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January 2004

Key events for EPAs, January 2004

20 May 2004

The need for greater flexibility in WTO rules to allow S&D treatment to developing countries has been emphasised in a recent analysis, but the EU position is hardening against this.

Key events for CAP reform, January 2004

20 May 2004

The EU has adopted a regulation that will allow more state aid "in addition to EU aid "which may have implications for the ACP.

Key events WTO agreement on agriculture, January 2004

20 May 2004

There have been a number of significant analyses of the causes of the breakdown at Cancun, and a number of meetings to discuss the way forward. An ICTSD report shows the EU to be unwilling to shift its fundamental position that green-box measures are not trade-distorting, and an USDA report sees the EU launching what may be only a cosmetic "hearts and mind "sampaign. A devastating critique of CAP reform?s impact on agricultural production and trade in developing countries has been published by a UK House of Commons committee, and an Australian report shows the areas of common interest "but also areas of divergence "with the ACP. A WTO "green roo "meeting at the end of November 2003 failed to record any progress. Following this an EC communication, although couched in conciliatory terms, made no concession on fundamentals: indeed, green-box support will increase with enlargement of the EU. Commissioner Fischler has again reiterated the EU’s commitment to continuing domestic agricultural support.

Key issues for market access, January 2004

20 May 2004

A WIDER report has shown some modest welfare gains from the EBA initiative, but these will largely disappear with further CAP reform.

Key events cereals sector, January 2004

20 May 2004

The drought-caused falls in grain output and exports in the EU and South Africa have opened up few opportunities for ACP producers as US exports have immediately filled the market gaps.

Key events rice sector, January 2004

20 May 2004

The ACP have called for restructuring assistance in the face of EU rice-sector reform which seems likely to lead to rising output and exports despite falling community prices.

Key events sugar sector, January 2004

20 May 2004

The ACP has asked the EU to protect the value of its preferences in the EU market.

Key events dairy sector, January 2004

20 May 2004

Reviews of the dairy market have been published by the USDA and the FAO. There are signs that reform may lead to rising EU exports of value-added dairy products to the detriment of ACP industries.

Key issues for the fruit and vegetable sector, January 2004

20 May 2004

A comprehensive fact-sheet on horticulture in the EU has highlighted the continuing opportunities and constraints faced by ACP exporters of cut flowers and fruit and vegetables. Export refunds and knock-on effects from the sugar regime are causing problems for the ACP processed fruits & vegetable sector.

EPAs and WTO rules on free-trade areas

20 May 2004

The case for incorporating "special and differential treatment' into WTO rules on regional trade agreements between developing and developed economies, and proposals as to how this could be achieved, are examined in an ECDPM report of July 2003 entitled "How to make EPAs WTO compatible'. The paper reviews the provisions of the Cotonou Agreement dealing with the negotiation of EPAs, looks at the issue of S&D treatment in WTO provisions on regional trade agreements, reviews the extent of flexibility under Article XXIV and draws some conclusions on the specific changes needed.
It notes that "there exists an important legal lacuna in terms of the availability of special and differential treatment for developing countries in the WTO rules regarding North-South agreements' and that the "reciprocity as would be required under prevailing WTO rules on regional trade agreements is likely to pose greater adjustment costs on the part of ACP states that decide to become party to an EPA'.
The paper makes the point that "if future EPAs are to be legally valid and economically viable, it is imperative that special and differential treatment be made available to developing countries that enter into reciprocal trade agreements with developed country trading partners, and that such treatment be firmly incorporated in relevant WTO rules'. It notes that current Article XXIV provisions "do not contain explicit or adequate special and differential treatment for developing countries', and suggests that ACP and EU member states will need to collaborate closely if the necessary flexibility is to be introduced into WTO rules.

Editorial comment

The development of WTO rules on regional free-trade area agreements under Article XXIV are likely to have an important bearing on agricultural development in ACP countries, since it will determine the extent and pace of agricultural trade liberalisation under future EPAs with the EU. Given the increased price competitiveness of EU agricultural and simple value-added food-product exports arising from the continued high levels of public assistance despite the process of CAP reform, maintaining the right to charge import duties and implement safeguard measures for such food products is likely to be an important dimension of any EPAs eventually concluded between ACP countries and the EU. This will be crucially determined by future WTO rules on free-trade areas.

The EU reiterates its position on the WTO free-trade areas rules

20 May 2004

The European Commission position on WTO rules on regional trade arrangements was reiterated in the EC communication on the reviving of the Doha Development Round. In this document the Commission argued that regional trade arrangements can contribute to the functioning of the multilateral trading system, provided "they adhere strictly to the conditions laid down in Articles XXIV of GATT'. The Commission views with concern "the recent drift towards very partial sector-specific "free-trade area "setween some members "the EU should firmly reject any attempt to weaken the rules governing RTAs or to argue that they should escape multilateral disciplines in the first place'.

Editorial comment

This position, if adopted by the EU Council, would make it more difficult to secure the more flexible WTO rules that are needed in order to reduce the adverse effects that moves towards free trade between ACP and EU countries would have under existing WTO requirements. The Commission is increasingly arguing that S&D treatment is "not about absolving or sheltering poor countries from WTO commitments'.

Fischler argues that EPAs will promote food security in Africa

20 May 2004

Speaking in Rome at the FAO ministerial meeting on December 1 st 2003, the EU Agriculture Commissioner Franz Fischler argued that "EPAs will be important building blocks for increased economic development, a means to remove cross-border barriers, ensure political stability, and increase trade between neighbouring countries, but first and foremost an instrument for development'. He implicitly argued that EPAs will ensure that the right foundation for growth and development is present.'

