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Some member states appeal to Commissioner Ashton for more flexibility

28 November 2008

On November 7th 2008 ministers from Denmark, Ireland and the Netherlands wrote to the new Trade Commissioner, Baroness Ashton, urging her to adopt ‘more flexibility towards the countries and regions concerned in the next round of negotiations’ of EPAs, in line with the May 2008 Council resolution. The letter called on the EC to ‘make full use of the flexibility and asymmetry permissible under current WTO laws, so as to reflect the different development levels and development needs of the ACP countries and regions’.

Editorial comment

While Trade Commissioner Ashton has stressed the priority she attaches to engaging in dialogue and negotiations with the ACP, including on controversial issues, it is far from clear whether this will be translated into flexibility on the wording of the operative clauses of the various IEPAs which will actually impact on trade relations between the EU and ACP signatories.

UN University assessment of EPAs with African countries

28 November 2008

The United Nation University has posted an assessment of the EPAs concluded with sub-Saharan African (SSA) countries. The paper finds that the impact of EPAs will vary considerably from country to country depending on the initial conditions, economic structure and regional context. The effects will also be strongly influenced by global trends, as well as the evolution of the EU’s wider trade policy. It concludes that the outcome of the EPAs is therefore uncertain and that country-by-country and sector-by-sector assessments are required. It argues that while EPAs may bring benefits there are also risks related to the erosion of the existing industrial base and the fiscal position of the state. It concludes that EPAs may come to benefit ‘EU firms more than those of SSA’.

Editorial comment

This analysis highlights the need to see EPAs as part of the wider process of trade liberalisation and the importance of undertaking country- and sector-specific analysis of the likely effects and possible policy responses to the challenges and opportunities arising.

Agriculture safeguards under EPAs with African countries

28 November 2008

The South Centre has produced an analysis of the agriculture safeguards under the various IEPAS signed with African countries and the wider issues faced by African governments. The paper highlights the importance of agriculture in Africa and Africa’s deteriorating agricultural production and trade performance. It further notes repeated disruptions of African markets by exports of food and agricultural products from the EU which receive high levels of public-sector aid. EPAs ‘are likely to exacerbate the food import surges from Europe’.

Against this background it notes the two types of safeguards available: multilateral and bilateral. The experience of multilateral safeguards suggests that these have ‘not been useful at all for most African countries’, since proof is required of a ‘causal linkage between an import surge or price decline and the injury caused to the local industry’. This has not been easy for developing countries to demonstrate and so general multilateral safeguards have been little used.

In addition only six African countries have access to the special safeguard (SSG) provisions. The EU in contrast makes extensive use of these provisions, using them for some ‘31% of EU’s agricultural tariff lines’. This enables the EU to ‘slap on much higher tariffs’, should the need arise. Indeed, ‘since 1995, the EU has used the SSG frequently – up to 61 times in 1996, 60 times in 1997 and 44 times in 2001’.

Developing countries have been seeking ‘an effective and automatic safeguard that they can use’, but this remains a disputed area in the WTO negotiations, with the current wording likely to be of little use, since it will only apply to ‘import surges caused by most favoured nation trade’ and will not allow ‘countries to use the SSM for preferential trade’.

Turning to the bilateral safeguards included in IEPAs the analysis notes that ‘this is more difficult to invoke than the SSG’, which the EU makes extensive use of at the multilateral level. It notes that under the IEPAs allowed remedies may consist of one of the following:

  • suspension of further reductions of the rate of import duty for the product concerned;
  • increase in customs tariffs to a level which does not exceed the WTO bound rates;
  • the introduction of tariff quotas on the product.

The analysis concludes ‘the EPA bilateral safeguard for African countries is much more restrictive than the SSG the EU has thus far enjoyed through the WTO’. For example, ‘the SSG allows for countries to invoke a safeguard if there is a volume increase, but also price declines’, but the latter is not included in the bilateral safeguards in IEPAs. Equally, the SSG allows duties above bound levels to be invoked while the IEPAs do not allow bound levels to be exceeded; similarly, while the SSG is ‘automatic’, no such automatic feature is included in the IEPA provisions.

In addition the article argues that the EU continues to enjoy ‘natural’ safeguards, as a result of the public aid provided to the agricultural sector, which by lowering prices domestically ‘has the same effect as raising tariff levels’. The paper asserts that EU agriculture supports ‘on the whole are trade-distorting’, even if ‘the EU is increasingly classifying them under the WTO’s green box’.

Despite these realities ‘EU subsidies are not being dealt with, either in the context of the EPAs, or in the WTO’. The paper argues that in this context African governments should retain the right to tariff protection so that ‘domestic markets are not deluged by imports’. Safeguards should then be an additional safety net.

