The debate on the ‘stabilisation mechanism’ in trade with Ecuador, is illustrative of the EU’s use of special trade mechanism to defend EU agricultural interests (e.g. EU banana producers). This type of mechanism could be useful for ACP governments under EPAs in sectors where EU agricultural and trade policies distort competition to the benefit of EU exporters (e.g. in the dairy and poultry sectors).
Ecuador acceded to the EU-Andean Pact agreement on 11th November 2016. Subject to approval by the European Parliament, the agreement will come into effect for Ecuador from 2017.
The agreement will introduce reciprocal tariff reductions, with the EU liberalising trade on 95% of tariff lines from the entry into force of the agreement and Ecuador liberalising about 60% of tariff lines gradually over 17 years. The agreement will improve Ecuadorian access for fisheries products, cut flowers, coffee, cocoa, fruits & nuts and bananas. Exports of a range of exotic fruit such as golden berries, dragon fruit, avocadoes, granadilla and papayas will also gain tariff preferences.
Bananas will be one of the main areas of benefit for Ecuador. Ecuador produces more than 5 million tonnes per annum and is world’s largest banana exporter. Ecuador is already the largest supplier of bananas to the EU28, accounting for 26.2% of all imports in 2015 (down from 29.3% in 2014, when Ecuador’s non-participation in free trade area arrangements with the EU began to bite in terms of its market share). Nevertheless Ecuadorian exporters are looking to a 10% expansion of existing banana exports to the EU as a result of the agreement.
There is considerable concern about Ecuador’s accession to the EU-Andean Pact agreement amongst EU banana producers who wish to see the ‘stabilisation mechanism’ included in the EU-Andean Pact agreement rigorously applied to banana imports. This ‘stabilisation mechanism’ creates an annual threshold for imports, which if exceeded can see preferential access concessions suspended. This suspension of tariff concessions however is not automatic and depends on the outcome of an assessment of the market effects of the threshold being exceeded.
Given Ecuador’s dominant role in global banana exports, this stabilisation mechanism was especially established under the Andean agreement when it became apparent Ecuador would accede.
EC, ‘Ecuador joins EU-Colombia/Peru trade agreement’, press release, 11 November 2016
Freshplaza.com, ‘European bananas threatened by Ecuador EU agreement’, 16 November 2016
Freshfruitportal.com, ‘Ecuador set to sign trade agreement with EU’, 7 November 2016
EC ‘BANANA SUPPLY IN THE EU – 2007-2015’
Freshplaza.com, ‘The EC to establish stabilization mechanism for Ecuadorian bananas’ 25, November 2015
EC, ‘Second annual report on the implementation of the EU-Colombia/Peru trade agreement’, 10 February 2016
Comment and Analysis
A number of features of the EU-Ecuador agreement appear relevant to ACP countries. Firstly there is the limited nature of Ecuador’s tariff reductions and extensive phase down period. This compares favourably to the commitments required under certain EU EPAs with ACP countries, notably the agreement with the SADC EPA Group. Secondly, there is the increase competition for ACP suppliers which the agreement will give rise to ranging from bananas, through cocoa and coffee to cut flowers and fresh fruit.
Potentially of most significant is a third feature, the use of special the trade policy tools under the Andean Pact agreement (the stabilisation mechanism). This would appear to be a relevant model for ACP countries when moving towards the implementation of trade agreement commitments with the EU.
Across a range of sectors similar ‘stabilisation mechanism’ arrangements which allow preferential access to be suspended if the increase in the volume of imports is such as to threaten market disruptions, would appear to be appropriate for ACP countries in their agro-food sector trade with the EU.
While similar mechanisms appear to exist under the various safeguard provisions of the EPAs, these provisions are potentially more restrictive than the ‘stabilisation mechanism’ which focusses on market disruption. This will critically be determined by the various EPA provisions are interpreted and applied in practice.
The creation of such a ‘stabilisation mechanism’ would appear particularly appropriate in agro-food sectors where EU-ACP trade flows are distorted by wider EU policies, namely with regard to EU exports of the frozen poultry meat and dairy products to sub-Saharan African markets.
The South African poultry sector for example, would have benefitted from such a ‘stabilisation mechanism’, had it been available under the 1999 EU-South Trade Development and Cooperation Agreement. Since 2009 South African imports of frozen poultry parts from the EU have increased more than 41-fold, with this being directly attributable to the implementation of commitments entered into under the EU-South Africa TDCA. Whereas in 2009 imports of frozen poultry meat from the EU were equivalent to a mere 0.4% of South African production and 0.36% of total South African consumption by 2015 they were equivalent to 16.1% of South Africa production and 12.6% of total South African poultry meat consumption. This trade is beginning to disrupt local poultry production, with retrenchments now firmly underway across the sector.
Key words: Bananas, EPAs, ‘stabilisation mechanism’, Poultry
Area for Posting: ‘EU Trade Policy’, EPA General, SADC EPA, POULTRY SECTOR