Export subsidies on agricultural products are back in the news again following the somewhat surprising declaration by Commissioner for Agriculture and Rural Development Dacian Ciolos in his opening speech at the Green Week on Berlin earlier this month (16 January), of his readiness to stop the use of export refunds for exports to developing countries in Africa with which the European Union has an Economic Partnership Agreement (EPA). He stressed that this would be an important step in terms of coherence between EU agriculture and development policies. He said:
Since 1 January, EU legislation is also very clear: export refunds have ceased to exist as a means of systematically supporting a sector. Moreover, I would like to tell you this evening, in the framework of preferential partnership agreements with African countries: I am prepared to go one step further. I am ready to propose to stop, once and for all, the use of export refunds to those developing country destinations – even in times of crisis when this instrument can still be used.
The reference was surprising because the speech was generally about the recent reform of the Common Agricultural Policy. Development issues played a very limited, if any, role in the debates on that reform, raising the question why Commissioner Ciolos chose to raise the issue at this point in time.
Economic Partnership Agreements
Part of the context could be that the negotiations with African countries on the creation of EPAs are making heavy weather. The EPA negotiations were foreseen in the Cotonou Agreement signed between the EU and the African, Caribbean and Pacific (ACP) countries in 2000. The non-reciprocal preferences that the ACP countries enjoyed under the previous Lomé Conventions had been deemed discriminatory under WTO rules. The EU proposed to replace these with reciprocal preferences as part of comprehensive free trade agreements with different regional groupings of ACP countries.
While the merchandise trade provisions have received the most attention and make up the content of interim EPAs, comprehensive EPAs should cover trade in services as well as various non-trade issues such as regulatory standards, investment, competition, public procurement and intellectual property rights. They are intended to go beyond conventional free trade agreements by focusing on ACP development and including co-operation and assistance to help ACP countries implement the Agreements.
Negotiations got under way in 2002, but by the end of 2007, when the WTO waiver permitting discriminatory trade preferences in favour of the ACP countries expired, just 35 of the ACP countries (out of 77 eligible) had agreed to initial interim EPAs (covering merchandise trade provisions only) but none had signed or ratified them. In the following year, the Caribbean countries signed the CARIFORUM comprehensive EPA which has now been in operation for five years, although ratification is still pending in most Caribbean and EU states. Since then, interim EPAs have also been signed, but not ratified, with Côte d’Ivoire (2008), Cameroon (2009), Mauritius, Seychelles, Zimbabwe and Madagascar (2009), and Botswana, Lesotho, Swaziland and Mozambique (2009).
Negotiations on comprehensive EPAs continue with these and the other ACP countries (except with Nigeria, Gabon and the Republic of Congo as well as most of the Pacific countries which have stated they have no interest). The African countries have been unenthusiastic about concluding these agreements, fearing loss of tariff revenue, de-industrialisation as a result of increased competition from EU manufactured goods and a threat to their food security, even if analytical studies suggest these fears have been exaggerated. For example, most African countries have excluded many food imports from their liberalisation schedules, and for those that are included the removal of tariffs is often delayed for up to 15 years or more or existing applied tariffs are rather low (for more details, see my study on the food security impacts of EPAs).
The unrestricted tariff access enjoyed by ACP countries under the Cotonou trade provisions was temporarily extended to those countries negotiating EPAs on 1 January 2008 (Caribbean countries had already signed the CARIFORUM EPA). Least developed ACP countries already enjoyed unrestricted duty-free access under the Everything but Arms scheme, which is part of the EU’s Generalised System of Preferences (GSP) for developing countries, since 2001.
The Council and Parliament have set a deadline of 1 October later this year for the conclusion of these agreements if the favourable market access which the non-least developed countries currently enjoy for their agricultural and non-agricultural exports is to continue. Those African countries which have not signed an Economic Partnership Agreement by the end of September, and which are not categorised as least developed countries, will then lose their duty-free, quota-free access for all exports to the EU. Their market access will revert to the preferences available to all low- and middle-income developing countries under the EU’s GSP. Preferences on CAP products and processed agricultural products are much less generous under this Scheme.
