How the EU market looks to food exporters

In a recent post I looked at estimates of the overall level of protection to EU agriculture and how they compare to other countries. However, the EU trade regime is highly discriminatory. Different countries face different tariff regimes depending on the nature of any trade agreements they have with the EU or the preferential trade regime from which they benefit.

The average applied tariffs calculated in the MAcMap global tariff database I discussed in the previous post take account of these preferential tariffs. However, the published report only presents the overall EU average tariff. In this post, I make use of data from the WTO World Tariff Profiles to examine differences in the market access tariff barriers faced by different groups of exporting countries to the EU.

Few countries face the standard Most Favoured Nation (MFN) tariffs. They are the developed countries (for example, US, Australia, New Zealand, Canada) with whom the EU has not negotiated a preferential trade regime.

All developing countries can export to the EU with reduced tariffs under the Generalised System of Preferences (GSP). The coverage of agricultural products in the GSP is limited, and for most products, the preferential margin is small. Larger preferences are granted under the special incentive arrangement for sustainable development and good governance, known as GSP+, which targets vulnerable countries. Least Developed Countries can export all agricultural products duty free and quota free under a particular component of the GSP, the ‘Everything But Arms’ (EBA) initiative.

Other developing countries have signed free trade agreements with the EU that also provide preferential access (Mediterranean countries, Chile, Colombia, Mexico, Peru, South Africa). African, Caribbean and Pacific countries benefited from the non-reciprocal preferential access arrangements under the Cotonou Agreement. These arrangements had larger product coverage than the GSP scheme and a zero or minimal tariff for many products. Special protocols for sugar, beef and bananas attached to the Cotonou Agreement allowed virtually duty-free access for specific quantities which thus benefited from the higher internal EU prices for these products. Since 1 January 2008, the EU has extended duty-free and quota-free access similar to the EBA scheme to those ACP countries which have signed interim Economic Partnership Agreements.

The tariff treatment enjoyed by particular developing countries on agricultural exports under these various arrangements is shown in the table. For each country the average MFN tariff that would apply on their current agri-food exports to the EU is shown – using both a simple average (Column 1) and the trade-weighted average (Column 2). The MFN tariffs faced by exporters differ depending on the particular composition of their exports to the EU.

As discussed in the earlier post, the simple average weights each tariff line equally and thus takes no account of the value of trade associated with each tariff line. It is also influenced by the number of tariff lines associated with individual products. Often, for sensitive products with relatively high tariff rates a country will use a finer sub-division with more tariff lines, and this will tend to bias a simple average upwards. The alternative import-weighted average weights the tariff associated with each tariff line by the value of imports from each exporter. In principle, this gives more weight to those tariffs which are more important to a country’s trading partners. The measure suffers from a problem known as ‘endogeneity’, in that the higher the tariff, the more restrictive it becomes and the smaller the value of imports associated with it. In the limit, a prohibitively high tariff is associated with zero imports, and thus is excluded in an import-weighted average. Because of the importance of tariff peaks in agricultural tariffs, the import-weighted average will often lie below the simple average for this reason. This phenomenon is clearly evident in the table.

Column (3) shows the preferential margin provided to each exporter depending on the trade agreement it has with the EU, while Column (4) shows the proportion of its current exports which enter the EU duty-free. The country groupings are generally ranked in ascending order based on the size of the preferential margin they enjoy.

Developed country exporters face the MFN tariff and have no preferential margin. At the other extreme, free trade agreement partners such as Morocco or the least developed countries or countries that have signed interim Economic Partnership Agreements such as Kenya enjoy preferential margins of 7-8 per cent. Least developed countries and countries which have signed interim Economic Partnership Agreements have complete duty-free access. The duty-free proportion for countries facing MFN tariffs is much lower, at between 35-40% for Australia and the US (although the Canadian figure is higher at 75%).

GSP preferences in agri-food products are not worth a great deal, although India benefits more than others. GSP+ preferences are more generous depending on the composition of a country’s exports, as the contrasting experiences of Bolivia and Ecuador show. Bolivia faces a trade-weighted average tariff of only 0.5% and 90% of its exports to the EU enter duty-free. Ecuador, on the other hand, faces a tariff of 15.7%, the highest of any country including developed countries shown in the table, and only 38% of its agri-food exports enter the EU duty-free.

Countries which have signed free trade agreements with the EU also have contrasting positions. Preference margins are high, but there is great variation in the proportion of these countries’ exports which enter duty-free. The Latin American exporters (Chile and Mexico) appear to benefit significantly from their agreements, while more than half of the exports from the EuroMed countries Egypt and Morocco and South Africa still face tariffs on entering the EU.

One would expect that the dramatic events in our neighbours on the southern Mediterranean and the challenges facing South Africa as it overcomes the legacy of decades of apartheid would justify particular EU support. Against that background, this last finding is a disgrace.

Photo credit Staxnet

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