Impact of EU FTAs in the Agri-Food Sector

epamonitoring

 

Summary

EU FTAs are of growing importance to the growth of EU agri-food sector exports, with the EU using a variety of policy tools to increasingly open up overseas markets to EU exports. However the EU’s use of trade policy tools to protect EU producers is in distinct contrast to the policy prescriptions the EU seeks to enshrine in its trade agreements with ACP countries when it comes to the use of traditional agri-food sector trade policy tools aimed at managing trade liberalisation processes in sensitive sectors. The structure of EU EPAs does little to address the fundamental structural imbalance in EU-ACP agri-food sector relations. Fundamental policy coherence issues need to be addressed across the broad ambit of EU-ACP agri-food sector relations if the structural imbalance is to be addressed. The challenges faced in this regard are only likely to be exacerbated by recent EU agricultural policy changes and the Brexit process.

  • The Growing Importance of EU FTAs to EU Agri-Food Exports

According to the November 2018 EC FTA implementation report ‘Agri-food trade under the EU’s FTAs is growing and contributes considerably to the success of EU agri-food exports’. In 2017, ‘EU agri-food trade with FTA partner countries made up for a third of total EU agri-food exports and more than 40% of imports’. The EC maintains agri-food trade under the EU’s first generation, FTAs has ‘made a substantial contribution to the EU’s 20 billion EUR surplus in total agri-food trade in 2017’ (1).

Illustrative of the impact of an FTA can have on EU exports is the experience under the South Korea agreement over the past 8 years which has seen EU agri-food exports increase 113%, with a more than 10% increase between 2016 and 2017 alone as the value of EU export increased  from €2.6 to €2.9 billion. A similarly impressive expansion in EU agri-good exports to Canada is expected under the recently concluded FTA given gradual tariff elimination has been agreed on 91% of agricultural tariff lines (1).

The EU highlights how even for sensitive agri-food products EU exporters ‘benefit from more than 600 preferential TRQs granted by our FTA partners’, with these to varying degrees supporting EU export growth (1).

In addition the EC highlights how its approach to FTA negotiations foresees ‘protection of EU producers of sensitive products, such as beef, poultry or sugar’, which are ‘either fully excluded from preferential trade or, if they are partially excluded, they are covered by altogether around 360 EU TRQs’. In addition ‘for sensitive fruit and vegetables an entry price system is applied during the peak harvest season in the EU’.

  • The Fundamental Imbalance in the Structure of ACP-EU Agri-Food Trade

Significantly the EC highlights how ‘most EU imports are primary agricultural products such as tropical fruits, cacao, vegetables and coffee (72%)’, with processed food and beverages accounting for only 22% of EU agri-food imports. This contrasts markedly with the structure of EU agri-food exports where over 50% are processed food and beverage products (1).

  • A Growing Focus on Removing SPS Barriers to EU Export and Securing GI Recognition

The EC is now placing growing emphasis on using FTAs to secure the removal of SPS barriers to EU agri-food exports, with in 2017/18 this being a major focus in EU discussions with South Africa on poultry sector trade relations (1). This issue was even taken up at the EU-South Africa summit meeting where in article 17 of the Joint Statement a commitment was included to ‘respecting the WTO Agreements on Sanitary and Phytosanitary (SPS) Measures and on Technical Barriers to Trade (TBT). In order to find

mutually acceptable solutions to impediments to trade in agriculture, agri-food and manufactured goods, we agree to strengthen our dialogue and cooperation on TBT and SPS issues, including regionalization concerns of both the EU and South Africa’ (2).

While the EU-South Africa poultry dispute resulting from Highly Pathogenic Avian Influenza (HPAI) prevention measures introduced by South Africa in December 2016 remains on-going, in 2017 the EC reported progress on removing SPS obstacles to exports of pork to Mexico, dairy products to Peru, poultry meat to the Ukraine and beef exports to Japan.