Editorial comment

It is far from clear just how EPAs will contribute to greater food security in African countries. The removal of cross-border barriers to trade between African countries can proceed without any need for EPAs with the EU, and is indeed proceeding apace in a number of regions. Equally, enhanced political stability is likely to be dependent upon the extent to which patterns of economic growth can be promoted which directly improve the livelihoods of the poor. It is far from clear how EPAs will contribute to this process, given the concentration of the poor in rural areas, their dependence on basic commodity production and the EU's disengagement from a policy of providing direct support for addressing the adverse consequences of commodity price declines. While EPAS could indeed, promote greater trade between neighbouring countries, this may well increasingly be a trade in goods originating in the EU and distributed through regional marketing chains "a trend already apparent in the dairy sector.
Against this background the EC has yet to make the case for how EPAs will actually contribute to improved household food security in Africa.

New regulation on agricultural state aid is adopted

20 May 2004

On December 10 th 2003 a regulation was adopted which allows EU member states to grant various types of state aid without the prior clearance of the Commission. This is designed to speed up the implementation of new state aids in the agricultural sector. A Commission press release maintains that the new regulation "will not soften the state-aid rule' and "will not allow state aid in areas considered incompatible with the internal market'. The same rules will continue to apply throughout the EU.
 The modification will require member states to strengthen their post-fact reporting of state aid. To ensure full transparency, all exempted state aid (state aid not requiring prior Commission approval) will be published on the internet. The proposed regulation covers state aid granted to small- and medium-sized enterprises (SMEs) in the agricultural sector. Due to the definition of SMEs used "up to 250 employees, a turnover of €40 million or a €27 million balance sheet "the rules cover almost all farms and companies active in the agricultural sector.
 The press release sets out the types and levels of aid subject to the new regulation. The areas covered include:

  •  aid to on-farm investment;
  •  aid to investment in agro-processing;
  •  aid to conservation of traditional landscapes;
  •  aid to relocation of farm buildings in the public interest;
  •  aid to young farmers;
  •  aid for early retirement;
  •  aid for the establishment of producer groups;
  •  aid with insurance premiums;
  •  aid for land reparcelling;
  •  aid for the production and marketing of quality products;
  •  aid for technical support;
  •  aid to the livestock sector.

The new regulation will remain in force until the end of 2006.

Editorial comment

The regulation provides an insight into the level of state aid from member states (which is in addition to EU aid), which can be allowed under EU rules. These areas of expenditure are likely to increase in importance in the coming years.

ICTSD post-Cancun outlook report

20 May 2004

In November 2003 the ICTSD posted on the internet its "Agricultural negotiations at the WTO: post-Cancun outlook report' which attempts to outline how WTO members could manage the crisis arising from the failure of the Cancun Ministerial and how a process could be launched which would result in a successful conclusion of the negotiations. The paper notes that the EU-US joint text sparked the first step in real negotiations, with counter proposals being tabled by the G20 and the AU/ACP/LDC groups, but that it still remains to be seen as to whether the stalled process can be revived.
The report is divided into five sections:

  •  an introduction which sets the scene for the agricultural negotiations;
  •  a review of members' proposals and the various texts tabled;
  •  a review of the events and dynamics of the Cancun Ministerial;
  •  a review of the post-Cancun situation;
  •  a summary of upcoming issues.

The report notes that the EU's attempts to switch expenditures from the blue box to the green box underlying the June 2003 CAP reforms are unlikely to be considered to be payments under environmental programmes falling under paragraph 12 of the existing WTO agreement, but nevertheless that "under the current legal position, such "reshufflin "gould be in compliance with agriculture trade rules'. This is something which the EU is firmly wedded to but which the G20 and the Cairns Group would like to change.
Many observers feel that the European trade bloc is currently not only in a phase of deep reflection, but probably also in a 'sulking mode' as it is has been feeling treated unfairly by other WTO Members. The report notes that "there seems to be growing pressure on the Commission by numerous EU member states which want "to move on" in the negotiations’. However, following discussion with member states through the Article 133 Committee, the Commission maintained that "it did not see any reason to alter its position in agriculture (i.e. wants to stick to the EU-US Joint Text), but was willing to "use" the Derbez text as a basis for future talks if other members wanted to use it.’

Editorial comment

Overall the review suggests little scope for movement on the major issues of concern. A key consideration implicit in the report is that any movement in the talks is likely to hinge on whether the EU and USA can break the alliances which are increasingly questioning the very basis on which agricultural reform is being conducted in the EU "that is to say what constitutes trade-distorting, less trade-distorting and non-trade-distorting forms of agricultural support and how WTO rules should deal with these varied types of support.

Continued lack of engagement in agricultural talks

20 May 2004

After the November 20 th -21 st 2003 informal "green room' consultation involving around 30 key WTO members, the Chair, Carlos Pérez del Castillo, expressed frustration at a "persistence of differences on big issues' (including market access, domestic support and export competition). Given the limited progress, the European Commission expressed doubts about the relevance of the senior officials' meeting on December 15 th .
At the meeting the G20 was pushing for:

  •  a reduction in amber-box measures on a product-specific basis;
  •  the phasing-out of blue-box measures and a strengthening of disciplines on green-box measures;
  •  on market-access questions, a mandatory expansion of tariff-rate quotas;
  •  the elimination of the special agricultural safeguard which developed countries can use (e.g. the measures which protect the EU sugar sector).

The EU for its part pushed for an extension of the "peace clause', a move firmly opposed by the G20 and the Cairns Group.
At the close of the General Council meeting on December 16 th 2003 the Chair noted that discussions had not brought about a major breakthrough or closed any of the gaps but it had made issues clearer in people's minds and meant that there was a willingness to restart negotiating groups while maintaining a firm political oversight. The meeting had, however, focussed more on procedures than issues of substance, and some argued that less time should be spent on procedures since once movement occurred on agricultural questions, movement in other areas would follow.

Commission proposals for reviving the DDA negotiations

20 May 2004

On November 26 th 2003 the European Commission adopted a strategy paper on the re-launching of the WTO negotiations The aim of this communication is to update and "refresh' the EU approach following the Cancun WTO Ministerial; it highlights a willingness:

  •  to explore alternative approaches to the "Singapore issues';
  •  to adjust (slightly) positions on trade and environment, and geographical indications;
  •  to maintain a high level of ambition on services, non-agricultural market access, anti-dumping, subsidies, and regional trade agreements.

