EU seeks to eliminate tariffs on imports from LDCs

by Brian Kenety

Brussels, 17 Jan 2001 (IPS) -- The European Union (EU) has revised its groundbreaking  ‘Everything But Arms’ (EBA) proposal - which seeks to eliminate tariffs on  essentially all non-military goods entering the EU market from the world’s  poorest countries.

The EU has proposed postponing transition periods on three sensitive products:  sugar, rice and bananas.

The original proposal, announced in September last year ahead of the annual  meetings of the World Bank and the International Monetary Fund (IMF), would  grant duty-free, quota-free access for over 900 lines to 48 countries defined by  the United Nations as the poorest on earth.

For sugar, rice and bananas, the proposal would have gone into effect in three  progressive stages to be completed by Jan 1, 2004. However, the EBA proposal met  with strong resistance from parts of the European sugar industry and European farmers and the Commission has now revised its proposal.

The Commission Wednesday gave EU Trade Commissioner Pascal Lamy “a political  mandate to discuss a fine-tuning of the proposal”, his spokesman, Anthony Gooch,  told a regular press briefing in Brussels.

The Commission has now put forward an informal proposal that would phase out  tariffs for bananas from 2002-2006 and on sugar and rice from 2006-2008. Under  consideration is the possibility of introducing a “temporary quota” for sugar  and rice based on the highest level of exports in recent years, while taking  into account other factors.

If no amendments to the revised EBA proposal are put forward, the EU Council of  Ministers may pass the initiative by a qualified majority vote at the end of  February.

A study released this week for Oxfam, a British-based pressure group that works  to address the structural causes of poverty, had warned that the original  “radical” EBA proposal had attracted extremely strong resistance from EU Member  States, European farmers, and parts of the multinational sugar industry and  could be weakened.

“The so-called ‘Everything But Arms’ (EBA) proposal will bring economic benefits  to the world’s poorest countries and people. It also represents an important  political gesture indicating the EU’s commitment to promote a more equitable  distribution of the benefits of international trade,” said Oxfam director David  Bryer in the preface to the report.

Oxfam had commissioned the report from the Institute of Development Studies in  Sussex (UK) in order “to encourage a more constructive and informed debate about  the impact of the EBA proposal” which it says shows that costs to the EU of  implementing the EBA are “very small, in comparison to the positive benefits it  will bring for the least-developed countries”.

Opposition to the original EBA initiative from the EU farm lobby, in particular  the sugar lobby, was such that some officials here have jokingly referred to  their position as one of embracing an ‘Everything but farms” initiatives. Within  the EU, major sugar producers are based in France, Germany and Britain. Rice is  produced by Italian interests and bananas by transnationals based in Spain.

An internal study released by EU Agricultural and Fisheries Commissioner Franz  Fischler in December 2000 said that its impact would be greater than originally  expected and that the sugar industry might face costs of more than 1 billion  euros (approximately $900 million).   Of the 48 countries on the UN list of Least Developed Countries (LDCs), 39 are members of the African,  Caribbean and Pacific (ACP) group, with which the EU signed a comprehensive  trade and aid Partnership Agreement in June 2000.

The 39 that are part of the ACP group obtain access under the Cotonou Agreement,  which succeeded the previous EU-ACP trade and aid agreement, the Lome  Convention; the remaining nine LDCs have benefited for years from a special  tranche of the EU’s Generalised System of Preferences (GSP).

According to the Oxfam report, which draws on figures from the UN Food and  Agriculture Organisation (FAO) on LDC, the professed concern of an adverse  impact on European sugar producers, for example, “is fanciful”.

The total raw sugar production of all LDCs that have significant exports is  only 1.8 million tonnes and in the short term the FAO figures indicate a  potential maximum increase in LDC sugar exports to the EU of only 100,000  tonnes. The EU produces 16 million tonnes of sugar each year, consumes 12  million tonnes and exports the rest.

The 18-page report identifies 2,939 items currently imported by the EU from at  least one LDC. Of these, 502 items for a value of 500,000 euros or more, exported from the whole LDC  group, only 11 do not currently have duty-  and quota-free access to EU markets.

For eight out of the 11 items, non-ACP  LDCs currently receive no preference over the standard tariff payable by  industrialised countries, and for two items only one non-ACP LDC - Bangladesh - obtains a preference.

