GENERAL AGREEMENT ON L/805/Add.3TARIFFSAND TRADE 10 April 1958

limited Distribution

REPORT OF THEWORKINGPARTY ON THE ASSOCIATION OF OVERSEAS TERRITORIES

WITH THE EURPEAN ECONOMIC COMMUNITY

REPORT ONTEA

PART ONE

THE FACTUAL POSITION UNDER THETEATY OF ROME

1. The detailed information furnished by the Six concerning Black tea isreproduced in Table A appended to this Reportl. The following are the salientfeatures noted by the Working Party and any discussion of these matters isreported in PartThree orinthe WorkingWorkingParty'smain Report.

Present Import Duties of the Six

2. Benelux and Germany have specific legal rates, the incidence of whichhas been calculated in terms of the 1956 average values of tea imported bythese territories as equivalent to 15 and 52 per cent ad valorem respectively.Italy's legal rate is 80 per cent with a specific minimum while in the caseof France the legal rate is 30 per cent, France and Germany apply the legalrates to the full extent while Benelux and Italy apply specific rates equivalentto 10 and 50 per cent ad valorem respectively (1956 average values).

Establishment of the Common Tariff

3. In applying the general rule of the arithmetic average of the appliedrates in force on 1 January 1957 the duty on tea in the commontariff wouldbe 35 per cent. However, this percentage cannot be considered as definitivelyfixed because of the fiscal aspect of this duty. The Benelux, Federal Republicof Germany and Italy have indicated that they may notify the Cow MarketCommission in accordance with Article 17(2) of the Treaty that they considerthe present duties as being of a fiscal nature. If they do so notify theinstitution it will then decide in accordance with Article 22 the extent towhich the duties are of a fiscal nature and reduce the arithmetical averageaccordingly,

1 The abbreviations used in Table A are explained in Annex D to themain -Report (1/805).

L/805/Add.3Page 2

The Elimination of Duties on Imports from A.O.T's

4. The differences between the duties to be levied on imports fromthird countries and the duties, if any, that will apply to imports fromthe A.O.T's at various stages, are. set out in the following table (inthe case of specific tariffs. the figures have been based on theirapproximate ad valorem incideace):

Duty differentials 'in favour of the A.O.T's

After first stage After second stage At the end of thetransitional

periodBenelux 10% 20% 35%

France .12.5% 10% 35%F.R. of Germany 7.9% 15.8% 35%

Italy 8% 16% 35%

Internal Taxes

5. The Forking Party noted that the Benelux, Germany and Italy evidentlyconsider that there is a substantial fiscal element in the applied tariffsand may accordingly apply internal taxes to compensate themselves for any.loss of revenue where the common tariff is lower than their previous tariff.

Quantitative Restrictions

6. Imports of tea have been liberalized by. the Federal Republic of Germnywhile the Benelux countries apply a liberal import policy. In effect Italyhas also liberalized imports of tea from all countries since the existinglimitation of imports from countries in the dollar area does not affect tea.Imports of tea from third countries into France are subject to quotas.

The Agricultural Provisions of the Treaty

7. Tea is included in Annex II of the Treaty. The provisions of

Articles 39 to 46 of the Treaty could therefore be applied.

Tariff Quotas

8. It was noted that in accordance with Article 25(3) of the Treaty theCommission could authorize a Member State to suspend the duty on tea,provided that no serious disturbance in the market would result therfrom.

L/805/Add.3Page 3

PART TWO

BACKGROUND INFORMATION ON TRADEANDTRADE PATTERNS OF TEA

General

9, The total export value of tea amounted in 1955 to about $550 million.Of the principal tropical food products1 entering international trade in1955, tea accounted for about 10 per cent.

10. Tea exports are of particular importance for several GATT countriesas indicated in the following table:

Tea exports from selected countries; quantity, value,and value in per cent of total export value

(1000 tons, $ million, and per centof total exports of all commodities)

1955 1956

'000 $ per 1000 $ pertons million cent tons million cent

Associated Territories

Belgian Congo 1 1 negl. 1 1 negi.