A final point highlighted is the failure of regional agreements to address how safeguard provisions are to be applied regionally to protect national markets from disruption.

Editorial comment

It should be noted that while SSGs were often used in the past by developed countries, a consensus emerged in July 2008 in Geneva from the G7 and the ‘Green Room’ that the number of products eligible for the SSG would be limited to 1% of products and that SSGs would be completely eliminated after seven years for developed countries. In the case of the EU, this position illustrates the fact that following the 2003 and subsequent rounds of reform the EU is in future likely to make far less extensive use of the special safeguard provisions since other financial instruments are now being used to accord EU agricultural producers effective protection. It is this shift over to the use of other more efficient means of financial support which is allowing the EU to take such a hard line on the use of trade-based protection measures in trade negotiations.

EC Council conclusion on regional integration and EPAs

28 November 2008

In November 2008 the EU Council adopted a set of conclusion on regional integration and EPAs with ACP countries. These conclusions endorsed the five priorities set out in the EC communication on regional integration and EPAs, namely:

  • strengthening regional institutions;
  • building regional integrated markets;
  • supporting business development;
  • connecting regional infrastructure networks;
  • developing regional policies for sustainable development.

The EU Council reiterated the importance of local ownership of regional-integration processes and stressed that ‘EPAs must be based on existing regional-integration processes, which they must encourage and support’. It further called for EPAs to be ‘development instruments’.

The EU Council reiterated its commitment to EPAs with ‘comprehensive regional coverage and broad scope’. It called for rules of origin under EPAs which ‘reflect the development needs of the ACP states and regions, promote regional integration in and between ACP regions and ensure the overall consistency of the different preferential systems’. The Council called for EPAs to pay particular attention to ‘strengthening the productive capacity and competitiveness of the agriculture and agri-foodstuffs sectors in ACP countries, and in particular the LDCs’. It reiterated the Council call for full use to be made of WTO provisions ‘including in terms of asymmetry, timetabling and the adjustments of safeguard measures’, and once more reiterated the need for ‘this flexibility to be fully exploited in the negotiations, if that were needed and deemed appropriate’.

Meanwhile the ECDPM has produced a briefing exploring the difficulties posed for regional integration by the multiplicity of bilateral IEPAs concluded.

Editorial comment

While the EU Council reiterated its commitment to comprehensive and broad regional EPAs, it did not address the issue of how to move from the multiplicity of bilateral IEPAs, containing often inconsistent commitments, to comprehensive regional EPAs. Equally it did not address how the specific provisions of EPAs which impinge adversely on local agricultural sector development are to be modified in order to ensure that they contribute to strengthening of the agri-food sector, although it did call for ‘particular attention’ to be paid to ‘the question of specific treatment of food products from the ACP countries’.

Negotiations are launched with Switzerland on free trade in food and agricultural products

28 November 2008

On November 4th 2008 the EC and Switzerland launched negotiations for full and complete free trade in food and agricultural products. The EC press release noted that in addition to ending tariffs, upcoming talks would focus on issue of safety in food and feed products.

Editorial comment

The willingness of the EU to contemplate full free trade in food and agricultural products with its immediate neighbours highlights the extent to which the process of CAP reform is approaching completion and the EU’s desire to see increasingly open markets for trade in food and agricultural products. ACP countries would need to closely monitor the negotiations and their potential implications in terms of imports.

EC fact sheets on the Caribbean-EU EPA posted

28 November 2008

The EC has posted a series of fact sheets on the Caribbean-EU EPA dealing with various aspects of the agreement. This includes an introductory overview fact sheet and fact sheets covering: trade in goods; trade in services, investment; competition, innovation and intellectual property; public procurement; development cooperation. Of greatest relevance to agricultural trade is the one dealing with trade in goods.

The trade-in-goods briefing highlights the asymmetric nature of the tariff liberalisation process agreed, stressing that the Caribbean will have 25 years to remove duties, starting in 2011. This compares to the almost immediate introduction of duty-free, quota-free access to the EU market, except for some quota-restricted transition arrangements for sugar and rice. It notes that the list of products excluded by the Caribbean from tariff-elimination commitments ‘includes many agricultural products’.

With regard to the range of provisions which impact on agricultural trade policies pursued by ACP governments the EC fact sheet seeks to explain the scope of these provisions. It notes that ‘there is a standstill clause preventing the increase of duties and charges other than tariffs (including various kinds of discriminatory levies and surcharges additional to customs duties). These will be phased out over a ten-year period, starting seven years after signature’. However ‘all export duties are eliminated immediately upon entry into force with limited exceptions for Guyana and Suriname’.

