A new report studies the role of sustainability impact assessments; an update on the EPA negotiations has been published, including preparations for the second phase
The EC's agreement on CAP reform means that decoupling will only be partial, allowing higher production, but the EC nevertheless believes that it is in a stronger position for the WTO Cancun session. There are concerns following the Court of Auditors' report on the EU export-refund scheme.
Safeguard measures and special products have been discussed during the preparations for Cancun, but fears have been expressed that given the lack of prior agreement 'Cancun could be another Seattle' with developing countries effectively excluded from meaningful participation, but the WTO director-general has claimed that the Doha agenda is the basis for African Development.
Rising consumption in Europe will provide market opportunities for the ACP.
Rising EU output, greater production of value-added products and rising availability from third-country producers could all impact adversely on ACP producers.
The falling price of dairy products in the EU, with the prospect of greater exports, could harm ACP markets.
Dramatic price reductions will reduce the attractiveness of the EU to developing country exporters.
The EC has condemned the challenge by Brazil, Australia and Thailand to the EU sugar regime as 'nothing less than an attack on the EU's trade preferences for developing countries'.
The latest edition of Trade Negotiations Insights looks at the role of sustainability impact assessments (SIAs) in assisting ACP countries in preparing for EPA negotiations. It considers the development of the concept to date and highlights how it could assist ACP countries in identifying vulnerable sectors and structuring moves towards free trade in order to minimise adjustment costs. It notes, however, that the starting point for the SIAs is economic liberalisation, although it does not consider alternatives. This is seen by some observers as a major shortcoming since for certain least-developed countries liberalisation may not be entirely appropriate at this stage in their economic development.
The article reports that SIAs have been initiated in two ACP regions, the Caribbean and West Africa. Each SIA has four stages:
- a screening stage, which seeks to identify those trade and trade-related issues relevant for EPAs;
- a scoping stage which relates these trade and trade-related issues to economic, social and environmental-sustainability concerns;
- a preliminary SIA stage, where a first assessment is made of the significant positive and negative effects that an EPA will have on sustainable development;
- a mitigation and enhancement measures stage, which seeks to propose specific measures that can be taken to make trade liberalisation more conducive to sustainable development.
It acknowledges the difficulties faced in relating the different fields of economic social and environmental effects to the broad trade agenda to be discussed. This is a particular challenge in the EPA negotiations because of the broad trade agenda under discussion, the complicated regional dimension and the lack of adequate base-line data.
A central plank of the SIA approach is stakeholder involvement in the process. The article however acknowledges the absence of effective stakeholder involvement in the SIA process to date, as well as in the process of drawing up the terms of reference for SIAs, a responsibility which lies entirely in the domain of the European Commission. This has led to questioning of the underlying motivation of the SIA process, with some seeing it as an expensive public-relations exercise by the European Commission, which will have no actual impact on the process of negotiations.
- CTSD Trade Negotiations Insights (June 2003)
It should be noted that the methodology adopted for SIAs allows no scope for questioning the appropriateness of trade liberalisation or of addressing the important question of the sequencing of regional market integration amongst ACP countries and trade liberalisation vis-à-vis the EU. Equally it does not address the issue of the sequencing of supply-side measures in relation to the pace of trade liberalisation.
- ICTSD Trade Negotiations Insights (June 2003)
Reports form the Ghana office of the Third World Network suggest that the governments of West Africa are implicitly backing down from the agreement made by ECOWAS in June 2003 to open regional-level negotiations with the EU in September. The Third World Network maintains that the endorsement by West African governments of common ACP positions in May 2003 insisting that regional-level negotiations could only begin after the EU has made formal commitments on issues of common concern to the ACP under the first phase, means that West Africa intends to hold ranks with the rest of the ACP Group.
The next stage of CAP reform was finally agreed by the EU on June 26th 2003 (see the following item). Earlier discussions in EU Agricultural Council meetings in May and June, however, throw some light on how the agreement was eventually reached.
