This includes, amongst others: standards, SPS measures, consumer protection, intellectual property rights, competition policy, trade and the environment, trade and labour standards, investment protection and promotion, and data protection. According to the Commission, negotiations on rules should address policy bottlenecks for development in ACP countries and regions.

Background note on the 'toolbox'

20 May 2004

This Commission background note sets out how the EU proposes to support regional integration amongst ACP countries and promote a differentiated approach to the creation of free-trade areas based on each region's needs. The Commission sees five dimensions to regional economic integration in ACP countries: trade in goods; trade in services; trade-related areas; enforcement mechanisms; and regional co-operation in a wider sense. The note then goes on to elaborate on the European Commission's view of the issues to be addressed in each of these areas.

Editorial comment

In its approach to regional integration the European Commission as a regional organisation itself focuses largely on the creation of regional structures. It almost entirely neglects the development of national capacity to effectively relate to and control, at the policy level, the work of regional structures. This is a major weakness in the EU's approach since it tends to foster regional organisations which float free from national control. This can lead to agreements being concluded, which are left largely un-implemented since there is no strong national commitment to their implementation. This is a direct consequence of there being no strong national input into their formulation.

Background note on procedures

20 May 2004

This background note sets out the issues that the EC proposes to discuss relating to the organisation of the regional phase of the negotiations. It proposes the establishment at the pan-ACP level of a co-ordination committee consisting of representatives of the different regional groupings, the ACP Secretariat and the European Commission. This committee would provide a forum to exchange views on the overall coherence of the regional negotiations and would report to the Joint ACP-EC Ministerial Trade Committee.

The EU and MERCUSOR exchange tariff offers

20 May 2004

On March 5th 2003 it was announced that the EU and Mercusor had now exchanged tariff offers on market opening. EU Trade Commissioner Pascal Lamy described this as 'a good basis to start negotiating market opening'.

Articles on EPAs

20 May 2004

The February 2003 ODI/ICTSD/ECDPM Trade Negotiations Insight contains articles by Anthony Hylton on the challenge and prospects for ACP countries; an article by San Bilal and Melissa Julian outlining the structure of the negotiations and developments to date; an article by Victor Mosoli on the dispute-settlement arrangements under the Cotonou Agreement and a calendar of forthcoming events up to mid-May 2003.

Rice Outlook

20 May 2004

The USDA February 2003 review of the world rice situation and outlook showed:

  • global production down 16.8 million tonnes (to 381.7 million tonnes)
    global consumption of 408.2 million tonnes
    falling global rice stocks (26.5 million tonnes below revised estimates for 2001/02)
    a fall in global trade to 26.7 million tonnes (down 1.1 million tonnes)
    prices generally stagnant or declining (Thai prices down US$13 from US$210 to US$197, Vietnamese rice down US$10, Indian rice steady at US$160 per tonne, US long grain rice down about US$5 at US$202)

Rice sector reform is on track

20 May 2004

Commissioner Fischler put forward the case for a radical reform of the EU rice regime at the March 19th 2003 EU Agricultural Council meeting, proposing a massive 50% reduction in the intervention price (coupled as always to an increase in direct aid payments). Radical rice-sector reform now appears imminent.

Editorial comment

With the EU looking for an internal price of around €150 per tonne, Guyanese rice exporters are likely to face price reductions of over 25% in the next year. If EU rice market prices fall to the level where special support measures are necessary, income losses to Guyanese and Surinam rice exports could exceed 40%. Prospects do not look good for continued ACP rice exports to the EU market.

The changing world sugar situation

20 May 2004

Two major changes, namely, the growing prominence of southern-hemisphere suppliers and the expansion of the sugar-import market, are identified in an analysis of the the evolution of the world sugar situation by the USDA in February 2003. Amongst southern-hemisphere producers the report highlights the growth of production in Brazil and Australia, but also points to increased production in ACP members, South Africa, Zimbabwe and Swaziland, while noting the decline in production in the Caribbean (mainly Cuba). Since 1984/85 world production has grown 57% while consumption rose by 63%. The report also highlights the expansion in Asian production. As with the EU these countries changed from being net importers to net exporters. A growing feature of world trade which is highlighted is the expanding role of Brazil as both a raw and refined sugar exporter.