There are ‘extensive safeguard measures to protect against import surges that cause or threaten to cause serious injury to industry’. In addition if duty removal creates serious problems then a re-phasing of tariff reductions can be requested providing this remains within the overall tariff phase-down period. The commitments of small, vulnerable economies can also be modified if problems arise, providing that these remain compatible with WTO requirements.

The EC fact sheet also highlights the MFN clause arguing that this reciprocal commitment means that if the EU grants any country better access than the Caribbean enjoys, such preference must automatically be extended to the Caribbean, but that this only applies to other developed or advanced developing countries in the case of Caribbean agreements with third countries.

Finally the fact sheet highlights the commitments made to facilitating trade and, improving rules of origin for agricultural, fisheries and textile products.

Editorial comment

The big issue left unresolved from a Caribbean perspective is the future value of traditional agricultural-trade preferences. The ongoing WTO dispute and FTA negotiation with Latin American countries both threaten the value of traditional banana preferences, while the price reductions for ACP raw sugar and the elimination of price guarantees for sugar from October 2012, suggest that it is likely that only three Caribbean countries will remain as sugar suppliers to the EU market four year hence. Against this background the questions arise: what new Caribbean food and agricultural-product exports will the EPA arrangement support and how will the EPA provisions facilitate the emergence of such new exports?

The EC is reluctant to accept the central African market-access offer

28 November 2008

According to reports from the ECDPM, the EC has argued that ‘trade liberalisation under 80% is not WTO-compatible’. Central African negotiators however are sticking by ‘their proposal for market-access liberalisation of 71% over 20 years, with a five-year preparatory period. Differences of opinion also remain over how to operationalise the development assistance commitments contained in the joint orientation document (JOD) which sets priorities for reinforcing production capacities and increasing economic competitiveness.

Editorial comment

It should be noted that given the dominance of imports by the EU from CEMAC within the CEMAC-EU trade relationship, if CEMAC were only to liberalise 71% of current imports from the EU, while the EU granted full duty-free, quota-free access, then on average 88% of current trade would be subject to liberalisation under the free-trade-area agreement. This would appear to be consistent with WTO requirement on ‘substantially all trade’. In terms of the time-frame being sought by central African negotiators there is no substantial difference from that granted to East African Community countries. It is unclear therefore what is the basis for the EC rejection of the central African tariff offer, in terms of its WTO compatibility.

EU-CEMAC trade (thousand euros)

2004 2005 2006 2007
EU imports 3,581,340 4,653,169 5,548,184 5,953,239
EU exports 2,669,776 2,904,178 3,083,996 3,755,942
Total trade 6,251,116 7,557,347 8,632,080 9,709,181
% of total trade covered by a 100% EU & 71% CEMAC tariff offer









The EC proposes a March 2009 signing

28 November 2008

The EC has proposed March 2009 as a possible date for the signing of the ESA-EU IEPA. According to the EC progress continues to be made in technical negotiations on all issues of concern. However other press reports suggest that regional trade developments involving the launching of an initiative to create a 26-nation trading bloc encompassing EAC/COMESA/SADC could complicate the timetable for signing the IEPA.

The ECDPM reports that ‘the EAC’s split from the ESA in the EPA negotiations is making it difficult to finalise the COMESA customs union by 2010’. The issue of the treatment of export taxes is also creating divisions in the region, while ‘divergent views remain among Europeans on the contentious standstill clause’. There is furthermore ‘no agreement on “substantially all trade”, time-frames, flexibilities or bilateral safeguards’, while ‘the development component is still empty’.

Meanwhile an article on Zambia and the EPA process has been posted. It reports a Zambian market-access offer which will ‘liberalise 79.62% of Zambia’s imports … over 15 years’, with 20.38% of imports subject to exclusions. According to this analysis a ‘precautionary approach’ was adopted by the Zambian negotiators in defining the tariff-elimination offer. ‘Sensitive product’ exclusions include ‘agricultural products, processed food and beverages’ as well as ‘plastic and rubber products, clothing and footwear, engineering and wooden products’. The offer also ‘backloads liberalisation on products that attract 15% and 25% customs duties’.

According to the article Zambia’s market-access offer will allow the continued use of ‘export taxes for industry development’ and export restrictions on food security grounds’. In addition Zambia is looking to renegotiate the provisions in export taxes and quantitative restrictions in the ESA context.