Other GATT Members

India 166 246 19 235 292 23Ceylon 164 250 61 163 218 60Indonesia 29 31 3 34 30 3Pakistan 6 7 2 10 11 3Japan 14 10 negi. 10 6 negi.British East Africa 10 12 4 11 11 4of which Kenya 6 8 11 7 7. 9Rhodesia and Nyasaland 8 11 2 9 1U 2

Sources: INF, International Financial Statistics; UN Yearbook- ofInternational Trade Statistics 1956; International TeaCommittee, Bulletin of statistics, June 1957

The total export value of the following commodities: coffee,cocoa, tea, sugar, tobacco, bananas, coconuts and products, andcitrus fruits.

L/805/Add.3Page 4

11. For Ceylon and India tea is thus an export product of vitalimportant .

12, The share in world imports of tea occupied by the Six has slightlyincreased in recent years, from 2.7 per cent in 1948-52, to 3.3 per-centin 1955 and 4.1 per cent in 1956. The United Kingdom imported in thesame years 46.3, 47.2 and 48,4 per cent, respectively, whereas tea Importsinto North America showed a relative decline from 16.1 to 13.7 per centin the period.

13, The market of the Six is of special importance to Indonesia, whichin 1956 sent about 44 per cent of total exports to those countries,principally to the Netherlands and some to Germany,

14, The general trade pattern o'f the Six in 1956 was that of theirtotal imports of 20,000 tons, 4,200 tons and 4,300 tons (about 21 percent each) came from Ceylon and India, respectively, Indonesia supplied8,500 tons (42 per cent) and minor quantities were imported from Malaya,Japan and Kenya. The Belgian Cohgo supplied 29 tons to Germany and11 tons to the Netherlands, whereas a large share of the total teaexports from the Belgian Congo (1,195 tons in 1956), which in 1956amounted to 533 tons, or 45 per cent of total tea experts, went tothe United Kingdom.

15. Within this overall picture the Netherlands took about one halfof the total tea imports into the Six (10,200 tons out of 20,100 tons)and Germany most of the rest, i.e. 6,400 tons.

16. Annex Tables B and C indicate the pattern of trade in tea in1956. Table B shows exports to tho Six and other destinations asreported by the main exporting coutries, and Table C the importsinto the Six and others, as roportod by the importing countries.

Varieties

17. About 95 per cent of all tea entering international trade consistsof Black tea, and most of the rest of so-called Green tea. Tea produc-tion in Africa, mainly in British East Africa, Mozambique and the BelgianCongo only accounts for about 5 per cent of world production, but thefact that it mainly consists of common to good-medium grades, upon whichthe recent increase in world production has been concentrated, brascontributed to n.king African tea increasingly known in international trade.

Substitutes

18, Although there is no direct substitute for tea, this beverage canbe to some extent substituted in consumption by coffee and also by softdrinks and even boor.

L/805/Add.3Page 5

Entrepôt Trade

19. The United Kingdom and the Netherlands are of importance in the.re-export trade in Tea. In 1956 the United Kingdom. re-exportod about14,000 tons, of which about 5,000 tons to the Six, mostly to theNetherlands and Germany. Of these re-exports about 6,000 tons originatedin India and about 5,000 tons in Ceylon, The Netherlands re-exported in1956 about 11,000 tons (4,000 originating in Indonesia and 2,000 tons inIndia and Ceylon), Of this, about 2,000 tons went to the Communitycountries, mainly to Garmany,

Prospects of World Supply and Demand

20. Tea prices have fluctuated widely in the last few years. As,however, consumption responds only slowly to price changes the taskof adjusting supply to demand falls primarily on the producers Themain producing countries (India, Ceylon, Pakistan and Indonesia) have,through the International Tea Agreement, acted jointly to bring abouta balance. The Agreement. expired in March 1955 and has not been renewed.As regards supply prospects in general it should be noted that theexpansion in the last few years ocurred mainly in common and low-mediumteas while production of quality 'tea rose less, except in Ceylon whereit moved in line with the total rise in output, With respect to prospectsin the Belgian: Congo it was noted that special efforts that had bean madein the last decade had, on a relative basis, met with considerable success.

