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TWN Info Service
on WTO and Trade Issues (Mar07/05)
This was brought out at the WTO during the Trade Policy Review of the European Communities (EC) - held on 26 and 28 February. A WTO Secretariat report on the EC's trade policies found that applied tariffs on agricultural goods averaged 18.6%, representing an increase from 16.5% in 2004, with rates up to an Ad Valorem Equivalent (AVE) of 427.9%. Below is a report from SUNS of 2 March. With best wishes
Trade: Concerns raised
at WTO over EC's agriculture tariffs
This was brought out at the
WTO this week during the Trade Policy Review of the European Communities
(EC) - held on 26 and 28 February. According to Chairperson Vesa Himanen of Finland, members argued that the reduction or elimination of such measures, through further liberalization of the CAP, would benefit EC consumers, improve resource allocation and contribute to global economic growth. The Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries' trade and related policies are examined and evaluated at regular intervals. The last review of the EC's trade policies took place in 2004. A WTO Secretariat report on the EC's trade policies found that applied tariffs on agricultural goods averaged 18.6%, representing an increase from 16.5% in 2004, with rates up to an Ad Valorem Equivalent (AVE) of 427.9%. By contrast, the average non-agricultural applied tariff (excluding petroleum) was 4% (down from 4.1% in 2004). In his concluding remarks on Wednesday, Chairperson Himanen said that members recognized the EC's continuing commitment to and active participation in the WTO, including the Doha Development Agenda negotiations. He said that several members however raised concerns about the EC's already extensive network of preferential trade agreements and its decision to launch new negotiations which could further complicate its regime and divert trade. Various members also raised concerns about the active use of contingency trade remedies by the EC; its regime on technical barriers to trade and Sanitary and Phyto-sanitary (SPS) measures, particularly its REACH system for chemicals; its state aid and subsidies programmes; its classification of ITA (Information Technology Agreement) products; and about the lack of harmonization within the EC in areas such as internal tax rates and standards. In conclusion, the Chair said that the main area where members would like to have the EC's positive and prompt response is agriculture. At a media briefing following the conclusion of the EC's Trade Policy Review, Clem Boonekamp, Director of the WTO Trade Policy Reviews Division, said that there had been concern expressed that the EC's agricultural tariff structure was not as fully transparent as members would like it to be especially in its use of specific and compound tariffs. At a separate media briefing later, Peter Balas, the EC's Deputy Director-General of Trade, said that the EC wants a balance in the agriculture negotiations in that it wants other countries to undertake similar reforms, to what the EC has done, in their domestic agriculture policies. The EC wants to see a proportional opening of agricultural markets. He stressed that agriculture remained a defensive interest for the EC. On the other hand, its offensive interests are in seeing improved export possibilities for the EC's industrial products and services. Balas said that the EC does not want to see 'paper cuts' in industrial tariffs but real improvement in export possibilities. In agriculture, Balas said that the EC had unilaterally started its reform process on domestic support. Since 2003 (through the CAP), it had taken steps to move away from production distorting subsidies to decoupled income support for farmers. Balas however said that the reform process did not cover export subsidies and the opening of the EC market. For these two areas, the EC needs to see a Doha outcome first. He maintained that the EC has already made a down-payment in the form of reform of the CAP and domestic support. He also recognized that the EC has a high level of subsidization and has accepted that the biggest subsidizers have to make the biggest contribution, but this contribution has to be proportional. Pointing out that 13 million farmers in the EC were receiving support as opposed to only 2 million farmers in the US, Balas said that it is a non-starter to talk about equal levels of domestic support. Balas said that despite the unhappiness of some EC member states, the European Commission is convinced that it is within the mandate that it has received from its member states to go beyond the offer that it tabled in October 2005 and to move close to the average agricultural tariff cuts proposed by the G20 (54% cut in tariffs for developed countries and 36% cut for developing countries). Balas also allayed fears raised over the EC's plan to start negotiations on FTAs, saying that the priority for the EC remains the Doha negotiations, and to see a successful completion with an ambitious and balanced outcome. The WTO Secretariat report on the EC's Trade Policy Review said that the EC is the world's leading exporter and the second-largest importer of goods, and its economy has continued to support global growth by maintaining its market open. Nevertheless, said the report, trade barriers remain substantial in a few but important areas, notably agriculture. Reduction/elimination of export subsidies and tariffs on agricultural imports would benefit EC consumers, improve resource allocation, and significantly contribute to the promotion of the world economy, it said. The EC also remains the world's leading exporter and importer of commercial services. However, significant barriers to trade in services remain both at the intra-EC level and vis-a-vis third countries; these include monopolies and differences in regulation across Member States. Addressing these distortions would boost the overall competitiveness of the economy, the report said. According to the Secretariat report, the EC's Most Favoured Nation (MFN) tariff has remained largely unchanged since its last TPR in 2004. The average applied MFN tariff has increased slightly, to 6.9% from 6.5%, due to increases in ad valorem equivalents (AVE) of non-ad valorem tariffs, as a result of a downward trend in import prices of certain agricultural products. By contrast, the average non-agricultural applied MFN tariff (excluding petroleum) is 4% (down