Editorial comment

There are clearly substantial issues to be addressed if all ESA-configuration countries are eventually to sign an EPA. It is far from clear what the impact of the launching of an initiative to create a 26 nation FTA in eastern and southern Africa will be on the IEPA process. Clearly if progress is made in establishing an operational roadmap for such a large regional trading bloc in the next six months, as is currently planned, existing IEPA tariff-elimination commitments will need to be substantially revised or provisions will need to be made for their substantial revision to take into account such an ambitious Africa free-trade-area arrangement.

ECOWAS-EU ministerial troika calls for early conclusion of EPA negotiations

28 November 2008

The final communiqué of the 14th ECOWAS-EU ministerial troika meeting on October 23rd 2008 included a renewed commitment to the finalisation of the EPA negotiations ‘as soon as possible’. Ministers ‘encouraged their negotiators to make progress on discussions on market-access offers’. The communiqué ‘reaffirmed that the enhancement of regional integration is one of the main goals of the EPA’ and welcomed the EU ‘communication on regional integration for the development of ACP countries’. The communiqué further ‘reaffirmed the importance of the development dimension of EPAs’ and ‘renewed the commitment to define a package of accompanying measures linking trade and development cooperation … in accordance with Paris Declaration principles on aid effectiveness, at both national and regional levels’.

The ECDPM reports that difficulties remain in finalising a west Africa-EU EPA text in a number of areas notably ‘the definition of rules-of-origin and trade-defence instruments, the treatment of inputs produced in the region, pharmaceutical products, basic food products for food security, ocean resources and textile products’. In addition there is no consensus within west Africa on the regional list of sensitive products to be excluded from tariff-elimination commitments.

Meanwhile an article has been posted looking at Nigeria’s position in the EPA process, which highlights the fundamental inequality in negotiating power between the two parties and explores the implications of individual west African governments initialling IEPAs. It notes that the imposition of GSP duties on Nigerian cocoa exports has seen beverage factories using cocoa ‘relocating their plants to Ghana’ and argues that this process could ‘destroy the existing process of regional cooperation and integration’. Having highlighted the problems arising for Nigeria from non-initialling of the IEPA the article lists the possible adverse effects of an EPA on Nigeria, including: ‘loss of government revenue, emasculation of the manufacturing industry, devastating employment losses, increase in poverty levels and erosion of policy space’. It argues a more appropriate policy would be to prioritise intra-regional liberalisation, before opening African markets to preferential access for EU products. The article argues for supply-side adjustments prior to any liberalisation towards the EU.

Editorial comment

While the political commitments to conclude a regional EPA remains as strong as ever, technical progress continues to be slow. It is far from clear within what time-frame a comprehensive and broad regional IEPA will be concluded given the large number of unresolved issues: finalisation and adoption of the regional list of sensitive products, finalisation of the ECOWAS CET and the creation of a 5th tariff band and more importantly the finalisation and adoption at the regional level of the PAPED (development programme of the EPA) in coherence with the ‘aid for trade’ strategy of the region.

Hopes are placed on the new Trade Commissioner

28 November 2008

Addressing the Namibian parliament’s standing committee on economics in October, 2008 the permanent secretary for trade and industry Malan Lindeque argued that ‘the EU will have to be more flexible at the next round of talks’ and expressed the hope that the new Trade Commissioner would indeed be more accommodating than her predecessor. According to the ECDPM at her confirmation hearing Trade Commissioner Ashton told MEPs that ‘her priority is to engage in dialogue and negotiations with the ACP, including on controversial issues and agree to necessary changes that will ensure EPAs are the best possible agreements and are supported by ACP countries’.

Permanent secretary Lindeque noted in his address to the Namibian parliament that the IEPA had been reluctantly initialled, since there were a range of issues of profound concern to the Namibian agricultural sector in the current text, including provisions on import licensing and export taxes. The fear was that if these provisions were applied in their current form, local production could be swamped by imports from the EU. He told parliamentarians that ‘should all talks fail and Namibia does not sign the full EPA, then we will look at other markets like the USA, European countries which are not EU members like Norway … and possibly Asia’.

The ECDPM reports growing disquiet in Botswana, Lesotho, Swaziland and Mozambique, where governments fear that non-signature could lead to a suspension of current duty-free access. These governments are seeking assurances that while outstanding issues of concern to the ANSA sub-group are being addressed ‘there will be no loss of market access’.

Meanwhile South Africa has released figures showing it emerging as a net food importer last year for the first time since 1985. The South African ministry of agriculture reported that ‘South Africa imports higher-value processed agricultural goods while exporting lower-value unprocessed products’. However, while the EU was the main export market, imports were increasingly coming from the Mercosur region.