“If LDC producers earn more they may be able to afford to increase the volume  of their exports. If so, the ultimate impact of EBA could be much greater. If,  for example, Bangladesh were able to divert some of its existing exports from  lower-priced markets to the EU, or even to increase production so that it could  export more in total, the additional export revenue would be a dynamic gain from  the EBA change,” says the report.

Nonetheless, Caribbean states within the ACP group fear that the EBA initiative  as it now stands could seriously damage every commodity-dependent Caribbean  economy.

“So much so that it is no exaggeration to say that it could result in the  destruction of much of the Caribbean’s sugar and rice industry, do serious  damage to the rum industry’s last remaining chance to compete in the EU market  and diminish further the prospects for Caribbean bananas in Europe,” wrote David  Jessop, Executive Director of the Caribbean Council for Europe in a recent  article examining the issue.

Oxfam’s Bryer, notes that, “Some developing countries that already benefit from  preferential access to the EU market have legitimate concerns about the impact  of the EBA on their trade with the EU. But these concerns can and should be  addressed through positive measures, rather than an EU retreat from the EBA  proposal”.

He added that within the context of continuing high levels of northern protectionism against developing country exports, the EBA proposal is “extremely  modest”.

Still, the proposal would go beyond all previous EU measures to grant access to  the LDCs, and appears to be designed to  entice these countries into accepting a new round of global trade talks.

The EBA initiative builds on a promise by the “Quad Group” of countries - the  EU, the United States, Canada and Japan - made at a meeting of the World Trade  Organisation’s (WTO)  May 2000 that the group was ready to  dismantle duties and quotas on 99 per cent of imports from the  LDCs.

However, that package met with sharp criticism by LDCs, who say that it did not go far enough in granting them market access, as the one percent of total imports that would have still been subject to trade barriers included “sensitive” products such as sugar and bananas in the case of the EU, and textiles in the case of the United States and Canada.

Moreover, the package of concessions would not have been ‘bound’ at the WTO, thus assuring trade security and opening up prospects of investments and supply capacity to take advantage of the concessions.

The EC’s efforts to present its original package (now modified to get the endorsement of the EU members) was presented to the African countries at the Libreville ‘workshop’ and conference of African Ministers, and also at the Brussels EU-ACP meetings.

But in both places the EU failed to win support of the Africans and LDCs for the EU’s new trade round with new issues and agendas.

Nevertheless, the Oxfam report says that the EBA proposal is “likely to have an indirect impact on the stalled WTO multilateral trade negotiations as a gesture of EU good faith. By contrast, a failure to adopt EBA is likely to have a disproportionately large adverse impact in the WTO”.

The ‘cost’ to the EU of EBA is so small “that its derailment by vocal lobbies would be seen by the broader group of developing countries as clear evidence that the EU is unable to enter into meaningful negotiations on further multilateral liberalisation,” warns the report.

It says that poor trade statistics from the LDCs and other factors make it difficult to predict how great the positive impact of the EBA proposal would be for these countries, or which would benefit the most, but that the gains are greatest for the non-ACP LDCs because the status quo is less favourable for them than it is for the ACP states.

“The supply capacity of LDCs is very limited. Moreover, many of their exports already receive duty-free access to the EU, and so only a very small number will be affected by EBA” it says.

“At the same time, (non-LDC) developing countries do have legitimate concerns that wild, implausible talk about a flood of (LDC) exports is obscuring. The ACP in particular has plausible grounds to fear that any increase in LDC sugar exports will be at their expense. This is because the EU is already in surplus supply”.

The comparison between relative benefits of the current regime for sugar and bananas with EBA is more complicated. ACP beneficiaries of the ‘Sugar Protocol’ obtain duty-free access, however, this benefit is quota-limited, whereas under the EBA initiative it is not.

On the other hand, the Sugar Protocol provides that ACP beneficiaries will receive prices related to those applying within the EU. Under EBA, the price received by LDCs would be subject to negotiation with importers, and is likely to be much lower (since the world price is one-quarter to one-third of the EU level).

“In other words, EBA allows LDCs to export unlimited quantities of sugar to the EU (subject to the safeguard clause), but at lower prices, probably much lower, than apply to the quota-restricted preferences of the Sugar Protocol”, says the report.