The EC is also placing growing emphasis on respect for EU geographical indicators (GIs), with for example GI protection being secured for 116 EU GIs under the FTA agreement with Ecuador and 143 under the Canada FTA.

  • The Coherence of Wider EU Policies with EU Agri-Food Sector Development Assistance Support

The EC asserts EU FTAs ‘support the local agricultural sector in developing countries like the ACP countries’, with it being claimed that under EU EPAs between ‘2007 and 2017 imports of agri-food products from EPA countries have increased by 71% in value, mostly in agricultural commodities, such as tropical fruit, cocoa or coffee, which are not grown in the EU’. The EC also claims it ‘cooperates with its FTA partners on a broad spectrum of important issues related to agricultural trade, ranging from EU technical assistance in the sector of agriculture and rural development to improving food safety control systems’.

  • The EU’s Agri-Food Sector Priorities under FTA Implementation

In terms of the EU’s future agenda for the implementation of FTAs in the agri-food sector a number of general and specific priorities are identified, namely:

  • the resolution of pending market access issues, such as the removal of SPS restrictions on EU poultry meat exports to South Africa;
  • improving the utilisation of TRQs;
  • enforcing GI protection;
  • mobilising EU funds to provide technical assistance on EPA implementation;
  • ‘Monitoring the stabilisation mechanism for bananas from Colombia, Ecuador, Peru and Central America’;
  • Addressing particular agri-food sector issues under the FTAs with Canada and Japan.

However it should be noted that in regard to the enforcement of the commitments entered into by 3rd countries under free trade area agreements while the EC believes its FTAs ‘provide for robust enforcement of the substantive commitments included in each Agreement’, it currently chooses to ‘assess the appropriateness of using legal enforcement on a case by case basis’, with no dispute settlement processes being initiated under EU FTAs in 2017 (1).

Comment and Analysis

–          Addressing the Structural Imbalance…

The preponderance of primary commodities in EU agri-food sector imports relative to value added food and beverage product in EU exports is noteworthy. This is indicative of the fundamental structural imbalance which exists in EU agri-food sector trade with developing countries, particularly those in the ACP Group.

EU trade and agricultural policies encourage imports of primary products and seek to create overseas market opportunities for EU value added food product exporters. This accounts for the leading global role Germany plays in the international coffee export trade and the leading role Belgium and Holland play in the trade in value added cocoa products. It also accounts for why such a high proportion of EU agri-food sector employment is generated not in agriculture but in value added food and beverage processing activities. This is why the EU agri-food sector is the single industrial employer in the EU.

It is this structural imbalance which needs to be addressed through the development of EU trade and investment relations with ACP countries. Unfortunately the current structure of the EU’s economic partnership agreements with ACP countries does little to address this underlying structural imbalance.

–          …The Ambiguous Effects of EPA Commitments

The EPA provisions dealing with the ‘prohibition of quantitative restrictions’ on imports from the EU explicitly prevent the use of ‘managed’ trade arrangements for sensitive agricultural products which is at the heart of the EU’s market access commitments under all its FTAs with competitive non-ACP agri-food exporting countries. However it should be noted that to date the EC has not sought to insist on the rigorous application of these provisions under the various EPAs concluded with ACP governments, with quantitative restrictions on imports form the EU still being applied by a wide cross section of ACP countries without any challenges being launched under the EPA provisions. It remains to be seen whether this will continue to be the case as pressure on the EC from EU exporters associations to rigorously enforce 3rd country free trade area agreement policy commitments increase.

 

It is noteworthy that with the exception of South Africa, ACP countries have made little use of TRQs and high MFN bound tariffs in ‘managing’ imports of sensitive agri-food products from the EU. EPAs, as currently designed (although not yet applied) are intended to close off any opportunity for ACP countries to use such policy measures in the future.

This is an issue of particular concern in sub-Saharan Africa where the rapid expansion of demand for agri-food products is creating new opportunities for the integrated development of African agri-food sector supply chains, serving national and regional markets. In this context the shortcoming in the structure of the existing EU-ACP EPAs could take on particular significance.