Editorial comment

The emergence of South Africa as a net food importer for the first time since 1985, only serves to highlights concerns over the potential impact of an EPA on the balance of agricultural trade. However, while EU food and agricultural exports to ACP countries have been growing at rates which would be the envy of most ACP food and agricultural-product exporters; the emergence of South Africa’s trade deficit position in 2007 may well have been a result of the divergent price trends between the agricultural commodities imported by South Africa (where prices rose sharply) and agricultural-product exports (stable or only showings slight price rises).

As a result of translation requirement it is likely to be early- to mid-2009 before the EC seeks to sign and notify the SADC-EU IEPA. Given that the ANSA group is currently tabling specific text changes to deal with controversial issues this would appear to leave sufficient time to resolve controversial issues, providing Trade Commissioner Ashton’s ‘priority’ as asserted in the European parliament is translated into more EC flexibility in the actual negotiations process.

Ongoing commitment but uncertain progress

28 November 2008

In October 2008 ministers of Pacific island states reiterated their commitment to continuing IEPA negotiations as a region. It was recognised that while progress had been made on some technical issues, ‘a number of significant EPA issues remained outstanding’ and that this would ‘require some time to work through’. Pacific ministers also considered the launching of a ministerial-level delegation to selected European capital to ‘seek support for the PACP states’ position on the EPA’.

Meanwhile EC officials have ‘publicly assured Pacific island nations they are not at a disadvantage if they do not sign EPAs’ in terms of aid allocations.

Editorial comment

Issues related to the implications of the provisions of the EPA for the trade relations of the Pacific island nations with other closer and larger developed economies continue to bedevil the EPA negotiations in the Pacific. It is far from clear how this wider issue is to be addressed.

EC assessment of EU’s global trade position

28 November 2008

The EC has released a report assessing ‘the competitiveness of the European Union in the global economy’. One important finding of relevance to the food and agricultural sector is that where the EU’s trade performance is strong this is as a result of ‘an upgrading of the quality of its products combined with the ability of EU companies to sell products at premium price because of quality, branding and related services. These “upmarket” products now account for a third of world demand and represent half of EU exports’. It notes that ‘this ability to sell products at premium prices is the only way to uphold EU levels of social protection, employment and wages’. Furthermore ‘two-thirds of EU imports (excluding energy) are “inputs” in manufacturing processes’. This highlights the importance to the EU manufacturing sector of ‘open supply chains’.

Two other wider trends should also be noted. First the EU’s ‘disappointing and slightly lower’ performance in ‘high tech’ products and second the significant loss in market share in ‘the fast-growing emerging markets, particularly in Asia’. The assessment needs to be seen against the backdrop of an EU policy focus ‘ensuring an open market for imports into the EU improving market access for EU exporters, especially in growing markets in Asia’. This is to be achieved through the vehicle of the new generation of free-trade agreements.

Editorial comment

The EU’s emphasis on ‘upgrading of the quality of its products’ is particularly important in the food and agricultural-product sector. This gives added importance to the EC’s launching of the consultation process on quality agricultural products. Given the problems which ACP countries face in competing with low-cost advanced developing-country suppliers, a focus on the production and marketing of food and agricultural products into premium-priced, quality markets in the EU and elsewhere is one response to the process of preference erosion which is under way.

Markets decide, but with safety nets

28 November 2008

In a series of speeches at the end of October and early November 2008 the Agriculture Commissioner Mariann Fischer Boel argued that since the system of decoupled payments does not depend on production ‘they leave farmers free to listen to the market and produce whatever it needs – in the quantities that it needs’, while at the same time promoting higher standards. She highlighted the role that rural-development spending was playing in supporting investment in enhancing the competitiveness of the EU food and agriculture sector.

Against this background she stressed the importance of trade, a clear market orientation and supporting policies, in ensuring the future viability of the EU food and agriculture sector. The supporting policies referred to include ‘defences against crisis’, which could otherwise ‘wipe out too much of our production potential’.

In terms of the CAP ‘health check’ she stressed that new measures should ‘clear away obstacles which are hindering farmers’ responses to market signals … make our support systems more effective, efficient and simple and … help farms and other businesses in rural areas to meet four developing challenges: climate change, water management, renewable energy and biodiversity’. In meeting these challenges improving the uptake of new technologies was felt to be an important priority.

Addressing parliamentarians on November 3rd 2008 Commissioner Fischer Boel stressed the importance of ‘leaving room for the market to work’, which she held should be one of the basic principles of the CAP. In this context she further stressed the importance of EU producers capitalising on ‘market opportunities – especially in growing markets for high-quality products’. This was described as a central plank of the EU strategy for the future.