21. Whereas, during' the period 1951-1953 world consumption of teaincreased more rapidly than current annual production, the situationwas reversed in 1954 and the excess of supply over demand has sincethen continued, In the main tea consuming country, the United Kingdom,the demand for tea is almost static and substantial increases in othermarkets are unlikely, FAQ studies, however, have indicated that someincreased consumption was possible in the Federal Republic of Germanyand the Netherlands,

L/805/Add.3Page 6

PART THREE

THE SHORT AND LONG-TERM PROBLEMS-WHICH THE ASSOCIATION OF THEA.O.T's RISED FOR THE TRADE OF :OTHER CONTRACTING PARTIES TO THE

GENERAL AGREEMENT

Io The New Tariff R6gime

A. Effects within the Comunity and the A.O.T's

22. Representatives of tea-producing countries other than the Six1 consideredthat the common tariff of 35 per cent and the duty-free entry of tea from theA.O.T's of the Comimnity into the whole market of the Six under Article 133(1)of the Treaty would constitute a discriminatory tariff in favour of the O.T's.This compared with the previous position in '957 in which there was no preferen-tial tariff applied by the Benelux in favour of the Belgian Congo which wascurrently the only tea producer of any importance in the A.OT's of the Community.

23. The representatives of the Six were of the opinion that the abolition oftariffs on trade inside a free-trade area could not be considered as constitutinga discriminatory measure.

(i) Effects on price levels in the Community and the A.O.T's

24. Representatives of producing countries other than the Six, considered thatthere were no grounds whatsoever for introducing as high a preferential tariffon tea as 35 per cent. They pointed out that duties in the Federal Republicof Germany, France and Italy were largely of a fiscal nature and the Commissionshould take fall account of this fact and reduce the arithmetical averageaccordingly. If they did so the common tariff would only be 10 per cent oreven less. They also pointed out that the country with the lowest tariff, theNetherlands, was by far the greatest consumer so that a weighted arithmeticalaverage would again have led to a much lower duty than 35 per cent. In thatconnexion they drew attention to the fact that in calculating the applied tarifffor Benelux a weighted average had been used.

1 As used in this Report the words "producing countries other than the Six"refer to the following members of the Working Party: Ceylon, India, Indonesia,Pakistan, Federation of Rhodesia and Nyasaland and the United Kingdom.

L/805/Add.3Page 7

25. These members further held that the effect of the 35 per cent externaltariff would be a corresponding increase in tea prices within the Communityover and above the world price level. The increase would be particularlymarked in the Netherlands, the major tea consumer of the Six, sInce the tariffhas hitherto been very low. Recent experience in some of the principal teaconsuming countries had shown that increasing tea prices tend to build upstiff consumer resistance. The. effect of the ad valorem duty in reducingdemand would be particularly apparent on the high quality teas

26. The representatives of the Six pointed out that experience in the pasthad sniown that the amount by which an import duty was increased was not alwaysautomatically fully reflected in the prica to the consumerL. Morever, thetariff was to be substantially reduced in both the Federal Republic of Germany,the second largest tea consumer of the Six, and in Itaaly. These reductions,particularly in the former instance, would exert some- down-ward pressure on theoverall price within the Community. .Furthe'r, although statistics showed thatthe Netherlands was the largest tea importer of the Six and had the lowesttariff, it should be bore in mind that a proportion of these imports wereheld in bond and eventually re-exported to the other higher tariff MemberStates.

(ii) Offects on Consumption in the Comarut`.'-7

27. Representatives of producingcountries other then the Six considered thatthe 35 per cent increase in prices above world levels which -they expected wouldresult from the introduction of the external tariff would lead to a reductionin the demand for tea within the Comaunity, especially in the Netherlands,where prices of tea had been the lowest of any Member . State, Further. theypointed out that even in those instances where duties in comeMemberStateshad been reduced the possibility existed for any government to compensate- forthe loss of revenue through the imposition of addition. non- diin.in.tcc,internal taxes, Thus demand in th-_e c nrri ,w: t.: n'c -r. ntn.rlight of this Dossibility an increaseddemandfortten resultingfrom the lowertariff duty in the Federal Republic of any Member nottherefore bepresumed

