EU FTA Implementation Report Highlights the Importance of Trade Agreements to EU Agro-Food Exports

The initial EU-South Trade Development and Cooperation Agreement entered into force in 2000 with South Africa’s tariff reduction obligations in the agro-food sector being largely implemented at the end of the phase in period (‘back-loaded’). nevertheless by 2012 agreed tariff elimination commitments had been fully implemented.

Under this agreement in the agricultural sector South Africa undertook more extensive tariff elimination commitments then the EU, agreeing to the phased introduction of duty free trade on 83% of the agricultural products exported by the EU to the South African market (de facto the regional SACU market).

In terms of trends in EU agro-food exports the key period for comparison is a sample year just before the full implementation of tariff elimination commitments (2009); 2016 the year before SPS measures and the effects of drought began to impact trade flows and 2018, the latest full year of statistics currently available after the effects of these developments began to impact on EU export values.

Trends in EU agro-food exports to South Africa Where Tariff Elimination Was Most Significant (€ ‘000)

Source: EC, Market Access Data Base

In the first period from 2009 to 2016 the total value of EU agro-food exports to South Africa more than doubled, compared to an increase in the overall total value of EU exports to South Africa of 45%.  However, in those product categories where the tariff reductions introduced through the EU-South Africa TDCA were most significant and which gave rise to significant margins of tariff preferences relative to competing suppliers, the rate of growth in the value of EU exports was much more pronounce, with these increases ranging an almost tripling in value to a more than 10-fold increase in the value of EU exports to South Africa (see table above).

For example in the category with the highest rate of growth the value of exports of ‘Meat and edible offal’ (CN 02) increased by €253 million (+ 975%). This growth was heavily concentrated in the poultry meat sector, where the value of EU exports increased 75-fold. While the level of tariff preferences varied according to the poultry meat product in question, in all areas EU exporters enjoyed major tariff preferences.

Indeed these margins of EU tariff preference increased as South Africa sought to apply trade defence measures, such as moving over to their bound tariff ceiling in the application of MFN tariffs and the use of anti-dumping duties. However these measures were taken in a context where as a result of the provisions of the EU-South Africa TDCA, EU exporters were either exempt from these measures (in the case of the MFN duty increases – see table below) or the provisions of the TDCA reduced the effectiveness of these measures (e.g. the use of anti-dumping duties – see epamonitoring.net article ‘EU frozen poultry meat exports to South Africa begin to bite’, 15 December 2016).

Increases in South African MFN Duties on Poultry Meat (October 2013)

Source: ITAC Report no. 442 and DTI media statement

This pattern of growth of EU exports in areas where duty free access were enjoyed and tariff advantages existed, reproduced itself across a number of areas:

·  in the category of ‘animal & vegetable fats & oils’ (CN15) the value of EU exports increased €206 million (+722%), with this being most pronounced in the 90% of products exported where duty free access providing EU exporters with a 10% tariff advantage over other suppliers;

· for ‘Edible Vegetables, roots and tubers’ (CN 07) 96% of EU export growth was in areas where tariff preference of between 10%-30% are enjoyed;

· for ‘Oil seed & oleaginous fruits’ (CN 12) where EU exports grew 185% in value, growth was concentrated in soya seeds (CN 120) and sunflower seeds (CN 1206) where respectively an 8% and 9.4% tariff advantage is now enjoyed by EU exporters;

· in the category ‘cocoa and cocoa preparations’ (CN 18), the bulk of  EU export growth was accounted for by an increase in exports of chocolate, where EU exporters enjoy tariff advantages of from 17% to 21% over other third country suppliers;

· in the category of ‘dairy products’ (CN 04) the value of EU exports increased 186% between 2009 and 2016, despite the post 2013 collapse in global dairy prices. The largest increase in value terms was in cheese exports, where duty free and reduced duty Tariff Rate Quotas are enjoyed, while  96% of EU whey exports and 86% EU buttermilk exports were concentrated in areas where tariff preference of 450 c/kg were enjoyed.

· for the category ‘Miscellaneous edible preparations’ (CN 21) the greatest growth in EU exports between 2009 and 2015 occurred in categories where tariff preferences of 20-25% existed  and categories where tariff preferences of from 5% to 20% existed. With the strongest growth occurring  where the margins of tariff preference were highest;

· in the category other ‘sugar confectionery’ (CN 170490) where export growth was most pronounced for products where a 12% margin of tariff preference was enjoyed (with EU exporters paying a 25% tariff and other MFN exporters pay a 37% tariff).

Overall between 2009 and 2016 in areas where the EU-South Africa TDCA gave rise to significant margins of tariff preferences EU exports grew in value by around €665 million, an amount equivalent to 74% of the total value of EU agro-food exports to South Africa in 2009.

The principal categories where trade grew without the benefit of tariff preferences were:

· for ‘other sugars’’ (CN 1702), where export growth was concentrated in an area where no duties were applied;

· ‘Products of the milling industry’ (CN 11) where no significant tariff preferences were enjoyed , but the shift over to direct aid support payments has allowed EU processors to source cereals at world market prices

· skimmed  milk powder, where the  EU domestic market ‘safety net’ function drove trends in this trade;

· liquid milk, where South African MFN duties are zero and changes in technology and return shipping rates played a major role in increasing exports.

Overall, based on a review of trade flows during this period, the conclusion reached is that as a result of the trade concessions granted under the EU’s Trade Agreement with South Africa, remarkable growth rates were achieved in the value of EU agro-food exports.

This was the case even in product categories such as poultry meat where EU producers face major cost disadvantages relative to other major global exporters (see epamonitoring.net article ‘Report highlights vulnerability of EU poultry sector to liberalisation of trade in poultry meat’, 5 September 2017).

The expansion of the value of EU exports to South Africa in these agro-food categories has been further supported by the successful negotiation of the lifting of SPS restrictions, for example  on imports in the most dynamic area of EU export growth, the poultry meat sector.

Indeed, in the poultry meat sector, it was only when SPS based import controls were reintroduced in mid-December 2016 in response to outbreaks of avian influenza across Europe that this dramatic increase in EU poultry meat exports to South Africa was reversed (see companion epamonitoring.net article ‘EU Poultry Exports to South Africa In the Face of Avian Influenza Based Export Restrictions’, 11 October 2018).

What is more, despite mounting economic difficulties in South Africa, outside of the categories of Meat & edible offal (CN 02),  animal & veg fats & oils (CN 15) and Oil seed & oleaginous fruits (CN 12) in the other product categories where significant margins of tariff preferences exist the growth in the value of EU exports continued through to 2018.

This illustrates the true value of EU trade agreements to the EU agro-food sector in trade relations with sub-Saharan Africa where demand for food stuffs will continue to rise dramatically in the coming decades and where in the coming years the EU is looking to enter the implementation phase in the EPA agreement concluded to date with other sub-Saharan African countries.