An USDA GAIN Report on the May Agricultural Council meeting sets out the different positions of EU member states on the major issues faced under the Commission's CAP-reform proposals. With regard to decoupling Denmark, the Netherlands and the UK were in favour of full decoupling. France, Austria and Spain were against, while Belgium, Germany, Luxembourg and Italy favoured partial decoupling. Ireland's position was unclear while Finland felt decoupled payments should be linked to hectorage.
On dairy sector reform, France, Ireland and Spain rejected the Commission's proposals, while Italy proposed no quota cuts beyond 2008. Austria favoured the maintenance of quotas until 2015. In contrast Belgium favoured reform in 2006, while Denmark favoured reform in 2010. The UK and Germany accepted in full the proposed price cuts, but Finland rejected them. Luxembourg does not want dairy-sector reform while the Netherlands wants full decoupling.
In the cereals sector Denmark, Germany and the UK favoured further farm cuts, but Austria, Belgium, Finland, France, Ireland and Luxembourg are against. Italy favours partial decoupling while the Netherlands wants full decoupling. Spain wants to see intervention buying retained.
- USDA GAIN Report (GAIN Report E23091)
An article in 'Inside US Trade' has taken a far less optimistic view, revealing sharp divergences amongst EU member states on how decoupling should be implemented. The overall conclusion is that decoupling is likely to be far less extensive than initially envisaged. This would appear to be consistent with the Commissioner's line that there are 'solid arguments' for leaving various sensitive areas out of decoupling. Much of the disagreement revolves around the basis for calculating decoupled farm payments and the extent to which there should be flexibility between member states in how the new system is implemented. According to 'Inside US Trade' there are also disagreements within the EU on the extent to which existing payments should be cut to finance further reform and the extent to which funds should be transferred to the rural-development window. From an ACP country perspective it should be noted that any weakening of decoupling through the maintenance of parallel systems of coupled payments is likely to increase EU levels of production, whilst allowing prices to fall. This is likely to lead to higher levels of EU exports at lower prices, with consequent losses for competing unsubsidised ACP suppliers in areas where cropping patterns overlap with those of the EU.
A later USDA GAIN Report records that in the run up to the June 11th-12th Agricultural Council meeting in Luxembourg, high-level meetings of officials were held to try to move forward the compromise on CAP reform. Agreement was reached on two modifications to the Commission's original proposals, namely that:
- the adoption of the 'Farm Advisory System' should be voluntary and should be deferred until 2007;
- non-food crops and protein crops should be allowed to be grown on set-aside land on a rotational basis, as opposed to the complete termination of cropping on set-aside land.
These agreements formed part of a highly complex set of compromise proposals, the net effect of which is likely to be higher levels of EU production than would have arisen under the Commission's original proposals. It should be borne in mind that in most sectors these proposals would themselves have resulted in an increase in EU production over current levels (although a decrease compared to a continuation to 2009 of the trend arising from present policies).
- Full text of the EU Presidency compromise on CAP reform
- The European Commission's before-and-after summary of the CAP reform agreement
- The European Commission's CAP reform summary
The prior implementation of reform in the dairy sector, involving substantial price reductions, in advance of incorporation into the single farm payment scheme, gives an indication of the likely trajectory for reform in the sugar sector, a sector of vital importance to a number of ACP economies. The impact this will have on the value of ACP sugar preferences (quite independent of the outcome of the Brazilian and Australian WTO challenge to the EU's 'C' export arrangements) will need to be taken into account in the on-going EPA negotiations; possibly through the negotiation of 'compensatory trade measures' explicitly linked to the erosion of the value of trade preferences as a result of the implementation of CAP reform.
In the rice sector the compromise reform includes a specific reference to traditional rice suppliers stating 'the Commission will also take into account the interests of developing countries, including those traditional suppliers, as well as the implementation of the EBA regulation', it remains to be seen what this will mean in practice for traditional ACP suppliers such as Surinam and Guyana.
The major change with regard to modulation which keeps the vast majority of these funds for deployment in support of rural development means that there will be little scope created for the financing of further reform. This could serve to defer substantive reform of the EU sugar regime.
