Summary
There are 3 main areas of concern for ACP agri-food sectors arising from the EC’s new priority programme. The appointment of a Chief Trade Enforcement Officer could lead to increased pressure on ACP governments to eliminate the use of non-tariff barriers on imports form the EU as agreed in most concluded EPAs. This needs to be seen in the context of the increasing interest of EU agri-food businesses in rapidly growing African markets, evolving global economic trends and trade conflicts elsewhere. New EC trade related sustainability commitments, depending on how they are interpreted and applied in practice could increase the costs of serving EU market, with the burden falling particularly heavily on small scale exporters and smallholder farmers across the ACP. Budgetisation of the EDF alongside Brexit related financial pressures and ongoing security and migration concerns on the EU’s southern border could see far less grant financed development assistance being extended to agriculture development in ACP countries, with loan based financial instruments being unlikely to meet the needs of smallholder producers or small and medium sized agri-food sector enterprises in ACP countries.
- An Uncertain Start and More Complex Political Context
After an uncertain start the new European Commission under the Presidency of former German Defence Minister Ursula von der Leyen took up office on 1st December 2019. This 1-month delay followed a successful European Parliament challenge to 3 of the designated Commissioners.
EC President von der Leyen will face a more complex and difficult Parliamentary situation than her predecessor given the loss of the absolute majority formerly enjoyed by the two main centre-ground political groups the Christian Democrats (EPP Group) and Social Democrats (S&D Group). To address this more complex political reality EC President von der Leyen has set in place a triumvirate of Executive Vice Presidents consisting of Frans Timmermans (Dutch national from the Social Democratic Group – S&D) Margrethe Vestager (Danish national from the Liberal Group – RE) and Valdis Dombrovskis (a Latvian national- Christian Democratic Group – EPP).
Not only are each of these experienced Commissioners but they are also drawn from the three main political groups whose support will be needed to secure a majority in the European Parliament. This arrangement is clearly intended to facilitate the process of political alliance formation which will be essential for the conduct of EU business where the support of the European Parliament is necessary.
Commission President designate Ursula von der Leyen is facing a large in-tray of issues to be addressed, which in various ways will impinge on future EU-ACP relations.
- The Future EU Budget and the EDF
The first of these relates to the framework of the next 7-year budget for the EU. This will set the financial framework for overall EU activities in the coming 7 years, including the external actions of the EU (1). This is particularly relevant to the ACP given ongoing efforts to ‘budgetise’ the EDF.
These financial questions are complicated by the withdrawal of the UK’s financial contribution to the future EU 7-year budget once the UK departs the EU on the 31st January 2020 and the still unresolved problems of fiscal deficits in a number of Southern European Eurozone members.
These financial dimensions need to be seen against the backdrop of the current economic downturn and looming economic recession, which is in part linked to ongoing trade wars and disputes and party to structural global trends (the changing nature of Chinese growth).
- Wider Trade Uncertainties and a Renewed Focus on Trade Agreement Enforcement
In terms of trade disputes the most notable are those with the United States, which has seen new tariffs imposed on EU exports to the US on a total value of trade worth $7.5 billion (1) and the further extension of the Russian ban on agri-food product imports from the EU first introduced in August 2014. The ongoing prospect of a no-deal Brexit from 1st January 2021 meanwhile continues to generate fears of severe trade disruptions.
It is against this background that proposals for the appointment of a Chief Trade Enforcement Officer to improve the compliance and enforcement of commitments made by third parties under trade agreements with the EU needs to be seen (1). This needs to be seen in a context where in 2018 the EC began to take what were described by Trade Commissioner Malmstrom as as “exceptional measures” to enforce compliance with trade agreement commitments (2). This included in relations with an ACP country where an EU reciprocal trade agreement is under implementation. In the case of South Africa the EC successfully negotiated the lifting of SPS restrictions on imports of poultry meat from Poland and Spain (see epamonitoring.net article ‘EU FTA Implementation Report Highlights the Importance of Trade Agreements to EU Agri-Food Exports’, 18 November 2019) and launched an ongoing challenge to South Africa’s use of the safeguard measures in the poultry sector under the provisions of the EU-South Africa TDCA. This challenge was based purely on procedural grounds and in no way challenged the trade case made against the EU by South Africa in regard to the market effects of the huge expansion in EU poultry meat exports to South Africa which has occurred under the influence of the trade preferences accorded EU exporters under the EU-South Africa trade agreement (see epamonitoring.net article ‘EU Formally Challenges Application of SACU Safeguard Duties in the Poultry Sector’, 27 June 2019).
- A Stronger Europe in the World
The appointment of a Chief Trade Enforcement Officer could become an important aspect of the EC’s new stronger policy focus on Africa under the EC’s policy plank of ‘A Stronger Europe in the World’ (1). While EU migration and security concerns undoubtedly constitute an important aspect of the EU’s growing focus on Africa, EC President von der Leyen has acknowledged that for European business Europe’s growing interest in the business potential of Africa’s growing markets.
In no sector is this more important than in the agri-food sector where Africa is seen as being “full of opportunity and potential for cooperation and for business”. It has been highlighted how, in the coming years, Africa “will become home to the youngest, fastest-growing middle class in the world, with private consumption expected to reach €2 trillion a year by 2025”. This is seen as generating enormous market potential for the increasingly globally orientated EU agri-food sector (1).
This market potential, in what is seen as Europe’s natural trade partner, for what is one of the most sensitive sectors of EU level policy making, alongside wider migration and security concerns, lies behind the emphasis in Europe on developing “a comprehensive strategy on Africa”.