The EC maintains that the EU has shown willingness to be flexible and that it is now up to others to respond. It also recognises the concerns of developing countries over preference erosion, particularly in the agricultural sector. Overall, however, it maintains that "the WTO is not a structurally unfair system "previous rounds have not worked against the interests of developing countries' and future negotiations should not be about "absolving developing countries from new WTO rules'. Indeed, the Commission maintains that stronger rules will bring the biggest development gains by prompting "an ambitious trade opening'.
Specifically on agricultural issues the EC reiterated its commitment to "substantial reductions in trade-distorting support and export subsidies' However, conversely, it maintains that "support with no or little trade effects that address key policy goals "cannot be subject to any capping or reductions' For the Commission "the notion that we or others should reduce green-box support is unacceptable', since, it is maintained, this would amount to "putting external constraints on internal policies having no trade-distorting impact'. It maintains that negotiations should focus on "what distorts trade', notably amber-box support and export subsidies, and that the "de minimus threshold should also be reduced'. It is, however, willing to support "a cap on blue-box support', but insists that it is now up to others to move by recognising "the distinction between the different trade-distorting impact of different policies'. However it argues forcefully in favour of maintaining special safeguard provisions.
While the Commission favours more flexibility for developing countries on domestic support, it maintains that this should be restricted to the poorest. It supports greater market opening between developing countries, and advocates that not only OECD countries but also the G21 countries should move ahead with EBA-type initiatives.
The Commission will push for stronger rules on geographical indications in the DDA round.
Following the FAO meeting of agricultural ministers in Rome , Commissioner Fischler in summarising the EU's approach post-Cancun set out five tests for re-starting WTO agricultural talks:

  • developing countries should get a better deal, particularly on market access for the poorest to the markets of richer developing countries;
  •  there has to be a process of give-and-take from all parties;
  • existing agricultural reforms have to be recognised, appreciated and rewarded not penalised;
  • negotiations need to be based on substantive discussions not on propaganda slogans;
  • the rich countries cannot deliver an agreement unilaterally: developing countries will also have to make concessions.

Editorial comment

The key to the EU's position on the WTO rules on domestic agricultural support is the definition of what constitutes non-trade-distorting forms of support. Even though a growing proportion of EU agricultural aids are nominally decoupled from production, it is apparent in a significant number of sectors that the level of decoupled payments made influences farmers' production decisions. Put simply, in the absence of these payments (whether coupled or not) EU farmers would produce less at prevailing price levels than is the case when these payments are made.
While the Commission is willing to support a cap on blue-box support the question is: will this actually lead to a reduction in EU agricultural support, which affects farmers' production decisions, and trade outcome "st the informal EU Agricultural Council meeting in Taormina , Sicily from September 20 th -23 rd 2003 , Commissioner Fischler pointed out that with each step of enlargement the green box will expand. This is something which the G20 and the Cairns Group would like to prevent through the introduction of a cap on green-box payments to be introduced, but the EU remains firmly opposed to this.
In this context great care is needed in considering what is actually meant by EU offers to reduce domestic agricultural support and what the impact of such measures would be on overall EU production and the price competitiveness and volume of EU exports of both agricultural and value-added food products. The September 2003 FAPRI analysis of the 2003 CAP-reform agreement found significant limitations in the value of existing WTO disciplines: for example that EU amber-box expenditures could be raised to almost double those that are expected to prevail under the EU CAP-reform scenario and yet remain within WTO disciplines.

African ministers discuss re-launching the WTO talks

20 May 2004

Ministers of trade and representatives from Benin, Botswana, Burkina Faso, Chad, Kenya, Lesotho, Mali, Mauritius, Nigeria, Senegal, South Africa and Egypt and the Economic and Monetary Union for West Africa met from November 13 th to 14 th 2003 to discuss the outcome of Cancun. The ministers re-affirmed their commitment to the WTO process and called on WTO members to restart negotiations as soon as possible. They also reaffirmed the importance of addressing issues of concern to LDCs within the multilateral process, insisting that agriculture remains the core market-access issue, and they supported continued coordination around cotton-sector issues.

Editorial comment

The indications are that alliances formed in Cancun involving ACP countries are in large part holding firm during the immediate post-Cancun manoeuvring. It remains to be seen whether these alliances will hold once detailed negotiations restart.

USDA review of the informal EU Council meeting to launch its ‘hearts and minds' campaign

20 May 2004

EU ministers have reviewed the outcome of the Cancun WTO Ministerial and agreed to launch a campaign to get the third world on board with EU agricultural policy objectives, according to the USDA FAS GAIN report of October 29 th 2003 which reported on the informal EU agricultural council meeting in Taormina , Sicily from 20-23 rd September. At this meeting Commissioner Fischler emphasised that the EU will not revisit the definition of the green box and that the concept of capping the green box would be a major problem for the EU in the context of enlargement.

Editorial comment

It remains to be seen whether this EU campaign will focus on addressing the substantive issues of concern to ACP developing countries or whether it will primarily aim at explaining existing EU positions better. Given the Commission's unwillingness to compromise on green-box support this EU campaign is likely to focus more on "sweet talking' developing country governments rather than addressing issues of substantive concern arising from the changing patterns of EU agricultural support.