In presenting the outcome of the final round of negotiations on CAP reform at a press conference on June 26th 2003, the EU Agriculture Commissioner Franz Fischler claimed that the EU had 'largely said goodbye to an old system of support which distorted trade' and he maintained that the new system would be more 'trade friendly', and would put the EU 'on the offensive at the WTO negotiations in Cancun in September', with the EU looking for 'something in return' for the concessions they will now be able to make. He acknowledged that the reform was a compromise but maintained that it was 'an acceptable one', and claimed that the new system would no longer promote overproduction so that the trade-distorting effects of EU policies would be substantially reduced.
In a speech to the European Parliament on July 9th 2003, Commissioner Fischler sought to evaluate the final agreement on CAP reform. He began by reiterating the objectives of reform, namely to:
- make a substantial contribution to stabilising farmers' incomes and at the same time to diversifying their farming activities;
- promote healthy and better quality foods, produced under environmentally sound production methods, which respected animal welfare;
- improve the public image of agricultural-support programmes.
He then set out the reforms agreed, namely:
- a multiple-choice system for the introduction of the single farm payment scheme from January 2005 (with exceptions upon justified request until 2007);
- the introduction of flexibility without distorting competition;
- the linkage of the single farm payments scheme to compliance with a range of standards (cross compliance);
- the use of the 2000-2002 payment entitlements as the basis for calculating the single decoupled farm payment.
The introduction of decoupling alongside specific sector reforms will it is argued 'strengthen the EU's negotiating hand in the WTO Ministerial conference in Cancun in September'. Commissioner Fischler maintained that the EU is now well placed to reach agreement in Cancun and that it is now up to other countries to match the EU's concessions.
- Commissioner Fischler's press conference (Speech/03/326-26/06/2003)
- Commissioner Fischler's speech to the European Parliament
The claim that the reform will lead to less trade distortion is only justified in a highly relative context, as the reference point for the claim is the level which EU production would have attained by 2009 were existing policies to be pursued until then. If this reference point is used then EU production levels post-reform in most major commodities subject to reform will be lower than in the scenario without reform. However, if the point of reference is current levels of EU production then post-reform EU production will be higher, but at prices that will be much lower than those currently prevailing. This will enable the EU to clear its markets more easily without recourse to WTO-restricted trade instruments. EU claims to the effect that the new policy will be less trade distorting thus need to be subjected to close and critical scrutiny.
The USDA GAINS briefing of 26th June 2003 provides a simplified analysis of the final CAP reform agreement. It describes the final agreement as 'highly complex' and maintains that it 'represents a significant watering down of the original Commission proposals, with:
the possibility of delaying decoupling until 2007;
the scrapping of price cuts in the cereals sector;
the maintenance of coupled payments in some sectors;
limited cuts in the dairy sector compared to the Commission's initial proposals.
The briefing points out that the compromise text states that the EU 'will not pay twice in order to conclude the round', implying that the EU does not intend to make any further concession beyond those already agreed as part of the reform of the CAP, in the context of the Doha Development Round. In its analysis of the reforms agreed the USDA sees decoupling taking place at three levels: payments that will not be decoupled at all; payments that will be partially decoupled and payments that will be decoupled later, with member states being left to choose whether or not to fully decouple.
The USA has called on the EU to translate the reform package into new and ambitious negotiating proposals at the WTO. The Chair of the WTO General Council, Carlos Perez del Castillo, described the reforms as 'a step in the right direction', while Australian Agriculture Minister, Mark Vaile, welcomed the move as a positive step.
Development NGOs, however, criticised the final CAP-reform agreement as 'half-hearted and not going far enough to curb overproduction in Europe or to halt dumping of agricultural products on developing countries'. This is based on the fact that the final agreement still maintains 'a limited link between subsidy and production under defined conditions so as to avoid the abandonment of production' and the fact that EU agricultural support will not decrease significantly. Rather the reforms will allow the subsidies to be shifted into the 'green box', thereby making them exempt from WTO disciplines.
