Summary
The WTO has once again highlighted the EU’s extensive use of tariffs and non-tariff measures to manage EU agri-food markets. Preferred ACP exporters benefit from these protectionist EU trade policies, with any movement away from these policies potentially see mainly ACP/LDC exporters losing out to the tune of €1.6 billion. The prospects of such losses are very real with regard to the UK market, where there is strong pressure under the current MFN tariff review to abandon MFN tariffs where the UK has no or only limited production interests to protect. Looking forward, within the EU, a long standing insistence on abolishing quantitative restrictions on imports from the EU under economic partnership agreements concluded with ACP countries, is being given new impetus with the creation a Chief Trade Enforcement Office, dedicated to making sure existing trade agreement commitments by 3rd countries are fully implemented. Such a course of action however sits uneasily with the EU’s own extensive use of quantitative restrictions in sensitive agri-food sectors.
A review has been posted of the agricultural component of the WTO Trade Policy Review (TPR) of the EU, which covers developments in EU agricultural and agricultural trade policies up to September 2019. This analysis highlights ‘continuing importance of agricultural trade policy in protecting the EU market and supporting farm incomes.’ It notes how while many variable import levies were subject to ‘tariffication’ as part of the CAP reform process, for cereals and some fruit and vegetables the ‘tariffs charged remain a function of the import price’, this is linked to an ‘entry-price system’ for specific products (1).
The 2019 WTO TPR notes how EU ‘agricultural tariffs stand out due to significantly higher rates, wide tariff range, use of non-ad valorem tariff rates, and use of tariff quotas.’ It further highlights the complexity of EU agricultural tariffs as a result of the variable import levies and fixed tariff levies the EU applies. Currently ‘almost half (47%) of agricultural tariffs are non-ad valorem (NAV) tariffs. These tariff arrangements can take the form of:
- specific tariffs (a fixed absolute amount regardless of the value of the imported good);
- compound tariffs (that include both a specific and an ad valorem element); or
- mixed tariffs (meaning that the tariffs are expressed as either a specific or an ad valorem rate, depending on which generates the most (or sometimes the least) revenue) (1).
The analysis notes how ‘agricultural tariffs on average are more than three times as high as average tariffs on non-agricultural goods’ and that furthermore ‘agricultural tariffs are not uniform across tariff lines and product groups.’ There is in fact considerable variation by disaggregated tariff lines within product categories (1).
The most protected EU agricultural sectors are dairy products, sugar and confectionery, animal and meat products, cereals and cereal products, fruit and vegetables. It is maintained ‘the tariffs for sugar, meats, cereals and fruits and vegetables do have a protective effect and result in higher prices on the EU market than would exist in the absence of this tariff protection’. Tariffs on animal products are particularly high, up to 116.6%, ‘while for dairy products and some fruits and vegetables, individual tariffs were as high as 160%’ (1).
It should be noted while the dairy sector has one of the highest levels of protection EU dairy companies are very successful exporters. There is a certain irony here, in that ‘the price EU milk producers receive is actually very close to the world market price’. This has led some economists to argue the tariff is redundant, although this overlooks the complexities of the functioning of the EU dairy market (1).
Beyond preferred ACP partners, the EU maintains ‘significant tariffs on coffee, tea, cocoa and preparations even though the EU does not produce the raw commodities.’ For example for cocoa products while ‘the import duty on raw cocoa beans is 0%, on cocoa paste 9.6%, on cocoa butter 7.7%, on cocoa powder not containing sugar or other sweeteners 8.0%, while for chocolate the in-quota (i.e. preferential) rate for the bound TRQ in GATT is 43%.’ While this is intended to ‘protect processing activities in the EU’, it also provides significant margins of tariff preference to ACP exporters who are busy moving up the value chains in these product areas (1).
This being noted the WTO analysis highlights how ‘many agri-food imports do not pay the MFN rate due to preferential access arrangements of various kinds.’ This preferential access takes a variety of forms including reciprocal free trade agreements, and unilateral preference arrangements such as the EBA, GSP and GSP+ schemes. In addition, many agri-food tariff lines have zero MFN duties (31% of HS 6-digit tariff lines) (1).
Beyond tariffs the analysis of the WTO TPR highlights how the EU makes extensive use of quantitative restrictions in managing imports of sensitive agri-food products, with around 14% pf agricultural tariff lines at the 6-digit level being subject to the use of TRQs (1).
In terms of the impact of this trade regime on trade flows, DG Agriculture has estimated that 2014, about 71% of the total value of agri-food imports of €104 billion entered the EU market at a zero rate of duty. This consisted of some €44 billion (43%) of products which faced zero MFN duties and a ‘further 38% of EU agri-food imports’ which ‘benefited from preferential treatment (duty free or reduced duties), corresponding to almost €40 billion’ of EU agri-food imports. It was highlighted how ‘only 20% of EU agri-food imports (about €20 billion) entered at full duty, without benefiting from any kind of preference’ (1).
