TRADE-EU/ACP: Weakened ‘Everything But Arms’ Proposal Still a Net Gain for LLDCs

By IPS Correspondents Reprint | | Print |

Brian Kenety

BRUSSELS, Jan 17 2001 (IPS) - The European Commission Wednesday revised its groundbreaking ‘Everything But Arms’ (EBA) proposal – which seeks to eliminate tariffs on essentially all non-military goods entering the European Union (EU) from the world’s poorest countries – by 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 (specific categories of goods) 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 international sugar industry and European farmers and the Commission, the executive arm of the EU, 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 here.

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 is likely to pass the initiative by a qualified majority vote at the end of February.

A study released this week for Oxfam, a United Kingdom-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’ 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 its 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” initiative. Within the EU, major sugar producers are based in France, Germany and the United Kingdom. Rice is produced by Italian interests and bananas by multinationals 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 (approx. 900 million US dollars).

Oxfam’s report, however, says that the EBA initiative is in fact quite modest and, “claims that EBA will result in a substantial increase in imports, to the detriment of other developing countries and EU producers, are counter-intuitive and not supported by the available data”.

Of the 48 poorest countries on the UN list of poorest countries, known as the Least Developed Countries (LLDCs), 39 of them 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 EBA proposal would improve access to the EU market for LLDCs within the ACP group and, to a much smaller extent, those outside the group, whilst increasing competition for industrialised countries and other ACP states.

At present, the LLDCs already receive highly preferential access to the EU market, says Oxfam. 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 Lomé Convention; the remaining nine LLDCs 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 Food and Agriculture Organisation of the United Nations (FAO) figures on LLDC, the professed concern of an adverse impact on European sugar producers, for example, “is fanciful”.

The total raw sugar production of all LLDCs that have significant exports is only 1.8 million tonnes and in the short term, the FAO figures indicate a potential maximum increase in LLDC 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 LLDC. Of these, 502 items are exported to a value from the whole LLDC group of 500,000 euros or more, and of these, only 11 do not currently have duty- and quota- free access to EU markets.

For eight out of the 11 items, non-ACP LLDCs currently receive no preference over the standard tariff payable by industrialised countries (the EU’s most-favoured-nation (MFN) tariff), and for two items only one non- ACP LLDC – Bangladesh – obtains a preference.

“If LLDC 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 LLDCs, can be seen as part of a “confidence-building” package designed to entice poor countries into accepting a new round of global trade talks.

“Obviously, the idea is to bring these [LLDC] countries into the world trading system. They now account for only 0.4 percent of world trade and 1 percent of total EU imports,” one EU trade official told IPS.

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) ruling body in May 2000 that the group was ready to dismantle duties and quotas on 99 percent of imports from the LLDCs.

However, that package was met with sharp criticism by LLDCs, who say 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.

The Oxfam report notes 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 LLDCs 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 LLDCs because the status quo is less favourable for them than it is for the ACP states.

“The supply capacity of LLDCs 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- LLDC) developing countries do have legitimate concerns that wild, implausible talk about a flood of (LLDC) exports is obscuring. The ACP in particular has plausible grounds to fear that any increase in LLDC 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 LLDCs 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 LLDCs 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.