The President of CIAA, the organisation of the European food and drink industry, described the CAP agreement as being in line with the long-term goals of the food-and-drink sector.
- USDA FAS GAIN (GAIN Report E23121)
- USDA FAS GAIN (GAIN Report E23126)
- ICTSD report (July 3rd 2003)
The actual negotiating capital which the EU earns in the WTO from the compromise agreement will be determined by the perceptions of the EU's trading partners as to the impact of the reform measures in specific sectors of concern to them. Given the complexity of the final reform package many of the EU's negotiating partners are reserving judgement until they have had time to work out the likely external market impact of the proposed reform measures.
In its observations on the outcome of the mid-term review of the CAP the European Economic and Social Committee (EESC) expressed its approval of the facts that ultra peripheral areas of the EU will not be affected by decoupling, and that fruit and vegetables would be excluded from the products which decoupled farmers could grow. This it was felt would avoid competition with traditional fruit and vegetable growers. The EESC did however express concern about a 'risk of re-nationalisation of the CAP'.
- The EESC response (CES/03/49-07/07/2003)
The risk of re-nationalisation of the CAP which the EESC highlighted, potentially has implications for the ACP. Such a development would be likely to distort competition within the EU (the basis of concern of the EESC) and on international markets, a matter which can only be a source of concern to ACP countries.
- Press release
- Full text
Systematic over-compensation of EU traders through the export-refund scheme can only serve to distort competition, particularly where the EU is a major supplier to ACP markets (e.g. in dairy products to Africa). This is likely to be a matter of on-going concern.
The WTO Committee on Agriculture formally met on July 1st 2003 to review progress after the failure to meet the March 31st 2003 deadline. The review showed that members remained in their entrenched position, although the agreement on CAP reform gave some cause for hope. Many countries (the EU Switzerland, Norway, Japan and Barbados) insisted that a new draft of the modalities paper (concerning how issues are to be dealt with) was needed. Others, including Egypt, Zimbabwe and Uganda felt that the current draft on modalities was adequate.
The proposed special safeguard measures, which would allow developing countries to block sudden surges in imports, were discussed, but no agreement could be reached. The concept of 'special products' was also reviewed. This concept would allow developing countries to introduce lower cuts than those normally to be applied. There was however disagreement as to how special products should be defined, with some WTO members favouring objective criteria (Latin American and the 'Cairns Group' countries) and others (Indonesia, China and India) favouring self definition by the developing country.
- ICTSD (July 3rd 2003)
The debate around special safeguard measures is particularly important for ACP countries, especially those in Africa, since ACP countries are an increasingly important market for exports of simple value-added food products from the EU. For many African countries development of facilities for the local production of such products constitutes the vital first stage of industrial development. Competitively priced EU exports, arising from the provision of high levels of direct aid to EU farmers therefore potentially threatens the development of these industries across a range of ACP countries.
The debate around 'special products' is also an important area for ACP countries, given that many ACP countries are dependent on a single commodity for a large proportion of their export earnings. In some cases the functioning of the markets served are distorted by public aid programmes in OECD countries (e.g. cotton) in others the oligopolistic control of the market of the product can reduce the returns to ACP farmers (e.g. coffee), in still other areas changes to how public aid is provided (mainly through the shift from price support to direct aid payments) is increasing the price competitiveness of EU exports (e.g. cereals), with potentially damaging consequences for food security.
Against this background, ACP countries will need to look for swift, simple and effective safeguard measures and special treatment, if their agricultural sectors are not to be undermined by the changing basis of public aid to farming in the EU and other OECD countries.
Speaking at the second ordinary session of the assembly of heads of government of the African Union on July 14th 2003, the WTO Director General Superchai Panitchpakdi argued that the 'Doha Development Agenda will be a vitally important tool in your efforts to unlock Africa's huge economic potential.' He maintained that 'African needs the security and predictability of a framework of global trade rules that only the WTO can provide.' Areas of concern that he highlighted included special and differential treatment, implementation, TRIPs and public-health and market-access issues in agriculture, non-agricultural products and services.