House of Commons reviews the EU approach to the WTO negotiations

20 May 2004

A report based on the hearings of the International Development Committee of the UK House of Commons on December 4 th 2003 is now available on the internet. The report which is entitled "Trade and development at the WTO: learning the lessons of Cancun to revive a genuine development round' reviews what happened in Cancun , the lessons to be drawn, and what can be done to revive a genuine "development round'. It makes a number of recommendations on the WTO process in the light of the new alliances which have emerged. On issues of substance it notes that "without agreement on agriculture, there will be no development round' and maintains that "the developed world failed to offer sufficiently radical or quick reforms of its agricultural policies' and that "the EU's failure on agriculture was an own goal resulting from a lack of coherence between its policies on trade, development and agriculture'. It argues that "the developed world must accept that if its agricultural policies harm developing countries "and trade-distorting domestic support and export subsidies clearly do - then they must be changed'. It notes that "if agricultural subsidies keep farmers in business, and their products are exported, then these subsidies are trade distorting'. It was also critical of "the condescending refusal of the USA to negotiate on cotton'. The committee maintains that the lesson of Cancun is simple: "developing countries' concerns should be listened to carefully and taken seriously'.
On specific issues linked to agriculture the report argued that "the peace clause should not be extended'. It welcomed the "EU-inspired proposal to remove export subsidies for products of particular interest to developing countries'. It maintained, however, that "the farmers of developing countries who suffer the effects of the dumping of agricultural products, are poorly served by the EU's agreement on CAP reform'. It observed that "the reform may be substantial in terms of EU politics, but that does not mean that it will make a substantial difference in developing countries'. It argued that "partially decoupled agricultural support will still keep European farmers in business at the expense of farmers in developing countries. If agricultural subsidies keep farmers in business, and their products are exported, then those subsidies are trade distorting'.
The report observes that "agricultural negotiations at the WTO revolve around definitions', noting that "unfettered use of green-box measures is crucial for the EU; moving agricultural support from the amber box and the blue box to the green box is central to maintaining progress with CAP reform and consequentially with multilateral negotiations.' It records Pascal Lamy's' view that capping the green box would be a disincentive to further CAP reform and as such, according to both the Commission and the UK government, it is not politically realistic. However, as the Committee report notes, for the G20 and others "if green-box subsidies keep farmers in the business of exporting their produce then they are trade distorting and should be subject to limits and reduction commitments'.
Against this background the Committee report poses the question "is the green box a stepping stone or a stumbling block towards fundamental development-friendly agricultural reform, within the EU and internationally?' It notes that Trade Commissioner Pascal Lamy dismissed questions about whether green-box support is trade distorting as "a very interesting academic question'. However the Committee report argues that for "poor farmers in developing countries and to exporters in less poor but still developing countries, it is more than academic'. The report calls for an independent review of the trade-distorting nature of green-box measures based on objective criteria "rather than political bargaining' and suggests that the World Bank could conduct such a review.
The report's section on agriculture concludes that development-friendly agricultural trade rules cannot be built simply on what is "politically feasible from an EU perspective', since multilateral rules are meant to be about creating a level playing field. In this context the Committee calls on the UK government to move beyond "an exercise which tries to hide trade-distorting subsidies in a different coloured box'.

Editorial comment

The report constitutes a radical critique of the process of CAP reform to date, questioning as it does the definitions of the trade-distorting nature of different forms of support. It postulates and supports the basic premise that if agricultural aid, in whatever form, affects farmers' production decisions and allows them to grow more than they would otherwise grow in the absence of such aid, and if this production is then traded, then these forms of aid are effectively trade-distorting. This strikes at the heart of the process of CAP reform, which is designed to enhance the price competitiveness of EU agricultural and value-added food-product exports through shifting patterns of EU aid between different types of "boxes' of support which are subject to different WTO disciplines. In this context it remains to be seen whether any of the report's recommendations will be taken up by the UK government, other member states, and subsequently the European Commission.
Looking beyond the report itself, it also remains to be seen whether policy developments that the report welcomed, such as the Commission's offer to remove export subsidies on all products of export interest to developing countries, would include export subsidies on such EU products as sugar or whether they would not be allowed onto any list of products important to developing countries.

Commissioner Lamy meets with the G20

20 May 2004

The EU Trade Commissioner, Pascal Lamy, met with ministers from the G20 on December 11 th and 12 th 2003 in Brazil, but although the dialogue was described as "fruitful and positive' no substantive results or concrete compromises were reported.

Editorial comment

The lack of progress in these discussions is illustrated by the fact that Commissioner Lamy's speech to the meeting has not even been posted on the Commission website. The meeting needs to be seen in the light of the USDA perspective that the EU is launching a "hearts and minds' campaign to win over developing countries to EU positions.

Fischler on CAP reform and the EU position in the WTO

20 May 2004

Speaking at the FAO ministerial meeting in Rome on December 1 st 2003 the Agriculture Commissioner Franz Fischler argued that insufficient attention was given at Cancun to market-access questions (particularly access for LDCs to the markets of more advanced developing countries), with undue attention instead being given to domestic-support policies in developed economies. He pointed out that "the WTO was never entrusted with the task to redesign and harmonise domestic policies and/or phase out all kinds of support, notably in agriculture'. He argued that "the task of the WTO is to ensure and monitor effective and fair trading rules and combat all those measures that distort trade'.
Addressing the Istituto Italo Latino Americano also on December 1 st 2003 in Rome , Commissioner Fischler set out a spirited defence of the EU's position in the WTO agricultural negotiations. He expressed the view that the CAP had been unfairly singled out as the root cause of evil in agricultural talks. He outlined how substantial reform of the CAP designed to reduce the trade-distorting effects of EU agricultural-support programmes had been underway for ten years. He criticised the PSE (producer support estimate) measures of agricultural support as ignoring the very different trade effects of different types of agricultural support.
He pointed out that in the wheat sector since 1992 "the three CAP pillars of trade-distorting support have fallen: price-support and tariffs by 42% and export subsidies by 93%', although over this time the PSE for EU wheat had remained at around the same level. This, argued Commissioner Fischler, demonstrated "the false impression' that the PSE measure gives. He pointed out that by the time the current process of CAP reform was fully implemented in 2008 "it will have reduced our most trade-distorting domestic support - our "amber box' measures - by 70% since 1992 - shifting support away from amber to the blue, and now green box as well, doesn't only mean a substantial reduction in trade distortion, it also means a more efficient transfer of support to our farmers, and a greater degree of transparency of our support measures'.
However, the Commissioner made it clear that the EU was unwilling to accept any capping of green-box expenditures, since this "would compromise our ability to support sufficiently, and efficiently, a sustainable agricultural policy in an enlarged European Union'. He noted that despite the accusations of growing EU dumping, statistics showed a decline in the EU's share of the world wheat market from around 22% ten years ago to 12% today and a decline in the EU's share of the world sugar market from 19% ten years ago to 16% today.
He asked why the EU should undertake such profound reforms if they were only to be penalised by international rules. He closed by appealing to other governments to match the EU's willingness to compromise on agricultural issues.