There is thus an urgency now on the EU’s part to conclude agreements before September to avoid the opprobrium of raising tariffs on exports from what are still relatively poor developing countries. Commissioner Ciolos’ statement this month must be seen in this context, indicating some flexibility in the EU’s negotiating position and holding out an additional carrot to the African partners to persuade them of the advantages of an EPA.
Export subsidies and food security
Initial reaction to the Ciolos speech was predictably mixed (see this Euractiv report). Some observers welcomed the proposal as another step on the road to eliminating export subsidies altogether. Development NGOs argued for the principled position that export subsidies should be eliminated regardless of the actions of other countries (the view also held by this column). They pointed out that the offer was made in the context of trade negotiations with particular African countries and thus should not be seen as a contribution to the EU’s development policy.
Indeed, in this respect, the Ciolos offer does not go as far as even the former French President Chirac was prepared to go, when, at the end of a Franco-African summit in Paris in 2003, he surprisingly called for a moratorium on farm export subsidies to African countries until the conclusion of the Doha round and repeated the call on a number of occasions (see this Jacques Chirac press conference report following the G8 Gleneagles Summit in 2005)
The Cotonou Agreement itself has one article (Article 54) which addresses food security. Curiously, it deals entirely with export subsidies. Its perspective is that reliable food imports at competitive prices are an important guarantee of ACP countries’ food security. Thus, the Cotonou Agreement provides for the advance fixing of export refunds in respect of a range of products drawn up in the light of the food requirements expressed by those countries. It proposed that specific agreements could be concluded with those ACP states which so requested in the context of their food security policies, while acknowledging that such agreements should not place in jeopardy production and trade flows in ACP regions. The emphasis here is on managing export subsidies for the benefit of ACP importers, rather than their elimination.
In my view, export subsidies should be prohibited as a matter of course between parties to a free trade agreement. These agreements provide for the mutual reduction or elimination of tariffs and usually also outlaw export taxes. In the EPA negotiations, the EU has argued for the elimination of export taxes and restrictions (while allowing concessions in different EPAs regarding transition periods to phase them out, ‘grandfathering’ existing export taxes, or allowing new export taxes where the ACP state can show these are necessary for fiscal solvency, currency stability, infant industries or environmental protection). So one might think the use of subsidies to promote exports from one party to another in the context of a free trade agreement would also be prohibited. Nonetheless, export subsidies are often treated more leniently,
For example, in the US FTA with Central America and the Dominican Republic signed in 2004, no new export subsidies could be given with respect to trade with any party, and consultations about any such subsidy in effect must be held if another party so requests, but existing export subsidies were not prohibited. While a country has the right to take action under the WTO Agreement on Subsidies and Countervailing Measures if it believes that countervailable subsidisation is taking place in its trade with the other party, this Agreement allows export subsidies on agricultural products up to the limits in a country’s schedule under the WTO Agreement on Agriculture,
In fact, the EU has already conceded in the CARIFORUM EPA to the elimination of export subsidies on exports to that region, but only on those agricultural products for which CARIFORUM has agreed to eliminate tariffs. As we saw above, many African countries have made use of their flexibility under interim EPAs to maintain tariffs on food imports from the EU, so including the CARIFORUM text in the African EPAs would not represent much of an improvement.
It is intolerable that the EU should retain the right to subsidise its exports to its EPA partners, should any African country agree to sign an EPA. For this reason, the Ciolos statement should be welcomed, limited as it is. All EPAs should contain a provision which would reflect the spirit of the Cotonou Agreement, namely, that export subsidies are prohibited unless an EPA state specifically requests to be included in the relevant EU regulation.
While such a provision is legally and morally necessary, its practical significance in present circumstances should not be over-emphasised, given the limited use that the EU now makes of export subsidies and the further restrictions on their use in the future.
Picture credit: World Bank/Scott Walker via Flickr
This post is written by Alan Matthews