Some analysts have suggested that ‘the fact that only 20% of EU agri-food imports pay an MFN duty might suggest that the level of these tariffs is not that important’. However, the reality is ‘if tariffs were lower or did not exist, the volume and structure of imports would change’ (1).
The analysis further highlights how ‘the extent to which an exporter benefits from preferences cannot be determined just by comparing the preferential tariff with the MFN tariff, because of the many different preferential trade arrangements that the EU has with its trading partners’ (1).
Overall the implication of the WTO TPR review is that preferred exporters to the EU market ‘benefit from high levels of EU protection because of the competitive advantage they receive compared to exporters without preferential access.’ In this context, tariff preferences are effective in increasing imports from preferred partners. This creates a situation where any reduction of these MFN tariffs ‘leads to the erosion of these preferential advantages’ (1).
This is an issue of concern to ACP countries based on both experience and ongoing trends. Overall it is estimated ‘EU preferences have increased imports by around €4.7 billion (around 7% of predicted trade) based only on the sectors for which they got statistically significant results.’ Analysts have highlighted how removing protection would see preferred developing country suppliers lose out to the tune of around €1.6 billion (1).
| Comment and Analysis The most significant levels of EU tariff protection which generate the most significant margins of tariff preference for ACP exporters and therefore have the greatest investment and export stimulating effects are in: · the fruit and vegetable sector (most notably for bananas, although WTO rulings · meat products (although the benefits derived are constrained by SPS · the sugar sector (although EU sugar sector reforms have profoundly undermined The basic point to note is that the commercial benefits derived from the preferential access ACP exporters enjoy under EPAs or as LDCs are intimately connected to the high MFN tariffs the EU maintains around the EU market. If MFN tariffs are removed, then the commercial value of duty free-quota free preferential access under EPAs disappears. This reality is being highlighted by the current discussions around the UK’s future MFN tariff schedule, where it is estimated in excess of €1.5 billion of ACP exports to the UK market could, to varying degrees, be adversely affected by any systematic move towards removing import tariffs where the UK has zero or limited production interest. This needs to be seen in a context where one wing of the Conservative government favours the systematic removal of MFN tariffs where the UK has zero or limited production interests (see companion epamonitoring.net article ‘UK to Strike Out on Bold New Trade Policy but Will Africa and the Caribbean Take the Hit?’, 10 February 2020). A decision on the UK’s future MFN tariff schedule is expected by April 2020. If this involves a substantial move to zero tariffs in products where ACP agri-food exporters have substantial market interests, this could begin to affect commercial contract negotiations from the second half of 2020, with the trade effects being felt immediately in 2021. In terms of the EU’s extensive use of TRQs to manage access to EU agri-food products markets, this sits uneasily with the EU’s insistence under its trade agreements with ACP countries on the need to eliminate all forms of quantitative restrictions on imports from the EU from the date of entry into force of EU economic partnership agreements. Given the EU has a huge, highly developed agri-food sector, the EC’s insistence that the governments of poorer agriculture dependent African countries should abolish the use of non-tariff trade policy tools on trade with the EU, while the EU makes extensive use of such instruments in sensitive agricultural sector would appear highly hypocritical. Many of these governments currently make use of non-tariff trade policy tools to try and support local agri-food sector development (though be it far less extensively than the EU) in a context where the EU is the principal source of agri-food imports. Fortunately to date the EC has not sought to enforce these long-standing demands enshrined in existing EU trade agreements with ACP countries. However, this could be about to change with the appointment of a Chief Trade Enforcement Officer and the establishment of a supporting unit. Should these provisions on the abolition of quantitative restrictions on import form the EU be fully enforced by the European Commission, this would give a major stimulus to EU exports in the affected sectors, transforming the market position of EU exports vis a vis other 3rd country suppliers and intensifying competition on local markets from EU suppliers. This could be extremely detrimental to efforts to try to develop African production to meet rapidly expanding African food needs and promote the integrated structural development of African agri-food sectors. |
Sources
(1) CAPreform, ‘The protective effect of EU agricultural tariffs’, 24 February 2020
http://capreform.eu/the-protective-effect-of-eu-agricultural-tariffs/
(2) WTO Trade Policy Review – European Union’, full report, 10 December 2019
https://www.wto.org/english/tratop_e/tpr_e/s395_e.pdf
(3) WTO Trade Policy Review – European Union’, Executive Summary, 10 December 2019
https://www.wto.org/english/tratop_e/tpr_e/s395_sum_e.pdf
(4) Trade Policy Review Report by the European Union
https://www.wto.org/english/tratop_e/tpr_e/g395_e.pdf