Editorial comment

Commissioner Fischer Boel’s acknowledgement of the importance of ‘supportive policies’, involving ‘pump priming’ investments in quality production, to creating a sustainable market-oriented food and agriculture sector, would appear to carry important lessons for ACP countries seeking to develop sustainable agriculture sectors, beyond the era of trade preferences. In an era of increased price volatility, the insulation of EU producers from periodic crises may well result in the burden of market-related crises being passed on to producers in non-OECD countries, where no ‘defences’ exist.

Intensifying debate on EU pesticides policy

28 November 2008

According to press articles a draft EC report suggests that ‘food on sale across Europe has been contaminated by record levels of toxic pesticides … half of the fruit, vegetables and cereals tested in 28 countries …was found to contain traces of pesticides. 5% of samples were found to have ‘levels in breach of safety limits’. This comes against the background of efforts to ‘ban the use of the more hazardous pesticides’. EU pesticide industry sources however claimed ‘the apparent increase was just a ‘spike’ caused by harmonising the collection of monitoring results from across Europe’ and it was stressed that ‘removing large numbers of pesticides would put up the cost of food’.

Editorial comment

ACP horticultural exporters will need to maintain a close eye on the pesticides debate to ensure that current pesticide use will not impact on future access to the EU market. Equally, ACP producers will need to start exploring the use of alternative crop treatments in those areas where current pesticide usage could be prohibited in future.

Review of the debate on the special safeguard mechanism

28 November 2008

The South Centre has produced a note explaining the rationale and origin of the contentious discussions around the special safeguard mechanism (SSM). It argues that the SSM needs to be seen against the background of volatile and uncertain market developments, which undermine the stable frameworks required for agricultural investment and development in developing countries. It notes the wide difference between the policy context in developed and developing countries.

The Uruguay Round left developing countries with ‘no practical options to prevent and halt import surges’ and to deal with ‘the effects of low prices in their domestic markets’, hence the perceived need for a special safeguard mechanism. The paper argues that any SSM should, like the special safeguard measures (SSGs), be automatic so as to facilitate the use of this policy tool by developing countries. The paper argues that the current text:

  • limits the circumstances under which an SSM can be applied;
  • establishes caps on the remedies which can be applied;
  • limits the time period for the application of SSM remedies;
  • prevents the invocation of price-based SSMs, where the volume of imports is declining;
  • excludes preferential trade from the calculation of the trigger and application of the safeguards.

According to the review other restrictive provisions were also discussed on the fringes of the July ministerial, but were not incorporated into the July drafts. Furthermore the WTO director-general Pascal Lamy proposed the introduction of principles of ‘causality and proportionality’ but did not recommend ‘threat to cause’ injury provisions. This is seen as important since the requirement to prove injury has been a major impediment to developing countries using safeguard provisions to date.

The paper argues that the failure to reach agreement on the SSM in July 2008 reflected two conflicting views on the mechanism:

a) ‘those that fear that the SSM will significantly hinder market access and may be used in an indiscriminate manner, for instance Argentina, Paraguay and Uruguay, members of the Cairns Group and the United States;’

b) ‘those that fear having so many restrictions will lead to a mechanism that is not accessible nor effective to address specific problems of import surges and price declines affecting developing countries, such as members of the G33, ACP, LDCs, African Group and SVEs groupings’.

These different groupings are seeking different objectives through proposals to revise the current SSM text.

In contrasting the SSG measures used by developed countries and the SSM proposals, the paper notes that the ‘SSG allowed importing countries to increase tariffs above their bound levels’, whereas current SSM proposals will not allow this. The SSG mechanisms also make no differentiation between MFN trade and preferential trade while the SSMs do. Equally the SSM proposals have stricter data requirements than the SSG, and require normal trade flows to be respected, while no such requirements apply under the SSG.

Editorial comment

Discussions on the special safeguard measures issue relate in part to the differential capacities of developing and developed economies to invoke and apply existing WTO rules to protect sensitive agricultural sectors. In part however it also relates to the unaddressed issue of the ongoing production and trade consequences of public aid programmes in OECD countries and the need for developing countries to have some mechanism to address the trade consequences of these unaddressed issues. An impasse on SSM issues seems likely to continue in absence of progress in these areas.

Implications for Mauritius of the July draft agreement

28 November 2008

A review of the implications for Mauritius of the July 2008 draft agricultural modalities has been posted by the ICTSD. While the paper focuses on the sugar sector it touches a range of other sectors as well.