28. Moreover, future demand for tea would be affected by other factors suchas its substitution by other beverages, in particular coffee as a consequenceof changes in the -pricc of tea relative to these other ;r be-;Jgt 3 Thesemembers expressed -heir apprehensions, therefore, that apart from the expecteddecline referred to above the total consumption of tea in the Community was infact likely to diminish further i.n favour of Coffee as a result both of theprice advantage already enjoyed by coffee being accentuaited by the proposedtariffs (viz. 35 per cent for tea and 16 per cent coffee) and of the ar-cial stimulus to be given to coffee production in the A.O.T's, They- feltthat under the provisions of the Treaty, robusta coffee produced in theA.O.T's offered ^ more immediate threat to the tea trade of thethird countriesthan Belgian Con:o tea. As the coffeedrinkinghabitwas deep-::ccted inWestern Europe the switch from tea to voffeo3 consumption would be quicklybrought about by substantive price differernces..

L/805/Add .3Page 8

29. The representatives of the Six reasserted the view that prices would notrise to the extent that had been assumed by other members. Moreover., theprice factor alone? was not the single determinant of demand for tea since thequestion of consumer preference was especially important. Different teashad specific taste qualities and in this connexion the Food and AgricultureOrganization statistics indicated that in the past few years there had beenlittle change in the proportion of total tea imports into the Six from suchsupplying countries as Indonesia, India and Ceylon. An established tastepattern was of a static nature and, in view of the steady increased demand intea that has been evidenced in the past decade in the Netherlands and theFederal Republic, which together formed the bulk of the market of the Six,there was nothing which precluded the possibility of further increases incouption. In the light of these considerations, and taking into accountexcesive price fluctuations in recent years, there was also no evidence of

a switch of consumption from tea to coffee. Moreover they were of the firmopinion that taste was by far a more dominant criterion in the determinationof consumption than price. Further they underlined the fact that they couldnot accept the view of some other Members that possible substitution of importduties by fiscal taxes would accentuate any decline in demand, In the extremeinstance the import price, plus duty and tax, would remain the same as it wasat present.

30. The reprentativesof the Six further disagreed with the contention thatthere was little possibility of increasing consumption in the Community andthat in fact it would decline. Total imports of tea into the Community(apparent consumption) have shown a substantial increase during the past fouryears, particularly in the Federal Republic of Germany and the Netherlands, andthere was no reason to expect that this trend would level off or be reversed,While consumption of coffee in the Community was of a far greater magnitudethan that of tea, there was no justification in assuming that the smaller teadrinking element would suddenly switch their demand to coffee merely becauseof price considerations. An increase in the price of tea did not weigh asheavily on the household budget as an increase in the price of coffee. Thiswas illustrated by the fact that during the past few years there have beenmany fluctuations in tea prices., but this had not resulted in any switch tocoffee mainly because of the fact that a unit of tea was not as costly to theconsumer as a unit of coffee. To further illustrate the point that pricedid not have a direct influence on the consumption of tea as against theconsumption of coffee the situation in the Benelux was cited. Here, despitethe fact that the two countries had a common tariff, Belgium had a consumptionof 139 times more coffee than tea, whereas the Netherlands' consumption ofcoffee was only four times more than of tea. The taste factor, therefore,was far more relevant than the price factor.

L/805/Add.3Page 9

(iii) Effects on Production in the A.O.TIs

31. Reprentatives of produced countries other than the Six pointed outthat producers of tea in the A.O.T's would be able to sell to the Six at apremium of 35 per cent above the world market price. The substantialstimulus to production that would be provided by this new preference wasfurther emphasized by the fact that the largest producer, the Belgian Congo,,had not hitherto enjoyed any preferential treatment for its exports. On thebasis of estimates that have been made of the capital cost of extending teacultivation in the British African Territories the 35 per cent preference wouldgive a 5 per cent return on any investment. The preference alone., therefore,would be a substantial incentive to investment quite apart from the fact thattea in itself was a very profitable crop. There had been rapid increases in