Editorial comment

Commissioner Fischler's comments demonstrate the extent to which the EU is unwilling to allow the WTO to establish rules which impinge upon its own rights to determine domestic agricultural-support policies. Since this also extends to what is defined as trade distorting and non-trade distorting forms of aid, this would suggest that there is little prospect of imposing substantive WTO disciplines on overall levels of EU agricultural support.
The statistics used by Commissioner Fischler to make his case can equally be used to argue the contrary: the 42% decline in price support and tariffs shows just how closely these two policy tools were linked. The 93% reduction in export refunds, shows the extent to which systems of direct aid payments have allowed the gap between EU and world wheat prices to be closed, thereby in large part doing away with the need for export refunds.
With regard to the EU's declining share in world markets for basic agricultural commodities, it should be noted that one major objective of CAP reform is to assist the EU in moving away from the export of basic agricultural commodities towards export of value-added food products, the export earnings of which have already for a number of years exceeded the value of basic agricultural exports. WTO ceilings on export refunds for value-added food products have in recent years constrained this continued growth, however. Reform of the dairy sector, and eventually, reform of the sugar sector will be necessary to substantially remove these constraints.
The more efficient delivery of aid to EU farmers arising from the changes in EU systems of agricultural support is vitally important, for it allows on-farm production levels to be sustained at much lower cost to the EU budget.

Exploration of S&D treatment in agriculture

20 May 2004

 A paper of June 2003 on "Special and differential treatment in agricultural negotiations' by Anwarul Hoda (Indian Council for Research on International Economic Relations) and Ashok Gulati (International Food Policy Research Institute explores:

  • the origin and evolution of the concept of "special and differential treatment';
  • the implementation of S&D treatment provisions under the agreement on agriculture;
  • the different Doha Round proposals for S&D treatment in agriculture;
  •  the way forward on S&D treatment in the agricultural sector under the Doha Round.

Australian view on the Cancun outcome

20 May 2004

An Australian perspective on the outcome of Cancun is provided by the Australian Commodities Quarterly of December 2003 which includes an article on "WTO agricultural negotiations: the way forward from Cancun '. The paper recommends using the "Derbez text' as a basis, with suitable modifications to deliver greater market opening. It advocates a revision of the approach to tariff reductions, with the "current "blende "dpproach to tariff reductions' being changed "to an approach that dictates cuts based on the initial size of the tariff'. It also argues for revisions of the text on domestic support and export subsidies, most notably through capping the aggregate measure of support allowed. The paper illustratively looks at what levels of tariff reductions would be required in the EU and USA before new trade could be generated and finds that the required levels of cuts for specific commodities ranged from 24% to 97% in the case of the EU.

Editorial comment

The paper illustrates the reasoning lying behind the Cairns group's approach to the agricultural negotiations in the WTO. In certain areas ACP countries can look to building common ground with the Cairns group, in other areas the group's proposals would profoundly erode both the margin and the value of the preferences that ACP countries enjoy.

Modelling of the impact of the EBA initiative

20 May 2004

In June 2003 a WIDER discussion paper on "The EU's Everything But Arms Initiative and the Least Developed Countries' was released. This paper used a computable general equilibrium simulation model and partial equilibrium simulations, based on the SMART model to "assess the aggregate worldwide distribution of gains and losses of the EBA initiative' for least developed countries and other developing countries under a range of scenarios. The study shows "moderate welfare gains from the EBA initiative' with the largest gains being recorded for sub-Saharan Africa . These largely arise from access to the high-priced EU sugar market.
 The paper notes that the effects on the EU itself are minimal, since the increased access for LDC sugar is at the expense of "other preference-receiving countries'. The paper acknowledges that given the modelling techniques used "the analysis does not fully account for non-tariff barriers that may preclude LDCs from increasing their exports to the extent predicted by our analysis'. It notes also that "in the longer term supply-side constraints rather than market-access limitations may be the more important factors' and recommends that urgent attention be paid to these factors by the international community.

Editorial comment

The benefits which LDCs have gained form the EBA initiative in the sugar sector would largely disappear with the implementation of a "fall in price' option for sugar-sector reform. Commission estimates suggest that total imports from ACP developing countries under such an option are likely to be little more than 200,000 tonnes once sugar-sector reform has been fully implemented. While these imports are all likely to come from least developed ACP countries this is far below the 2 million tonnes of imports from LDCS predicted by the International Sugar Organisation at the time of the launching of the EBA initiative.

USDA semi-annual review of the EU cereals sector

20 May 2004

According to the December 2003 USDA semi-annual review of the EU grain and feed market, EU cereals production was severely affected by drought and hot weather across southern Europe , reducing E-15 grain production from 210 million tonnes to 184.8 million tonnes. This has created a shortage of feed grain in Europe , which has boosted prices and reduced exports. In addition poor harvests in central and eastern Europe and the Black Sea area have reduced import availability. In response the EU has suspended export refunds on cereals, released grain from stocks and reduced set-aside for next year from 10% to 5%. A continued tight market situation is expected until the summer of 2004.
EU-15 wheat output fell from 103.7 million tonnes to 92 million tonnes while coarse grain production fell from 105 million tonnes to 93.5 million tonnes. EU-15 grain stocks are expected to fall from 33 million tonnes to 19 million tonnes. Additional imports may be need in January and February 2004.
High EU wheat prices are making EU flour exports uncompetitive on African markets, with Belgian flour exported to central Africa now costing US$310 per tonne compared to US$230 per tonne for flour from Argentina .