- Speech (July 14th 2003)
Noticeably absent from the issues highlighted by the WTO DG were issues related to the trade-distorting effects of OECD agricultural-support programmes and the need for effective WTO disciplines in this area. For example no mention was made of the systemic reform implications of the current West and Central African initiative on the dismantling of OECD cotton subsidies.
The draft Cancun Ministerial text was leaked on July 18th 2003. It leaves wide open virtually every area that WTO members are negotiating, leaving members with only a few weeks in which to narrow down the wide gap on highly contentious issues. The Institute for Agriculture and Trade Policy (IATP) maintains that the 'draft sidelines implementation issues - issues that developing countries have been fighting for since prior to Seattle - by suggesting that the General Council merely 'redouble its efforts' to resolve these issues. The IATP maintains that the 'skeletal' nature of the draft text means that 'the Cancun Ministerial meeting is heading towards a repeat of Seattle where most developing countries were shut out of the real decision-making process'. The IATP identifies four major problem areas in the draft text:
- its is a proposal from the Chair of the General Council and not a negotiated draft;
- it places a heavy political responsibility on the WTO Secretariat;
- it places excessive responsibility on the Chairs of negotiating groups to the detriment of members' participation;
- it leaves the further development of the document to informal and undocumented consultations.
The draft also 'leaves in brackets texts that are highly contentious in virtually every area of WTO negotiations'. This, according to the IATP will leave Ministers with a heavy work load in Cancun. A situation which places 'understaffed developing countries in a very vulnerable position'.
- Draft Ministerial text (July 18th 2003)
- IATP commentary
The draft text suggests that developing-country governments such as those in the ACP will face a major challenge in resisting the intense pressure that they will face in Cancun to agree to 'compromise' texts which do not in fact address major issues of concern to developing countries (e.g. the trade-distorting effects of OECD agricultural-support programmes and the need for effective WTO disciplines to bring about substantial reductions in all forms of agricultural support).
Stuart Harbinson, the Chair of the Negotiations on Agriculture, circulated on July 7th 2003, an-own initiative report on the issues faced in determining the modalities for agricultural liberalisation. It includes a factual review of work carried out by the Committee on Agriculture to date and a section highlighting in a non-exhaustive manner key issues and questions which participants need to address urgently. These include:
- the modalities to be employed for reducing tariffs;
- the means for improving market access;
- rule-related issues, such as tariff-quota administration;
- special safeguard measures; special and differential treatment;
- the formula to be used for the phasing-out of export refunds;
- the development of disciplines on export credits;
- the development of disciplines on food aid;
- the development of disciplines for the operations of state-trading enterprises;
- the modalities for regulating domestic support;
- the extent of flexibility for recently acceded members;
- the extent of flexibility for other groupings such as small-island developing states and other vulnerable groups of developing countries and economies in transition;
- the future of the 'peace clause'.
- Harbinson's report (July 7th 2003)
The extent of issues still to be resolved and the orientations of major players like the EU suggest that many of the substantive agricultural issues of concern to ACP countries (most notably the trade-distorting effects of direct aid programmes, the erosion of the value of preferences resulting from CAP reform, and the obstacles to trade created by increasingly strict SPS measures) will not be effectively addressed under the new round.
The European Commission released its review of the 'Prospects for Agricultural Markets in the European Union 2003-2010' in June 2003. In the beef sector EU-15 consumption is projected to be higher than production in 2003 for the first time in more than 20 years. This situation is expected to persist until 2010, which should allow a clearing out of EU intervention stocks of beef . Producer prices are thus expected to stay relatively high. EU production is expected to increase to 7.6 million tonnes in 2006, after which a slight decrease is likely. Taking into account EU enlargement, total beef production in the EU-25 will consistently exceed consumption.