The paper notes that the July text does not impact on the ability of Mauritius to deploy domestic support. In terms of market-access commitments Mauritius needs to limit the ambitions of the package in the sugar sector by negotiating a ‘carve out’ for sugar. Any tariff simplification would ‘further erode the preference margin when prices are low on the world market’ and ‘there is therefore no substitute for the binding of tariffs in specific terms’. This means that for sugar ‘recourse to the special safeguard is essential ... the application of the proposals relating to tropical products would mean the demise of this industry in all ACP countries’ and as a consequence ‘it is no surprise that the ACP at the highest level have forcefully expressed their opposition to the inclusion of sugar … in the list of tropical products’. Any quota expansion stemming ‘from the tiered formula for sensitive products’ would equally ‘not be in the interest of the ACP’. The current provisions on single marketing channels would allow ‘the Mauritius Sugar syndicate… to continue its activities’.

Beyond sugar the paper argues that the tiered formula would mean that ‘the preference margin procured by duty-free access will disappear’ for ‘cut flowers, mangoes, pineapples, papayas, lychees and pithaya’. The special product provisions however would allow Mauritius to protect those products it considers important to ‘ensuring a fair level of food security’.

Overall the analysis concludes that ‘the Falconer text to a very large extent meets the requirements of Mauritius in the domestic-support pillar. In the export-competition one, the only improvement relates to the scope of S&D for NFIDCs and LDCs. Regarding the domestic market, the proposals in respect of the market-access pillar go a long way to meet the concerns of Mauritius except for the issue of greater flexibility in the use of the SSM.’ It notes however the continued Mauritian concern over sugar issues, namely ‘the level of ambition for reduction of border protection … and the unresolved issues of tropical products and long-standing preferences’. Furthermore ‘the inadequacy of the proposals on export restrictions and prohibitions and the absence of proposals on export taxes in a situation of food crisis and the application of these measures by some countries early this year is matter for serious concern to Mauritius, an NFIDC, which has to import nearly all the food it consumes’.

Editorial comment

This analysis basically suggests that any modification to the way that the EU manages its sugar markets would result in losses for ACP suppliers, although some options would have more severe consequences than others.

USDA semi-annual review of the EU sugar sector is posted

28 November 2008

According to the latest USDA semi-annual review of the EU sugar sector, the EU sugar-production quota has been reduced by 5.7 million tonnes (to 14.2 million tonnes raw sugar), some 95% of the target level of 6 million tonnes established at the beginning of the reform process. However, out-of-quota production is expected to reach 2.7 million tonnes, with part of this being exported without export subsidies. EU sugar exports are expected to increase to 1.7 million tonnes, while some 900,000 tonnes of sugar is expected to be exported in the form of processed food products.

The USDA expects EU sugar imports to increase to 4 million tonnes, while press reports suggest this could rise as high as 4.25 million tonnes, with the EU replacing Russia as the world’s largest buyer of raw sugar. Press reports have even suggested that pending the granting of full duty free access to LDCs a shortage of sugar could actually emerge in the EU.

While the use of sugar beet in bio-ethanol production has increased dramatically in recent years this trend has now stabilised.

Sugar production has ended in Bulgaria, Ireland, Latvia, Portugal and Slovenia and been reduced by 70% in Italy, 33% in Portugal, 18% in the BENELUX, 12% in France, 8.2% in Germany; UK sugar production is however around the multi-annual average.

Editorial comment

The USDA review highlights the scale of the radical transition under way in the EU sugar market and the urgent need for ACP exporters to adjust to these new market realities.

The world sugar price continues to slide

28 November 2008

Press reports indicate that the world market price for sugar continues to fall, despite forecasts of a global sugar deficit of between 3.9 million and 4.7 million tonnes. According to Bloomberg.com the ‘gloomy economic environment may prevent prices reacting very positively in the short term’ to the market fundamentals represented by the projected shortfall and the scheduled reduction of global production by 5.2%, arising from farmers switching to corn and soybean production.

Editorial comment

Increased price volatility highlights the need for ACP exporters to strengthen their ability to manage sales on to the world market so as to maximise revenue flows from rising markets and minimise losses on declining markets. Currently situations can arise where traders are the primary beneficiaries of rising world market prices rather than ACP sugar exporters. To avoid this careful negotiations of contracts are required.

USDA annual review of the EU dairy sector

28 November 2008

According to the USDA annual review of the EU dairy sector EU27 dairy production ‘is expected to increase in 2008 as a result of a higher overall milk production quota and growing domestic consumption of dairy products’. Dairy production is also expected to increase in 2009 but at a slower rate than in 2008. The overall EU dairy herd continues to shrink as productivity gains exceed quota increases (although national trends vary).