Editorial comment

These climatic developments make it difficult to demonstrate the direction of the impact of changes initiated under the CAP-reform process. It also demonstrates the difficulties of planning agricultural production in the EU.

As EU wheat exports shrink the USA steps in

20 May 2004

The drought in Europe has affected European wheat exports to both north Africa and sub-Saharan Africa . However the USA has largely stepped in to fill the gap. Traditionally the EU has supplied over 40% of sub-Saharan wheat imports (almost 4 million tonnes in 2002). However this year US sales to Nigeria have increased significantly as domestic consumption has expanded, while the worst crop in a decade in South Africa means that its wheat imports are set to reach record levels. Some 300,000 tonnes will be sourced from the USA.

Editorial comment

The ease with which the USA stepped into the vacuum left by the EU demonstrates how important it is to remove trade distortions in the cereals sector at the global level, if the economic space is to be left for the development of domestic production in ACP countries.

The ACP calls for action in the rice sector

20 May 2004

At its November 23 rd 2003 Council Meeting, ACP ministers called on the EU to take full account of the adverse effects on the ACP rice industry caused by changes to the common market organisation for rice and to consider remedial and compensatory actions to alleviate the negative impact on ACP rice exporters. The ACP also requested the EU to expedite the implementation of existing rice-sector support programmes.

Editorial comment

The call to expedite the implementation of existing rice-sector support programmes, illustrates the problems faced in effectively deploying support to sectoral restructuring under existing EDF rules and reinforces the demands made by the ACP in the context of the EPA negotiations for restructuring assistance which is deployed outside of existing EDF rules and procedures.

Developments on the EU rice market

20 May 2004

According to the December 2003 USDA semi-annual review of the EU grain and feed market, rice production in Italy was affected by drought. While rough rice production was around the same as last year, milled production fell by 2.4%. Markets are expected to be little affected, given stocks of 638,000 tonnes in intervention, and the growth in Spanish rice production over the past seven years, where yields have increased by 50%. In 2003 EU rice imports continued to grow, expanding around 38% since 2000, to 2,776,377 tonnes.

Editorial comment

In a context of rising yields the commitment to avoiding land abandonment under reform of the rice sector could well see a further expansion of EU rice production in the coming years despite the impending dramatic decline in the internal EU rice price (market prices are expected to fall by 34% next year). This would be in line with the FAPRI projections on the impact of rice-sector reform released at the beginning of 2003. With so much rice in stock, this could see an upsurge in EU rice exports in the coming years.

ACP call to EU on sugar-sector reform

20 May 2004

At its November 23 rd 2003 council meeting, ACP ministers called on the EU to respect its legal obligations and political commitment under the sugar protocol and to recognise that the review provided for under the Cotonou Agreement does not imply a renegotiation of the protocol but rather an exploration of how to ensure WTO compatibility. The Council further called on EU member states to take all necessary measures to defend the terms and conditions of ACP preferential access to the EU sugar market against all challenges.

SKIL news update

20 May 2004

The December 2003 news update reported on: the latest USDA sugar-supply forecast which shows:

  • a production increase of 6 million tonnes to 144.5 million tonnes;
  • a marginal consumption increase to 139.3 million tonnes, with adverse consequence for prices;
  • the EU decision to end export subsidies on sugar to new members prior to accession;
  • Brazil 's entry into the white-sugar export trade.

Initiative for sustainable coffee production is launched

20 May 2004

On December 8 th -9 th 2003 a joint UNCTAD, IISD initiative led to the establishment of an interim steering committee for the creation of a "Sustainable Coffee Partnership'. The workshop brought together some 80 to 90 representatives from coffee associations, coffee trading and roasting businesses, Fair Trade and organic-labelling organisations, the funding community and inter-governmental and non-governmental organisations. Key issues to be addressed under the initiative include: securing financing for sustainable coffee production; contracts; sustainability standards and the formal establishment of a "Sustainable Coffee Partnership'. The background document to the brainstorming session reviews:

  • the different dimensions of sustainability (economic, environmental, social);
  • the actions which have been taken or are being taken to promote sustainability;
  • a possible integrated approach to sustainability in the coffee sector, particularly the role of "fair trade' labelling;
  • the scope for international cooperation in promoting sustainable coffee production.

Editorial comment

While USAID and the World Bank joined in the work of the interim steering committee the European Commission is not participating in the initiative in such a high-profile way.

The Commission reiterates its proposals for the way forward on cotton

20 May 2004

The EC communication on the reviving of the Doha Development Round put forward specific proposals on cotton. The Commission is proposing an initiative consisting of three key elements: an explicit commitment to grant duty-free and quota-free access for cotton exports from least developed countries; substantial reductions in the most trade-distorting forms of domestic support and elimination of export subsidies within a stated time frame. The Commission also proposes that "flanking support measures should be pursued in parallel by the EU and other partners including the relevant international organisations, with a view to supporting modernisation and restructuring in the least developed cotton-producing countries.
The Commission hopes to use the approach being developed in the cotton sector as a basis for a wider approach to commodity issues.

World Bank group review of cotton-sector reform and subsidies

20 May 2004

The World Bank Group working paper on "Reforming the cotton sector in sub-Saharan Africa' notes that sub-Saharan African countries "have a strong comparative advantage in cotton production' and that their share of world production has risen in the past decade from 3% to 5%. It review the reforms which have been undertaken in the cotton sectors of six sub-Saharan African countries and seeks to draw lessons form this experience. Four main critical areas were identified:

  • the need for an efficient credit system for small farmers to enable them to acquire quality inputs in a timely manner;
  • the importance of giving more power to cotton growers in the management of the sector;
  • the need for private-sector inputs into research and extension service provision;
  • investigating how seed-cotton marketing is best undertaken in a regulated framework agreed upon by inter-professional organisations.

The report notes that in recent years the economics of world cotton production and trade have been "strongly distorted by the heavy subsidies paid by OECD countries ( USA and EU) to their cotton farmers'. These subsidies "have pernicious economic effects, since they promote production in countries with high production costs at the expense of countries with lower production costs' and describes the negative effects of these subsidies on poverty as "quite dramatic "by increasing artificially production and exports and depressing world prices, the subsidies reduce the export earnings of African countries, thus curtailing the revenues of several millions of Africans living on under one dollar a day'.