production in the A.O.T's in recent years and there was no reason to belleyethis rate ot increase would not be maintained if not increased., The BelgiunCongo, in particular had in the past decade increased acreage under tea

from 1,000 to 10,000 acres. Considerable develolpments wore taking place Inthe two industry in tho British Camoroons and it was logixal to assume suchprogress should also be made under similar conditions in the adjacent FrenchCameroons.32. An Additional production of 2 ,000 tons in the Belgiun Congocould be obtained from an area of a mere 50,000 acres; limitations due toacreage availability, therefore, were not important considerations for aproduction of that order. Moreover, capital costs for such developmentwould not be prohibitive and it has been estimated that a unit of 4,000 acres,taken as being an area on which production was economic, could be established-with an investment of £2 million (i.e. 0500 per acre or £1,250 per hectare).While it was recognized that in the initial stage there would be some diffi-culty in regard to the assembling of a skilled labour force for plucking teait was considered that this problem could be easily overcome in the periodof fifteen years under consideration.

33. The reprentatives of the Six considered that such deductions were anexaggeration of the potentialities of the A.O.T's and drew attention to manyfactors which militated against the achievement of increased levels ofproduction. There were in fact limitations to the availability of suitableacreage for the economic production of tea since suitable land in the AfricanA.O.T's was generally located inland distant from mans of communication,thus entailing enormous transport problems which would have to be overcome.Moreover, recent estimates have shown that at present the minimum investmentrequirements for additional production of tea in the A.O.T's amounted to£1,200 per acre-. For rational production a unit of at least 2,500 acreswould be necessary. One such additional unit, factory included, the refore,would require a capital expenditure of 3 million. It was pointed out thatthese estimates took no account of the transport difficulties that had beenreferred to. Furthermore, any increased production would require anadditional supply of suitable and skilled labour which would be extremelydifficult to fill.

L/805/Add.3Page 10

34, The representatives of the Six cited a study of the possibility of thecommencement of new tea plantations in Africa that had been undertaken by agroup of Dutch planters with plantations in Indonesia who as a result ofchanging circumstances were endeavouring to spread their risks by comencingproduction in other regions of the world and to that end the study: had beenmade. "It was noteworthy that this group had reached the conclusion thateven with common tariff of 35 per cent in the Auropean Economic Commnity,and on the assumption that transport problems would in fact be solved, andmoreover taking into account world over-production of tea, it would:not beprofitable to undertake additional tea cultivation in the African A.O.T's.This conclusion was arrived at only after a careful assessment of all rele-vant considerations; indeed the planters concerned were, prepared to takemany risks in, investing -in these regions.

L/805/Add.3Page 11

B. Effects on Trade of Third Countries

(i) Effects of new tariff regime on trade patterns over short and long-term

35. Attention was drawn to the existing pattern. of trade (described inPart Two). The bulk of the tea produced in the Belgian Congo at present wasexported to the United Kingdom and the Six imported most of their requirementsfrom Indonesia, India and Ceylon. Representatives of producing countriesother than the Six. expressed the view that consequent to the introduction ofthe preference, exports from the Belgian Congo and other A.O.T's wouldinevitably be diverted to the market of the Six thus displacing tea fromtraditional suppliers. As production in the Belgian Congo and other A.O.T'sdeveloped, as it undoubtedly would under the stimulus of the new preference,exports from this area would gradually meet more and more of the requirementsof the Six at the expense of other suppliers. Increased tea production to10,000 tons per annum was well within the capacity of the Belgian Congo inthe next fifteen years. Since this represented 50 per cent of the consump-tion of the Six a major diversion of trade could be caused. Accordingly thepattern of trade in this commodity would then be entirely different with theBelgian Congo as the dominant supplier to the Six. Furthermore, in view ofthe unlikelihood of any Curther increases in consumption in the major teamarket of the United Kingdom and of the relatively static consumption inother markets, the expected decline in demand for tea Within the Communitywould have additional adverse effects on the trade of third countries. Thetotal trade of third country suppliers of tea to the Six was worth $29 millionIn 1956 and at least 50 per cent of this trade would be placed in jeopardy bythe end of the transition period and up to 100.per cent in the more distantfuture.