- Full text of Prospects for Agricultural Markets
- Executive summary of Prospects for Agricultural Markets
This situation should create a favourable market for ACP exports of beef providing that quality cuts of beef which can attract premium prices can be exported. It should be borne in mind, however, that these are projections and not projects with considerable uncertainty arising from: exchange-rate variations; the export capacity of newly emerging exporting regions (Black Sea countries and Brazil); the level of global economic recovery; the outcome of the Doha Development Round; and the final impact of the CAP compromise agreement.
The European Commission released its review of the 'Prospects for Agricultural Markets in the European Union 2003-2010' in June 2003. In the cereals sector the report projected a 'relatively fragile' situation. The recent rise in cereal imports and domestic EU production, combined with a lower than expected expansion of cereal exports (in part accounted for by the rising value of the Euro against the US $) will lead to a significant growth in cereals stocks over the 2002/2003 period. Stocks are then likely to remain high as production expands and demand remains constrained by only a moderate expansion of EU animal production Increases in yields will more than off-set the decline in the area under cereals. EU exports are expected to average around 30 million tonnes over the medium term (with a projection of exports at 31.3 million tonnes in 2010 as opposed to 19.9 million tonnes in 2001).
The EU-15 wheat sector is expected to show strong gains, with production up from 103.3 million tonnes in 2002 to 113.9 million tonnes in 2010 and exports up from 16.5 million in 2002 to 18.8 million in 2010. While most of this increased production will be absorbed within the domestic EU market, a steady growth in exports at world market prices is expected.
- Full text of Prospects for Agricultural Markets
- Executive summary of Prospects for Agricultural Markets
The increased exports of wheat at world market prices (i.e. without any WTO constraints) is potentially the most serious development that is of concern to ACP countries, since it is also likely to fuel exports of competitively priced EU wheat-based products . It should be borne in mind, however, that these are projections and not projects, with considerable uncertainty arising from exchange-rate variations; the export capacity of newly emerging exporting regions (Black Sea countries and Brazil); the level of global economic recovery; the outcome of the Doha Development Round; and the final impact of the CAP compromise agreement.
The latest edition of Trade Negotiations Insights (ICTSD/ODI/ECDPM) has an article reviewing the West and Central Africa cotton dispute. The article notes that West and Central African cotton producers grow 5% of world production (991,000 tonnes), but that this accounts for 80% of exports in some cases. While the region has some of the lowest cost production in the world, the benefits of this competitive position are being undermined by the impact of agricultural support programmes for cotton producers in OECD countries.
West and Central African governments are seeking ACP support for a declaration on cotton for submission to the WTO. Currently African cotton producers are seeking an extension of the special product' concept to cotton, given its importance to food security and rural development. This would involve extending the concept to include 'offensive interests of developing countries when the export of such products proves essential for agricultural development and the survival of rural populations in least developed countries'. It would also require special treatment so as to ensure equitable access to the world market. West and Central African countries are also seeking 'substantial, specific and swift reductions in the subsidies paid for the production and export of cotton', with, in a transitional period, financial compensation being paid to African producers adversely affected by OECD support to cotton producers.
The paper looks in some detail at the link between the African cotton initiative and the Brazilian challenge to US cotton subsidies. The article notes that LDCs often experience difficulties in gaining access to WTO dispute-settlement measures since the dispute-settlement procedures are expensive and require a great deal of legal expertise. The article argues that the West and Central African cotton challenge in effect waives any request for a system of rules to be weighed in favour of developing countries through the application of special and differential treatment but instead focusses on securing equal treatment involving the strict application of market rules and the disqualification of trade-distorting measures. It argues that this cotton initiative offers 'sub-Saharan African countries the opportunity to test the WTO system on its most complex institutional aspects'.
- Trade Negotiations Insights (June 2003)
Spain and Greece are refusing to extend EU support to the African cotton initiative, while other EU member states are willing to support the initiative only under certain conditions, namely that:
- it is limited to cotton and does not affect other agricultural products;
- other countries join in the initiative;
- any request for the elimination of domestic support should not affect all forms of support but only the most trade distorting forms of support.