Editorial comment

It should be noted that at the December EU Agricultural Council meeting Commissioner Fischler insisted that the proposals to keep 40% of aid payments in the cotton sector coupled to production would ensure that there was no land abandonment although it would also prevent any significant expansion of European cotton production. The question arises: to what extent will this freeze in place past distortions in the cotton secto "rince 1994/95 world cotton prices have been falling (a decline of 54% by 2001/2002), yet for the bulk of this period since 1994 EU cotton production has expanded, reaching a peak of 1.76 million tonne in 2000/95, an increase of 63% over 1994 levels. Since 2000 however EU cotton production has begun to decline as the area under cotton in Greece has fallen back to levels only slightly higher than those prevailing in 1994. It remains to be seen whether under the new reformed cotton regime the area under cotton will stabilise at these new lower levels, or return to the peaks reached in 2000.

Commission working paper on cotton

20 May 2004

The Commission working paper on the cotton sector is available on the internet. It sets out the situation on the world market for cotton; the situation on the community cotton market; and the operation of the EU's cotton regime. It notes that the world market price of cotton is volatile in both the short term and the long term, with developments on the Chinese market having a major influence. The USA is also a major global player, with about 30% of world production and about 30% of world trade. Consumption of ginned cotton has risen from 14.3 million tonnes in the 1980s to 20.6 million tonnes in 2001.
Within the EU, Greece and Spain are the primary cotton producers. From 1992/93 to 2000 the area under cotton rose steadily (from 300,000 hectares to 500,000 hectares) before falling back slightly. Since Spain 's accession to the EU the area under cotton has practically doubled
EU imports of ginned cotton are exempt from customs duties, and EU exports do not receive export refunds (instead processors receive processing aids to allow them to compete at world market prices where this is necessary). The EU has a negative trade balance in ginned cotton, importing around 708,000 tonnes and exporting around 227,000 tonnes. The EU produces just under half of the ginned cotton it consumes.

Editorial comment

While the EU is not a major international player in the world cotton trade, this does not mean that the EU cotton regime does not affect developments on world markets. The impact of the EU cotton regime on EU production can be seen in the doubling of Spanish production since accession and the expansion of the area under cotton since the 1980s. It remains to be seen what the impact of the new reform proposal will be on the development of EU cotton production.

USDA Annual Review of the EU Dairy Sector

20 May 2004

At the end of October 2003 the USDA Foreign Agricultural Service released its annual report on the EU's dairy sector. The report notes that in a context of fixed quotas and increasing yields, the size of the EU dairy herd is continuing to decline. While EU milk production is fairly constant, EU cheese production continues on an upward trend due to its profitability relative to butter and milk powder production. This profitability is supported in large part by an expansion of exports. In 2003 EU-15 cheese exports to third countries reportedly increased by 4% to some 490,000 tonnes. The main export markets are Japan , Croatia , Mexico and, in particular, Russia . Butter exports are also expected to increase, largely on the back of German and Dutch sales to Egypt , Japan , Algeria and Russia . EU milk powder exports are expected to increase by 50% to 240,000 tonnes. This trend is driven by limited availability on world markets arising from the Australian drought. However trends vary from country to country, with Irish exports down, and Dutch, French and German exports up. The major destinations for these exports are Mexico , east Asia, and within the ACP group, Nigeria . The expansion of EU exports will however be short-lived as Australia 's industry recovers from the drought.
Overall, EU intervention stocks in the dairy sector are expected to rise in the face of increased imports from Oceania and poorer conditions on the EU-15 butter market. EU consumption of liquid milk is rising slightly on the back of the increasing popularity of coffee shops in Germany and Sweden.

Editorial comment

Two major points should be noted: first the importance of the Russian market; should a situation emerge which restricted access to the Russian market then large volumes of EU dairy products would be looking for a new home; second, the upsurge in EU milk powder exports does not reflect any increased competitiveness of the EU dairy sector but rather adverse supply conditions elsewhere. It remains to be seen what the impact of the agreed reforms in the EU dairy sector will be on the export price competitiveness of EU bulk dairy exports.

FAO dairy market assessment

20 May 2004

The FAO review outlines trends and developments in all major areas of the world. The November 2003 FAO dairy market assessment showed an increase in international dairy prices between August and October, after a period of stability in the first half of the year. As a result of limited export supplies and sustained import demand, these moderate price rises are expected to continue. The report shows butter and cheese prices increasing more strongly than those of milk powder. As world prices have risen export subsidies paid by high-cost OECD producers have fallen. Nevertheless the levels of subsidy required to bridge the gap between the internal prices of high-cost OECD producers and the world market price remains substantial. The report notes that with WTO limits on subsidies for basic dairy products, recent years have seen an expansion in exports of unsubsidised value-added dairy products from both the EU and the USA . In the case of the USA "such exports now account for a greater volume of exports than bulk items requiring subsidy'.
As a result of rising international prices, domestic dairy industries in developing countries which have relatively open markets are facing less competition from low-priced imports. This being said, the report notes that in Senegal in 2003 "a large private sector dairy withdrew from processing domestic milk ... to concentrate on producing dairy products based on imported materials'. While the processing capacity was taken over by a government agency, the development of a domestic Senegalese dairy sector in the face of competition from imported products is seen as a major challenge.

Editorial comment

The trend towards the export of greater volumes of value-added dairy products is likely to take off in the EU under the impetus of the implementation of the agreed reform measures in the dairy sector. This could well intensify the development challenges faced by ACP dairy sectors as European exporters "cherry pick' the most profitable segments of the local dairy-product markets in ACP countries in Africa.