- The Potential Cost Increasing Effects of Emerging EU Sustainability Requirements
The final area of concern to ACP countries in the agri-food sector is the potential for the interpretation and application of the EU’s enhanced commitments to ‘a dedicated sustainable-development chapter’ with ‘the highest standards of climate, environmental and labour protection’ and ‘with a zero-tolerance policy on child labour’, to give rise to new non-tariff barriers to trade (1).
The hard reality could emerge whereby depending on how these commitments are interpreted and applied in practice the EC’s new sustainability related policy commitments could come to constitute new tariff barriers to trade, by creating additional administrative requirements which add costs to trade which fall particularly severely on smaller producers and exporters.
This needs to be seen in the context of the EC’s policy focus under the new European Green Deal on an enhanced ‘Farm to Fork’ strategy which is to focus on all aspects of the sustainability of food production, processing and distribution (1). It is difficult to see how this approach could not be extended to all 3rd country supply chains, including those involving ACP producers, given the EC’s emphasis on developing an approach for the whole of the value chain.
| Comment and Analysis
From an ACP agricultural trade perspective, the two main areas of concern relate to: · the rigour with which the new Chief Trade Enforcement Officer will seek to rigorously enforce compliance with existing EPA commitments on the abolition of the use of quantitative restrictions on imports from the EU and local and regional sourcing policies which discriminate against EU suppliers.; and · the interpretation and implementation of new trade related sustainability requirements in trade relations with ACP countries. The appointment of the Chief Trade Enforcement Officer provides important background to EC President von der Leyen’s focus on promoting ‘a strong, open and fair trade agenda’, given trade ‘accounts for over a third of the EU’s GDP and supports over 36 million jobs’ in the EU (1). An important aspect of this ‘strong, open and fair-trade agenda’ is likely to be the establishment and effective operationalisation of tariff preferences for EU exporters through FTA agreements with ACP countries including LDCs. This could see an intensification of efforts to finalise a regional EPA with West Africa, which is the EU’s most important agri-food trade partner in the ACP. It could also give rise to a renewed impetus to long standing EC efforts to secure the removal of all non-tariff barriers to EU agri-food exports, not only to ACP countries which have concluded reciprocal trade agreements with the EU but also to all ACP countries which have not to date concluded reciprocal trade agreements with the EU. This needs to be seen in a context where virtually all concluded ACP economic partnership agreements include provisions requiring ACP governments to remove all quantitative restrictions on imports from the EU and dismantle any sourcing practices which discriminate against EU suppliers. Previously it was believed this would apply only to products covered by tariff elimination commitments. However in regard to the recently concluded EU-Mercosur agreement it was made clear by the EC, it wanted to see these provisions apply to all products whether or not they are subject to tariff elimination commitments under an EU agreement (see epamonioring.net article ‘The EU-Mercosur Agreement Part 1: Overview and Lessons for the ACP’, 29 August 2019). The appointment of the Chief Trade Enforcement Officer may see the EC insisting on this Mercosur agreement-based interpretations of the non-tariff trade barrier commitments contained in ACP trade agreements. This is something to which ACP governments will need to pay close attention, given the extent to which seasonal restrictions, import bans and local sourcing preferences are used across the ACP, in sectors where the EU has major and growing export interests. Concerns over the scope for new EU trade related sustainability requirements related to the additional costs to ACP exporters this could give rise; costs which almost inevitably seem to be passed back to ACP producers given the way ACP-EU supply chains function. The extent to which this can become particularly burdensome for small scale exporters and smallholder producers is beginning to be illustrated by the experience of the implementation of the EUs new Plant Health Regulation Here new pre-export plant disease control documentation requirements, alongside uncertainty over just how these new rules are to be applied is beginning to prove disruptive (see epamonitoring.net article ‘Entry into Force of New EU Plant Health Regulation Could Pose Serious Challenges for ACP Horticultural Exporters’, 13th January 2020). In the face of these uncertainties some ACP exporters are beginning to turn away from the EU market towards less lucrative but more reliably accessible markets (e.g. Kenyan pimento exporters, where 90% of exporters are now looking to Middle Eastern rather than EU markets). For those ACP exporters not adopting proactive strategies, the uncertainties generated by new market requirements can have a significant adverse effect on investment specifically for exports to the EU market. A final area of concern for the ACP is the future bass for the financing of the European Development Fund (EDF) which has to date been funded separately from other external EU actions. The ‘budgetisation’ of the EDF could make ACP countries more vulnerable to the reallocation of financial resources to meet evolving EU priorities not directly related to the long-term development interests of ACP countries to which EDF funding was traditionally nominally directed. This is a distinct possibility given the EU’s security and migration concerns on its southern borders, concerns which are going to require an increasing level of financial commitments at a time when the UK’s withdrawal will shrink the financial pool from which funds can be drawn. This will carry implications for ACP agri-food sector development since agriculture was until recent years a major focus of EU long term grant financed development expenditures. This reduction in grant funding available for deployment in the agriculture sector will be compounded by the expansion of EU priorities and will not really be impacted by plans to reform the EIB and create other innovative loan financing instruments. The track record to date suggests EU designed loan financing instruments are poorly suited to the financing needs of smallholder producers and small and medium sized ACP agri-food sector enterprises. |
Sources:
(1) EC, ‘Political Guidelines for the next European Commission 2019-2024: A Union that strives for more: My agenda for Europe’, by candidate for President of the European Commission Ursula von der Leyen
https://ec.europa.eu/commission/sites/beta-political/files/political-guidelines-next-commission_en.pdf
(2) EC, ‘EU trade agreements: delivering new opportunities in time of global economic uncertainties’, 14 October 2019
https://trade.ec.europa.eu/doclib/press/index.cfm?id=2071