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7. Future Prospects for ACP Exports to the EU for Agricultural and Horticultural Products Covered by the CAP

7.1 Despite the Mac Sharry reforms of 1992, and the Agreement on Agriculture concluded in the Uruguay Round of GATT negotiations, the Common Agricultural Policy [CAP] will continue to apply high levels of border protection on third country imports of agricultural produce into the EU for the foreseeable future.
7.2 Products for which high levels of border protection apply include sugar, beef and veal, milk and milk products and olive oil. Little border protection is applied to tropical products not grown in the EU, oilseeds other than olive oil, and tobacco. The Mac Sharry reforms of 1992, coupled with the limitations imposed by the Agreement on Agriculture, mean that the levels of border protection for cereals and rice have been considerably reduced. Under the European Commission’s recent proposals in Agenda 2000, border protection on cereals and beef could be eliminated altogether. The levels of border protection on fruit and vegetables are often surprisingly high as a result of the minimum import price regime that applies.
7.3 For sugar, dairy products, olive oil, and fruit and vegetables, continued preferential access to the EU market will remain a potentially valuable trade concession for the EU’s partners.
7.4 The Uruguay Round Agreements also tightened up the requirements that must be met if a free trade area agreement is to be deemed compatible with GATT. In particular, it does not seem likely that agriculture could be excluded from future agreements. However, given the CAP, a free trade area agreement between a third country and the EU would imply the adoption of the CAP, or CAP-compatible mechanisms, by that third country, to avoid trade deflection, and would imply that trade within the free trade area should take place at CAP rather than world market prices. This would impose considerable burdens upon net-food importing countries. Thus, unless these major agricultural products can be excluded from a Free Trade Area, the continued operation of the CAP militates against the replacement of the Lomé Convention by one or more free trade areas between the EU and the ACP states.
7.5 The EU’s GSP provisions for agricultural products are potentially valuable, particularly for the ‘least-developed developing countries’. A preliminary comparison of the Lomé concessions with those in the GSP indicates that there are some instances under which a ‘least-developed developing country’ ACP state could secure superior concessions under the GSP compared to Lomé.
7.6 The Sugar Protocol has been incorporated as a country-specific tariff quota in the schedule of commitments entered into by the EU in the context of the Uruguay Round Agreements. We are reasonably confident that country-specific tariff quotas will not be challenged in GATT, and that this tariff quota has an existence independent of the Lomé Convention, but further consideration of the implications of the recent banana panel ruling, and in particular of Article XIII of GATT, needs to be undertaken.
7.7 The Sugar Protocol cannot readily be improved: instead, the challenge for the ACP states is to retain the benefits it contains. The individual ACP states that benefit from the Sugar Protocol should treat the price advantage of protected sugar sales into the EU market as a windfall gain. Local producers should be encouraged to produce (to fill the tariff quotas) at costs approximating those of efficient producers elsewhere in the world, and the governments concerned should impose an export tax to ensure that this is the case. The proceeds from such export taxes should be used to provide a sustainable future income source for the country, preferably by productive investment in the wider economy.
7.8 For beef there seems to be little prospect that the EU will be willing to expand the ACP tariff quota beyond existing volumes; in part, because of the severe problems of over-supply on the EU’s market, and in part because of the past failures of the ACP to fill the tariff quota. Furthermore, a substantial reduction in the level of EU prices is to be expected as a consequence of the European Commission’s Agenda 2000 proposals. Nonetheless, while the EU maintains market prices for beef well in excess of those prevailing in world markets, the existing tariff quota is potentially of significant benefit to the ACP states, and negotiating efforts might best be directed to ensuring greater flexibility in the reallocation of tariff quota in the event of supply shortfalls. An alternative to the existing mechanisms, which would maintain the financial benefit to recipient states, would involve the free transferability of export licences between ACP states.
7.9 The ACP states now enjoy duty-free access for light rum, unconstrained by tariff quotas, and the tariff quota constraints on the duty-free access for dark rum are due to be abolished in 2000. Consequently there is no further concession that can be negotiated.
7.10 The EU’s protective regime for fruit and vegetables involves minimum import prices (known as entry prices) as well as customs duties. Both customs duties and entry prices vary during the year, and there is a bewildering array of preferential access arrangements including GSP and Lomé. The ACP states should undertake an investigation to determine whether or not the entry price system is having a harmful effect on their exports to the EU. If it is, then on those products the ACP should seek to have special – lower – entry prices determined for ACP produce. If ACP states can identify products that they could export to the EU if tariff concessions were conceded, then tariff concessions on these products should also be sought. However, it is doubtful that the EU would be willing to extend significant further concessions on fresh fruit and vegetables. One over-riding consideration is the complementarity of EU and ACP production seasons. If ACP suppliers are competing with EU production, particularly with expensive ‘out-of-season’ EU produce, then Europe’s farm lobby will be opposed to further concessions. Nonetheless, if product – and calendar – niches can be identified that involve ACP supplies that do not compete directly with EU farm production, opposition is much less likely. Indeed Europe’s retailers wish to obtain good quality, competitively priced, supplies throughout the year to ensure continuity of supply on their supermarket shelves.
7.11 The tariff abatement on rice is conditional upon the exporting country collecting ‘an export charge of an amount equivalent’ to the tariff reduction. Thus, from the perspective of the trader, there is no commercial advantage to be gained from the concession: in effect, the trader faces the EU’s full mfn rate, of which part is collected on export, and part on import into the EU. Set against these circumstances, the ACP export volumes are creditable. If the intent really is to increase exports, rather than simply to transfer tax revenue to the ACP, then some part of the tariff concession should be reflected in lower overall charges faced by the trader, thus encouraging exports.
7.12 Whilst an increase in agricultural exports, and higher export prices on sales to the EU, is of direct benefit to the ACP states, the benefits could be enhanced if those same agricultural exports were to be exported, not in unprocessed or semi-processed form, but in processed foods and other products. An important principle to establish with the EU in any successor agreement should be that where tariff concessions have been extended to the ACP states on agricultural goods, these same concessions should be carried through to processed products. This would eliminate tariff escalation, and encourage the location of processing industries in the ACP. Although this may have little practical effect at the outset, the long term development prospects of a number of countries could be enhanced.