36 The representatives of the Six pointed out that the latter observationshad been .made without reference to the two important criteria of productionand consumption, In the first instance there were the limitations, alreadydiscussed, that militated against an expansion of production in the BelgianCongo to the extent necessary to satisfy the total import requirements of theSix. Indeed, experts held the opinion that since only small areas of theBelgian Congo were suitable for tea cultivation the possibilities for anyincreased production were extremely limited; it was considered unlikely.,therefore, that production in the Belgian Congo would exceed the limit of1,400 - 1,500 tons by 1961 and 1,800 - 2,000 tons by 1970. Of moreimportance, however, was the influence of the taste factor in determiningdemand for tea. In this connexion it was stated that the Benelux countrieshave always had the right of introducing preferences in order to promote pro-duction in the Belgian Congo for consumption in the Benelux. The fact, how-ever, that this right has never been exercised with regard to tea showed that'the fears of some members of the Working Party in this field were unjustified'

L/805/Add.3Page 12

(it) Effects on WorldMarkets

37. Reprentatives of producingcountries other than the Six draw. attentionto the fact that most of the ta imported into consuming couries in Europewas sold by auction, which made this trade highly sensitive to changes. in the.relation, between supplyand demand. In view, of the generally static world.demand for tea any slump in demand in the Community or marginal increase inproduction in the A.O.T's would have the effect of depressing the prices fortea one world markets.

38. The representatives of the Six (in the light of the argumentation theyhad put forward) could see no justification for these views and they againpointed to the fact that the Community, as a whole, was an unimportant teaconsumer.

L/805/Add.3Page 13

II. Non-Tariff QuestionsQuantitative Restrictions and Agricultural Provisions

39, It was noted that France imposed quantitative restrictions onimports of tea and that this commodity was included in the agriculturalr6gimeof the Treety of Rome. The points raised in the main Report con-oeming quantitative restrictions and the "managed market" provisions

were therefore relevant in the case of tea. It was further pointed outhowever, by representatives of producing countries other than the Six,that should any difficulties arise in the marketing of any additionalcoffees from the A.O.T's the Six might be inclined to resort to theseton-tariff measures in order to promote consumption of coffee at theexpense of tea imports.

40, The representives of the Six considered suchsituations asoutlined in paagraph 39 above as hypothetical ones. It would befor the institutions of the Community to determine and carry out itseconomic policy. They referred to their argumentation as set forthin the main Report and stressed the fact that under the stipulationsof Article 234 it followed that the institutions would be obliged torespect international obligations undertaken by Member States, whichclearly included those resulting from their adherence to the GeneralAgreement.

III. Summary of Views

A. Viewof Representatives of Producing Countries other than the Six

4.1. Representatives of producing countries other than the Six, havingconsidered the arguments of the Six, maintained that the creation of anew preferential system throughout the markets of the Six in favourof the A.O.T's gravely endangered the .trade of other producers of tea.The preferential margin of 35 per cent was, moreover, fantastically high.Even at the end of the first transition period the margin would be atthe high level of 8 to 12.5 per cent. The exports of the A.O.T's werehitherto directed to markets outside the Six, but a preferential marginof this order must result in an immediate complete switch of these exportstp the markets of the Six,. thus leading to a diversion of trade. Existingtrade interests could not resist the economic pressure of such a widepreferential margin. The process of diversion would commence almostimmediately, and would grow as production in the A.O.T's increased.

L/805/Add.3Page 14

42. There was no Justification at all for a preference as high as35 per c ent, particularly as the existing tariff on tea in some countriesof the Six was mostly of a fiscal nature, In fact the final commontariffcould be substantially less than 10 per cent if the fiscal element were tobe fully taken into account in the calculation of the common tariff.

43, These members further pointed out that the calculation of an unweightedarithmetic average, as had been done in the case of tea, did not take intoaccount the size of the respective imports of the various members of theSix. The Netherlands, which was the principal importer of tea, had thelowest tariff of the Six so that a weighted average would have produceda considerably lower common. tariff.