from 4.1% in 2004). Non-ad valorem tariffs apply to some 10% of the tariff lines, mainly on agricultural goods; they comprise specific, compound, alternate, and variable duties. Applied MFN tariffs on agricultural goods average 18.6% (up from 16.5% in 2004), with rates up to an AVE of 427.9%. The report noted that the EC provides export subsidies based on provisions laid down in product-specific common market organizations; such subsidies (mainly on agricultural products) though on the decline remain relatively high. In value, export subsidies notified by the EC represent approximately 90% of all the WTO Members' notified export subsidies. The EC is implementing the 2003 reform to its Common Agricultural Policy (CAP), mainly through the decoupling of payments from production; this has increased the exposure of farmers to world market signals. As a result, said the report, the combined share of market price support relating to output and input (those that are the most trade distorting) fell from 71.7% of support to producers in 2003 to 63.8% in 2005. The total amount spent on the CAP was 45.5% of EC expenditure in 2005. MFN tariffs in agriculture, hunting, forestry and fishing average 10.9%, with rates ranging up to 167.2%. ''Border protection and domestic support have somewhat insulated certain products from competition and helped to generate surpluses. The policy has thus made subsidies indispensable for the export of some of the surpluses,'' said the Secretariat report. The report noted that contribution of agriculture (including livestock, hunting and forestry) to GDP and employment in the EC is relatively low. The sector employs about 9.7 million people on 9.9 million agriculture holdings in the EC-25. On the basis of its latest notification to the WTO, in the marketing year 2001/02, the EC-15's total Aggregate Measurement of Support (AMS) amounted to Euro 39,281 million (the commitment level was Euro 67,159 million), while domestic support through green box and blue box measures reached Euro 20,661 million and Euro 23,726 million, respectively. The Secretariat report cited the European Commission as saying that in the marketing year 2003/04, the AMS was reduced to Euro 30,884 million, and domestic support through green box and blue box measures amounted to Euro 22,074 million and Euro 24,782 million, respectively. According to the OECD, the producer support estimate (PSE) of the EC, as a percentage of total production value, declined, on average, from 41% of the value of production in 1986-88 to 34% in 2003-05. It went from 36% in 2003 to 32% in 2005 due to lower domestic prices and higher border prices; this is still above the OECD average of 30%. Since 1986-88, there has been a significant move from market price support to payments based on area planted and animal numbers, which accounted for 25% of the PSE in 2003-05, said the Secretariat report. Since 2004, payments based on historical entitlements have partially replaced these earlier payments; they accounted for 16% of the PSE in 2005. The combined share of market price support relating to output and input (the most distorting), fell from 97% of the PSE in 1986-88 to 63% in 2003-05. The EC's rural development regulation (second pillar of the CAP) includes accompanying measures (e. g. agri-environmental measures, early retirement schemes, afforestation, and payments to assist farmers in least-favoured areas). Funding for this second pillar was Euro 52.5 billion for the EC-15 over 2000-06. A total of Euro 51.4 billion was spent on the CAP in 2005 (i. e. 45.5% of Community expenditure), of which 86.8% was agriculture spending; the remainder was allocated for rural development and supporting measures. Overall, the EC's total agriculture transfers, as a share of its GDP, decreased from 2.77% in 1986-88 to 1.14% in 2005, partly as a result of the shift from market price support measures towards payments based on area planted and herd size, the report said. (It should be noted however that while total agriculture transfers as a share of GDP in percentage terms decreased from 2.77% in 1986-88 to 1.14% in 2005, in Euro terms, it actually increased - from Euro 104,183 million in 1986-88, to Euro 121,093 million in 2005.) The report also noted that liberalization of agricultural products under the EC's various bilateral and regional trade agreements remains limited. Processed agricultural goods imported into the EC from its preferential partners are subject to customs duties comprising an industrial and an agricultural component. While all industrial components enjoy substantial preferential treatment, tariff reductions on agricultural components are limited. In general, tariffs are lower on agricultural products not produced in the EC (for example, coffee, tea, spices), but are considerably higher on some primary and processed agricultural products. Border protection and domestic support, together with the limited liberalization under the preferential agreements, have restricted the exposure of some products to competition, and have encouraged surpluses. The policy has thus made subsidies indispensable for exports of some of the surpluses, as well as for exports of certain processed agricultural products, said the report. The Secretariat report said that the EC granted a total of Euro 3.1 billion in export subsidies during marketing year 2002/03; the highest payments go to other milk products such as yoghurt, milk and cream and whole milk powder (19.0%), butter and butter oil (17.4%), incorporated products (13.2%), sugar (9.3%), and beef meat (9.1%). Actual outlays were 58% below the EC export subsidies commitments in the WTO, i. e. an increase of 21.8% compared with the 2001/02 level (of about Euro 2.6 billion). Ten items received actual subsidies of more than 50% of the specific commitments, with three receiving almost the entirety of the specific export subsidy commitments: poultry meat (99.8%), alcohol (94.1%) and "incorporated products" (99.7%). As to the overall economic environment in the EC, the Secretariat report said that following the economic slowdown in 2001-03, real GDP growth in the European Communities picked up to 2.3% in 2004, 1.7% in 2005, and an estimated 2.8% in 2006, mainly driven by private investment and exports. The services sector remains the backbone of the EC economy, with a share of over 77% in GDP and employment, while agriculture contributes just over 2%.
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