Cereal sector reform to be completed

20 May 2004

At the March 19th 2003 EU Agricultural Council meeting Commissioner Fischler put the case for a further 5% reduction in the EU cereal price by arguing that if prices were allowed to find their own level, this would enable 'EU cereals to price themselves into both internal and external markets'. This would remove entirely the need for export refunds in the cereals sector.

Editorial comment

This final round of cereal price reductions will complete the ten-year process of bringing EU prices into line with world market prices, doing away with the need for export refunds and tariff protection and setting the stage for a further expansion of EU cereal-based value-added food product exports. Developments of EU exports under these new circumstances will provide a foretaste of what will happen in other sectors over the next ten to twenty years as the process of CAP reform is rolled forward in other sectors.

Wheat outlook

20 May 2004

The USDA February 2003 review of the world wheat situation and outlook showed:

  • a decline in global production of 12.4 million tonnes
    an increase in consumption of 11.3 million tonnes
    a reduction in stocks of 28.6 million tonnes (to 171.5 million tonnes)
    a forecast decline in world wheat trade for 2002/03 of 5.2 million tonnes
    early February export quotes for HRW fob Gulf of US $156 per metric tonne, down US $ 45 from a trade-year high of US $ 201 in early September
    The EU importing 10 million tonnes (up 500,000 tonnes), based on import licences to date and anticipated fulfilment of TRQ allocations through to June.

USDA briefing on world apple market

20 May 2004

A USDA briefing in March 2003 on the state of the world apple market highlights emerging opportunities on the EU market arising from lower EU production in major countries as a result of adverse weather conditions. EU apple imports are consequently anticipated to increase, with South Africa and Chile expected to gain most of the benefits of this increased EU demand. The report indicates that South Africa is facing fierce competition on global markets from producers who receive high levels of subsidy. However some relief is expected with the signing of the Russia-South Africa free-trade area agreement before the end of the year. This will eliminate the 10% import tariff currently applied on South African apples, pears and kiwi fruits. The report also reviews the changing role of major trading countries in the world apple trade.

EU cotton consumption continues to decline

20 May 2004

A USDA briefing highlights declining EU cotton consumption, which has fallen 21% in the past ten years. EU cotton imports over the same period have risen slightly (mainly from Central Asia) while EU exports to non-EU countries have risen faster than EU cotton production. However the decline in EU cotton consumption has actually been less than in other major OECD markets, with US consumption declining 26% and Japanese consumption down 57%. The report provides access to various statistics on the cotton sector.

Acceleration of dairy sector reform proposed

20 May 2004

Commissioner Fischler advanced the case for accelerating dairy-sector reform by going beyond the price reductions agreed under Agenda 2000, at the March 19th EU Agricultural Council meeting. This would involve introducing two additional steps of price reductions and advancing implementation by one year. This would serve to close the gap between EU and world market prices (on average EU prices are 30% higher than an equivalent world market price), a gap which is currently undermining EU export competitiveness and reducing the EU's world market share. However, even under reform, the EU diary sector would continue to be highly regulated with the quota regime being extended until 2015.

Editorial comment

Even with EU prices 30% above world market prices the EU still accounts for 70% of Africa's dairy imports, with EU dairy export surges periodically undermining dairy markets in various regions of the ACP. From an ACP perspective any accelerated process of reform should incorporate measures which reduce the adverse effects on ACP dairy sectors.

Harmonisation of Maximum Residue Levels

20 May 2004

The European Commission adopted a proposal for a regulation harmonising European maximum residue levels of pesticides permitted in products of plants and animals on March 14th 2003. When the regulation is adopted, after a transitional phase-in period individual EU member states will no longer be able to set their own national MRLs in the absence of Community MRLs.

Editorial comment

ACP exporters dealing with markets which had nationally established MRLs will need to verify that their production will meet the harmonised standards in order to ensure that exports are still permitted.

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