44. Price levels in the Community would increase, particularly in theNetherlands. A direct consequence would be a curtailment of demand fortea within the Community. This trend would be accentuated by the sub-stitution of tea consumption by coffee as a result of the added priceadvantage given to coffee by the difference between the proposed commontariffs on tea (35 per cent) and coffee (16 per cent).

45. Meanwhile, the very large preferential tariff would give :producersin the A,0.T's a very substantially better return on tea production thanother producers receive and this would stimulate production there artifi-cially. An additional production of at least 10,000 tons might well resultby the end of the transition period which is 50 per cent of present con-sumption in the Six. With consumption in the Six tending to fall in theshort-term and probably not rising much, if at all, in the long-term themargin left for third countries' supplies, after the expanded productionof the A.O.T's was taken up, would decrease progressively.

46. Substantial losses would then follow for third countries who wouldbe reduced to the role of residual suppliers. These losses, though smallin relation to world consumption, would be especially important as con-'sumption in the United Kingdom was unlikely to increase and consumptionin other markets was generally static. There would, therefore, be atendency to depress world prices of tea.

47. The inclusion of tea in Annex II of the Rome Treaty Indicates thatfurther non-tariff preferences could be extended to A.O.T. producers.If these agricultural provisions were applied or quantitative restrictionsintroduced the damage to the trade of third countries would be intensified

48. Contracting parties whose trade would be .affected by the measuresproposed by the Six would be Ceylan, Indonesia and India to whom the teatrade is vital, Pakistan, Japan, British East Africa and the Federationof Rhodesia,

L/805/Add.3Page 15

B. Views of the Representatives of the Six

49, The representatives of the Six pointed out that the 35 per cent dutywas considerably lower than the average level of the legaltariffs.Wherever the level of. protection in a Member State was higher than thepresent tariff rates it would be introduced by stage and experience hadshown that a protection of that kind was never fully reflected in prices.

50. Member States of the Six could notify the Commission that they con-sidered the -whole or a part of their tariff now applied as of a fiscalohareoter. In that case the Comission had the right to reconsider thecalculation of tho oua tariff,

51, It wa not acceptable that the duty on tea could have a prohibitiveeffect sixae the production of tea within the Commity foll forshortoftho noods within the Commity, so that It could be expected that largeimports would continue to be effected in tho future. Moreover, attentionwas drawn to tho fact that the variety produced in the A.O.T's of the Community,Cnocally spoaking, did not correspond with consumer taste within the Six.

52, Noted experts bave made studies on the possibilities of an extesionof tea production in the Belgiun CongoThey were of the opinionthatmost of the land stable for this production was already occupied andthat estimates given by aiea non-Six members of the Working Party concerningthe development of produetionin the fifteen years to come were highlyexaggerated. Furthermore, it has to be kept in mind that there was alreadyan over-produotion of tea in the world; that problems retarding transportand the acquiremmt of suitable laborers for this highly sensitive productwere very difficult to overcome,

53, It was obvious that any fall in prices would affect all producingcountries and that it was, therefore, in the interest of the A.O,T's toavoid such a situation. A depression would not be a consequence ofprotection possible under the Treaty but would rather result from violentmovements in prices which were completely unrelated to the associationof the overseas territories.

54. Taste was a far more dominant factor in consumption than price. Itwas well-known that taste was of a static nature, especially with regardto tea, and it had beon evident that even wide price fluctuations inrecent years did not affect tea consumption at all. Moreover, estimatesby the FAO stated that there were possibilities of consumption increasesin the Netherlands and the Federal Republic of Germany, which would befurther estimated by the rise in standards of living expected from theestablishment of the Commity.

L/805/Add. 3Page 16

55. Inconsequenceof the stability of.the taste-pattern it was veryunlikely that big switches in demand would take place in favour ofvarieties produced in the A.O.T's so that it must be said that thefears of the non-Six representatives were unjustified.