The European Commission released its review of the 'Prospects for Agricultural Markets in the European Union 2003-2010' in June 2003. In the dairy sector the market balance is expected to improve over the medium term, with increasing cheese production and consumption and a lower availability of butter and cheese. Given the quota-management system in place, milk production in the EU-15 will remain constant, but the utilisation of milk will change, with cheese production increasing by 540,0000 tonnes, butter production decreasing by 140,000 tonnes and milk powder production declining by 180,000 tonnes. After short term increases EU dairy-product exports are expected to decline.
- Full text of Prospects for Agricultural Markets
- Executive summary of Prospects for Agricultural Markets
While EU dairy-product exports are expected to decline, the prices at which EU dairy products can be exported will fall as a result of the June 2003 agreement on CAP reform. This could make EU dairy exports more price competitive on those ACP markets (in Africa), where the EU is the dominant supplier.
The European Commission released its review of the 'Prospects for Agricultural Markets in the European Union 2003-2010' in June 2003. In the rice sector the medium-term prospects are seen as poor, with a profound market imbalance existing. By 2006 the rice surplus situation is expected to be unsustainable, with stock levels reaching 4.1 million tonnes by 2010 (up from 0.4 million tonnes in 2002).
- Full text of Prospects for Agricultural Markets
- Executive summary of Prospects for Agricultural Markets
These projections do not take into account the impact of the reform measures agreed on June 26th 2003. Indeed, the dire prospects for the EU rice sector account for the willingness of EU Agricultural ministers to agree to a 50% reduction in the intervention price. This should ease the market situation considerably by making the EU rice market far less attractive to developing country exporters including those in the ACP.
Brazil, along with Australia and Thailand, formally requested on July 21st 2003 the establishment of an arbitration panel on the basis of two challenges to the EU sugar regime. The challenge deals with:
- the 'cross subsidisation' of EU 'C' sugar exports through the high prices maintained for EU 'A' and 'B' quota sugar production, which allow 'C' sugar to be exported at prices below the EU's costs of production;
- the exclusion of 1.6 million tonnes of EU sugar exports (equivalent to the EU's preferential imports, largely from ACP countries) from the subsidy reduction commitments which the EU has made under the Uruguay Round.
Brazil and Australia have repeatedly stressed that the challenge is not aimed at the EU's system of preferential imports from ACP countries. The ACP nevertheless feel that the challenge is likely to directly affect ACP suppliers and have responded accordingly, appealing to Australia and Brazil to take ACP interests into account. Brazil claims its industry losses some US$900 million per annum as a result of the EU's sugar subsidies.
- Australian letter (July 9th 2003)
- Brazilian letter (July 9th 2003)
- Thai letter (July 9th 2003)
- ACP response (July 11th 2003)
- UK Sugar Traders report (July 11th 2003)
- ICTSD BRIDGES update (July 7th 2003)
Given the outcome of the earlier challenge to the Canadian dairy regime which consisted of similar features to the EU sugar regime, there would appear to be a good chance of the dispute arbitration panel finding in favour of the claimant.
In a press release on July 10th 2003 the European Commission condemned the Brazilian, Australian and Thai challenge to the EU's 'C' sugar exports, claiming it was 'nothing less than an attack on the EU's trade preferences for developing countries'. The Commission argued that the challenge risks 'undermining the benefits of the EU regime for many sugar-dependent developing countries, especially ACP countries'. EU Trade Commissioner Pascal Lamy maintained that the WTO action could 'destabilise the sugar-dependent economies of small ACP countries', whilst merely deflecting attention form the real causes of depressed world market prices, namely the rapid expansion of Brazilian and Australian sugar exports (from 1.6 million tonnes to 12 million tonnes in the case of Brazil).