A horticulture fact-sheet is posted

20 May 2004

A fact-sheet on the EU Horticulture sector has been posted on the web. It shows that the EU is a major player in world horticulture, with 9% of world production. Around 15% of the value of EU agricultural production comes from the horticulture sector, and the EU is both a major importer and exporter. It accounts for around 11% of world exports and 25% of world imports and is thus the second largest exporter and the biggest importer of fruit and vegetables in the world. Leading products traded are citrus fruit, apples, tomatoes and onions.
The EU's main imports are bananas (3.3 million tonnes), citrus fruit (1.9 million tonnes), apples (0.7 million tonnes), grapes (0.3 million tonnes), and pineapples (0.3 million tonnes); fruit juices are also important imports. The EU's main exports are citrus fruit (1.0 million tonnes), apples (0.5 million tonnes), grapes (0.2 million tonnes), peaches and nectarines (0.2 million tonnes), onions (0.4 million tonnes) and tomatoes (0.2 million tonnes). Tomato paste and peeled tomatoes are also major EU exports.
Reform of the sector has been underway since 1996, so that a far smaller role for intervention buying is now apparent. EU support programmes in the sector are largely implemented through producer organisations. Support programmes are financed by members of producer organisations and the EU on a 50/50 basis. EU aid however is limited to 4.1% of the value of the production handled by the producer organisations. Funds can be used to finance withdrawal of products from the market at times of surpluses or to top up compensation payments. It can also be used to finance operational programmes of support. In the EU nearly 1,400 producer organisations are recognised, channelling 40% of all fruit and vegetables to the market.
The EU budget for the fruit-and-vegetable sector was €1,650 million in 2002 (3.7% of the agricultural budget). Some 56% of this budget is for fresh fruit and vegetables. Specific aid schemes exist for: processing of tomatoes, peaches, pears and citrus fruit; dried figs and dried prunes; cultivation of grapes for drying; the storage of sultanas, currents and dried figs; nuts.
Marketing standards are established for all fruit and vegetables marketed in the EU. Agreements can be reached with third countries to implement controls on compliance with these standards. This is increasingly occurring, with approximately 45% of EU imports entering under these arrangements by the end of March 2003. This reduces the delivery time to the final consumer and lowers administrative costs.
In terms of trade arrangements, most imports take place under preferential arrangements and can be subjected to import licences. Access for some products is based on an entry-price system. "If import volumes of products subject to the entry-price system exceed the trigger volumes agreed within the WTO, an additional import duty may be applied'. In addition, duties for processed fruit-and-vegetable products are also levied based on the sugar content of the product. The EU pays export refunds on both fresh fruit and vegetables and certain processed fruit and vegetables on the basis of export licences, with refunds varying from country to country.
The fact-sheet profiles the product- and geographical-structure of the sector in the EU.

Editorial comment

For non-least developed ACP countries restrictions in the fruit-and-vegetable sector offer important opportunities for the extension of further trade preferences. Currently ACP export of these products largely falls under Declaration XXII of the Cotonou Agreement (except for bananas), which includes provisions for extending preferences into new areas. ACP governments should fully exploit these provisions to further enhance access to what are currently still profitable market opportunities in the EU.
For least developed ACP countries trading under the EBA initiative, problems still exist in the processed fruit-and-vegetable sector, as a result of the continued application of restrictions on LDC sugar. As a consequence of these restrictions additional duties are charged on processed fruit-and-vegetable exports based on the sugar content of the final product. For many products this constitutes an effective barrier to trade. The EU should take immediate steps to remove this anomaly for all sugar-containing products imported from least developed countries.
Export refunds on processed fruit-and-vegetable products pose a significant threat to the development of certain fruit-and-vegetable sectors in a number of ACP countries and the EU should look to using the export-licensing system to prevent exports of these products to ACP countries which have competing production of the basic raw material.

Summary of the EU cut-flower regime

20 May 2004

The June 2003 Horticulture Fact Sheet contained a summary of the EU regime for cut flowers. Production of cut flowers and plants in the EU involves about 160,00 hectares of land, some under glass and protective coverings. The sector is worth around €16 billion per annum and is growing. Holland accounts for around 30% of EU production and is a major trader. Germany accounts for 16%, Italy 15%, France 14% and the UK 7%.
 The EU regime for cut flowers and plants was established in 1968. It sets quality standards, minimum physical characteristics and marketing standards. There is no EU financial assistance to the sector, no aid to producers, no intervention buying, no price support and no export subsidies. The principal form of regulation is the tariff regime applied and the special safeguard measures allowed. Special arrangements are then negotiated within this framework.
 The EU is the major market for cut flowers and about 80% of imports enter the market on preferential terms. Kenya is the main third-country supplier.

Editorial comment

The cut-flower sector is a major sector into which ACP countries have diversified. It remains to be seen whether the sector will fit into the EU's emerging single farm payment system and the impact that these developments will have on the market prices received by ACP exporters. Currently the major issues faced in the cut-flower sector relate to SPS issues. Establishing effective mechanisms for addressing the multiple dimensions of the SPS challenges facing ACP suppliers should be an important priority for ACP countries in current trade negotiations with the EU.

Food safety and third countries

20 May 2004

Addressing a seminar in Brussels on December 10 th 2003 the EU Health and Consumer Protection Commissioner, David Byrne, set out the approach underpinning food-safety controls on imports from third countries. He noted that "as a general principle, the Commission aims to ensure that imported products are treated no more favourably, or less favourably, than products produced in the EU'. He maintained that the EU took careful account of the concerns of third countries, particularly developing countries and was always willing where necessary, providing this did not create unacceptable risks, to "amend our legislation to address these concerns'. He noted also that the "current proposals on official food-and-feed controls include provisions for providing assistance to help developing countries meet our exacting standards'.

Editorial comment

Given the complexity of EU food-safety regulations and the difficulties that small ACP countries face in getting to grips with these complexities, a case can be made for a high level ACP-EU conference to establish appropriate mechanisms for systematically assisting ACP countries in meeting the challenges thrown up by EU food-safety regulations and, where appropriate, modifying these regulations to facilitate exports from ACP countries, where this poses no threat to animal, human or plant health in the EU.

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