EU dairy exports however, except for whole milk powder, ‘are expected to decrease due to higher competition from other exporters and the EU’s reduced competitiveness’, arising from increased farm-gate input costs (notably feed and energy). With farmers margins being squeezed by declining market prices the USDA expects the EC to ‘re-introduce export refunds in 2009 to make EU [dairy] products more competitive on the world market’.

Milk production trends within the quota system vary greatly between EU member states, with some countries under-supplying their quotas and some seven countries exceeding their quotas (Austria, Cyprus, Ireland, Italy, Germany, Luxembourg and the Netherlands). The high world market prices in 2007 highlighted the limitations of the EU quota system, with an expansion of production in response to global price trends being held back.

Any more liberal production regime in the milk sector is expected to stimulate production in some member states but not in others, with the BENELUX, Ireland, Poland, Denmark, Germany and northern France being major winners. Overall studies suggest that the abolition of milk-production quotas could stimulate EU milk production by between 2% and 3%.

In response to the divergent trends in EU member states calls have been made for a ‘milk reform fund’ similar to the sugar reform fund, which was established through expanding sugar production levies. The EC however is not believed to favour this option.

Editorial comment

The profitability of EU cheese production reflects the growing emphasis on quality production within EU agriculture and the decline in emphasis on bulk commodity production. The EC’s willingness to contemplate the reintroduction of export refunds in the dairy sector, highlights the EU’s continued dependence on old policy tools, during the transition to a more liberalised production and trading system in the dairy sector.

A small increase in trade in meat is projected

28 November 2008

The USDA has projected a 1% increase in import demand for red meat and poultry in 2009. This is a reversal of recent declines in the beef trade, but is largely attributable to increased US demand.

Editorial comment

It is as yet unclear how these USDA projections will be affected by the financial crisis and associated economic downturn.

USDA review of cereal price trends

28 November 2008

The USDA reports an ‘unprecedented drop in grain prices’ since May 2008, with corn prices falling by 40% and wheat prices falling by 50%, since their peaks in June and March respectively.

The EU cereals crop is expected to be 309 million tonnes, an increase of 20%, with wheat, barley and corn production estimated at 151 million tonnes, 65 million tonnes and 60 million tonnes respectively. Given the variable quality of EU cereals production there is an increased focus on exports of cereals: ‘export business is currently reported to be brisk, particularly for wheat, albeit at significantly reduced prices as compared to just two months ago’. The surge in EU wheat exports in part reflects the depreciation of the euro against the US dollar and ‘credit and quality concerns in both Ukraine and Russia’. EU barley exports are also being assisted by the strengthening of the value of the US dollar against the euro. EU wheat exports are expected to double to 24 million tonnes. However, if the current strong performance is not sustained EU stocks could rise rapidly. In the context of declining prices October saw the reintroduction by the EU of import duties on cereals.

Editorial comment

Questions arise as to the link between the surge in EU cereals production and the rapid price declines. It should be borne in mind that EU producers will be insulated from the worst effects of the global cereal-price declines, since the single-farm payment will in large part cover the production costs of a substantial number of EU producers. In addition the EU has reintroduced import duties, to ameliorate the effects of the global price decline on EU markets. ACP cereal producers on the other hand could well be left facing intense price competition on domestic markets in a context of greatly reduced tariff protection.

Global cotton prices are falling

28 November 2008

The USDA reports deteriorating cotton prices in the face of dampened consumer demand, with prices falling by around 30% from June to September 2008. This comes on the back of a 6% decline in global consumption and a 14% decline in world trade since June 2008.

Editorial comment

While EU and US cotton farmers are insulated by the farm-payment schemes of their governments, African cotton producers will bear the full brunt of the price declines.

Guyana and Jamaica reach a deal on rice imports

28 November 2008

Following the uncertainties of Guyanese supplies of rice to the Jamaican market, and Jamaica’s application to suspend the common external tariff on rice, an agreement has been reached for Jamaica to import 60,000 tonnes of Guyanese rise in 2009 (5,000 tonnes per month at market prices). This accompanies approval of Jamaica’s request for a suspension of duties on 9,000 tonnes of rice from non-CARICOM sources in the coming month.

Meanwhile the USDA reports a precipitous drop in global rice prices in the last six months, with a 40% price decline since May 2008.

Editorial comment

High global rice prices had raised issues as to the applicability of ‘regional preferences’ in a context of surging global food prices. The pending era of increased price volatility is likely to require a multiplicity of similar supply/price accommodations if the principle of regional preference’ is to be retained in CARICOM.

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