- Press release (IP/03/993-10/07/2003)
While the Commission maintains that EU exports of sugar are largely the result of the preferential import of 1.9 million tonnes of sugar, the reality is that the EU has been exporting around 5 million tonnes per annum in recent years, with the system of quota administration within the EU encouraging overproduction. The Commission implies that the EBA preferences extended to LDCs are allowing increased sugar exports from developing countries. However the EU maintains in place a maximum-supply-needs ceiling which limits the total amount of preferential sugar imported into the EU. Increased LDC exports of sugar are thus at the expense of ACP beneficiaries of the special preferential sugar arrangement. This will remain the case until the EU raises the maximum-supply-needs ceiling or LDCs are given full duty-free access in 2009.
While the European Commission maintains that the WTO challenge is likely to destabilise ACP sugar-dependent economies, the eventual extension of CAP reform to the sugar sector, involving a shift from price support to direct aid to farmers, is likely to profoundly affect the value of sugar preferences extended to ACP sugar suppliers. The prospect of sugar-sector reform may however have been deferred by the June 26th 2003 decision to retain the vast majority of the funds generated by 'modulation' for investment in rural development rather than additional sectoral reform.
The SKIL sugar on-line news for July 2003 carried reports on:
- the prospects for debt relief for Kenya's beleaguered sugar industry;
- the doubling of capacity at the Illovo-owned Kilombero Sugar Company in Tanzania to 200,000 tonnes;
- South Africa's record 2.75 million tonne sugar harvest;
- ED&F Man predictions of a 8.5 million tonne global sugar surplus for 2002/2003.
The EU's import requirements for animals and animal products from third countries were explained in guidelines issued on June 23rd 2003 by the European Commission. The aim of the guidelines is to facilitate trade (particularly with developing countries) by providing a simple guide to often complex regulations. They explain:
- the general principles behind the existing system for approval of third countries' exports of live animals and animal-products to the EU;
- the administrative procedures that are followed when a request for approval is received from the national authorities of a third country;
- information on the EU's animal-health, animal-welfare and food-safety requirements, including animal welfare at slaughter;
- details of contact points and other sources of information.
The Commission maintains that the document should 'be of considerable assistance to third countries, especially developing countries, that wish to establish the regulatory requirements applying to imports to the EU.
It should be noted that third countries exporting to the EU will be expected to have in place similar food-safety control plans as those required of EU member states. The Commission recognises that this may impose a heavy burden on developing countries in terms of verifying compliance. Against this background the Commission is proposing to extend assistance to developing countries in meeting EU standards and verifying compliance, particularly with regard to training and advice.
New and stricter EU rules on the labelling of meat products came into force on July 1st 2003. The new definitions allow consumers to see clearly whether they are eating muscle-meat, fat or offal. The directive covers such products as sausages, paté, cooked meats, prepared dishes and canned meat. It will distinguish between pig meat and beef meat. The new definition of meat to be used excludes 'mechanically extracted meat', which was a major cause of concern during the BSE crisis.
- Press release (IP/03/906-26/06/2003)
While these requirements arise primarily from problems faced under intense European farming practices, they will apply equally to ACP meat-product exports to the EU.
The European Commission adopted a proposed regulation on animal transport on July 16th 2003 which will radically overhaul animal-transport rules in Europe. It involves much stricter rules on journeys for animals of more than nine hours.
The significance of this development is that the EU may in due course seek third-country compliance with these rules in order for animal products to be allowed entry into the EU market. ACP meat-product exporters will therefore need to closely monitor EU efforts to promote such international observance of EU rules.
The European Commission announced on July 8th 2003 that it was close to completion of its pesticide review, as a consequence of which a further 110 substances used in plant protection are to be withdrawn from the market by December 2003. These 110 substances are in addition to the 320 that have been withdrawn from the market before July 2003.
A few temporary derogations will apply in some member states for some 'essential uses'. This relates to products which have not been defended by the manufacturer but for which there is no readily available alternative for the crops in question and for which no safety concerns arise.
- Press release (IP/03/957-08/07/2003)
ACP producers will need to stay abreast of these developments, if exports to the EU are not to face restrictions based on residue levels. ACP producers of certain tropical products which use pesticides for which the manufacturer has decided not to make a case, may well need to look for derogations where there is no ready alternative and the continued use of these products poses no health risk.