This is highlighted by the more rapid growth in the value of EU agri-food exports to ACP EPA signatories in recent years. This growth contrasts markedly with the volatile and at times declining trend in the value of EU imports of agri-food products from ACP countries.

As the implementation of EPAs moves ahead this trend is likely to become more pronounced, as ‘tariff standstill’ commitments contained in the various EPAs, prevent ACP governments using the ‘water’ in their bound WTO tariffs, to increase levels of tariff protection on imports from the EU in support of local agri-food sector structural development initiatives. This needs to be seen in the context of the growing export focus of the EU’s agri-food sector. This is becoming particularly noteworthy in the dairy, poultry meat and sugar sectors.

–          …The Recent Sugar Sector Experience

Most recently in the sugar sector in the 2017/18 marketing year EU exports reached some 3,353,000 tonnes, up from 1,300,000 tonnes in the 2016/17 marketing year, with sub-Saharan African markets becoming an increasingly important market for EU sugar exporters. In the 2017/18 marketing year 9 sub-Saharan African countries were amongst the top 25 destinations for extra-EU sugar exports taking 19.1% of the 2.81 million tonnes destined for these 25 non-EU markets, amounting to 535,975 tonnes of exports (3).

These trends are exacerbated by the EU’s own ‘managed’ import regime which, through insulating EU producers from competition from low cost cane sugar  producers, serves to promote strong growth in EU production; a production growth which increasingly requires new overseas markets to sustain the existing production growth.

–          …The Brexit Complication

This trend is only likely to be exacerbated by the UK’s pending withdrawal from the EU, under what increasingly looks likely to be a ‘no-deal’ Brexit. The UK is a major sugar deficit EU market, with in the last marketing yeas EU sugar producers’ increasingly supplying UK demand. This has displaced traditional ACP sugar suppliers to the UK market. The re-imposition of standard MFN tariffs on mutual EU-UK sugar trade would halt these EU27 exports to the UK market leading EU27 sugar producers to seek out new export markets beyond the EU’s borders. Whether this opens up renewed opportunities for ACP sugar exporters will depend on how successful ACP governments are in retaining their current duty-free-quota free access to the UK market and the nature of the MFN tariff regime applied by the UK government under an autonomous UK sugar sector trade policy.

While the EC emphasises its development assistance support to agricultural development in ACP countries the question arises: how consistent are wider EU trade and agricultural policies with EC development cooperation activities aimed at supporting agri-food sector development in ACP countries?

–    …SPS Regionalisation Discussions Raises the Issue of Poultry Meat
Traceability and Labelling

Finally the discussion on the regionalisation of SPS measures (so that only particular affected regions of EU member states suffering HPAI can be subject to export restrictions) begs the question of how effective such regionally based controls would be in the context of the pan-European nature of EU poultry companies, which sees poultry raised in one country processed and packaged for export in establishments thousands of kilometres away from where the poultry flocks concerned were raised?

At a minimum concerns in this regard would suggest a need for new EU labelling and traceability requirements in the poultry sector so that exported poultry meat can be clearly traced to the area where the poultry flock was raised and a timeframe when no threat of HPAI infection existed.

Sources:
(1) EC, Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, ‘Report on Implementation of EU Free Trade Agreements’, 1 January 2017 – 31 December 2017
http://trade.ec.europa.eu/doclib/docs/2018/october/tradoc_157468.pdf
(2) European Union – South Africa Joint Statement, Brussels, 15 November, 2018
https://www.consilium.europa.eu/media/36982/eu-sa-final-statement.pdf
(3) EC, ‘Sugar Market situation’, AGRI G 4, Committee for the Common Organisation of Agricultural Markets, 29 November 2018
https://ec.europa.eu/agriculture/sites/agriculture/files/market-observatory/sugar/doc/market-situation_en.pdf