56. Although, like any free trade area which might be establishedin aecordanee with the provisions of GATT, the association of the O.T'swith the European Economic Community involved an el of of discriminartion with regerd to tea, the foreseeable effects on production, com-sumption and trade patterns for the present would bet non-existent, andin the long run would be very unlikely to exist at all. These effectswould in any case be considerably less than those of fluctuations inworld prices, and negligible by comparison with them,

L/805/Add.3g;7t/tATABLE A

BLACK TA. (put up in large packages) (1)(Brussels Nomenclature Heading Number: ex 09.02)

BeneluxI1

.i c

I ema~

p:

LegalTarifff

Tariff effectively-applied as of

1.1.1957

by m etro-nol. couw-trios toD.O.T.

i

IIII

I

1!i.

41i

III

iIIIiIIIiii"I.''

987 F or75 F1 per100 net kgs.(AI:15%)30%(B)

350 D14 per100 net kgs.

(B)(AI:52%,)

80% but notless than700 liroper not kg.

-7658 F or50 Fl perICO net kgs

AI :10%)Frce

Ii4

Ji

I

II

Free

to importsfrom othercouitriesor terri-tories

658 F or50 Fl perICO not kgs.(AI :10%)

30%

350 DM4 norlCO net kgs.(A;: 52%)

500 lire per:'net kg. i(AI: 50%) ,

Alignment with the commonexternal tariff

Q.R. treate.ment applic-able as of

-j..~~~-

Qu (oxcept ffor FrenchD.O.T.)

T

Qu ($ aerca)L tromother ctries.iand territ.)

CommonExtcr-

'TariffS

35%

35%

35%

i

I

i

II

I

I

i

i

I iIi

III

i

I

II

at the at theend of end ofthe 4Th the 2ndyedr stage

1pocsibly 3pccifpicduty euvl

.4.

possilby Specificduty equivalent

o

4 7. ;,(2) 4, .8,%(2)-

possibly specificduty equivalent

to !45.5%(2) j 4h$(2)

at theend ofthe tran-sitionperiod

35%

35%

35%

35%

Elimination of duties

at the endof the

lst stage

493.50 F or37.5 Fl per 100 netkgs, (AI:7.5%)(4)

22.5% (3)(4)

262.50 DY, per100 not kgs.(AI:39%) (4)

* at the endof The

I 2nd stage

329 F or .25 Fl per100 not kgs.(AI:5%) (4)

15% (3)(4)

at the endof the

3rd stage

0%

0%

]75.00 DMi per100 net kgs.(AI: 26%) (4)

A1375 lire pernet kg.37,5% (3)(4)

250 lire pernct kg.25% (3)(4)

(1) This item is included in Anex II to the Treaty (aGricultural products).

(2)Bcnelux, the Federal Republic of Germany and Italy may indicate that they conscor this duty to beof a fiscal nature.

(3)The rates indicated above apply only to products irim~orted from overseas countries and territorieswhich do not have special relations with thc State concerned. Products imported from countrieste:rritorics having social relations with the State concerned arc admitted duty-free.

(4) subject to the indications given in introductory Note No.2

and

-

i* Iq I

i--

- ii-

4I-- - - - - - - - - - 4 r~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~f

IIi

t.6

iI

i

II

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-iii

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TI

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iI

IIiI

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IIIi

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-II

I

i

I

II

I

I

i

I

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i

II

i

Tabl

eB

Expert

,of

Tea

in1956

(met

ric

tons

and

per

cent

oftotal

experts)

labeau

BExportations

deTh

6en

1956

(an

tonn

esa6

triq

ues

i.en

pourcentage

des

explorations

tota

les)

Expo

rts

toBelgium

Dest

inat

ion

Luxenburg

France

Germ

any

Ital

yIletherlands

Expo

rts

fron

Unio

nEcon.

Allemagne

Italie

Pays-Bas

Provenance

Belg

o-Lu

x.

Belgian

Congo-

Congo

beig

e(1955)

.4

70..

4!s

0.5

8.5

0.5

Ceyl

on-

Coyl

an62

0033

614

3,557

%0.4

0.6

0.4

2.3

!ndi

a-

Indo

402,

770

1,625

1.-l *2

0.7

Indonesia

-In

don6

'r,.

.17

1,171

8313

,964

Japa

n-Ja

pon

..

..

..

..

.

Paki

stan

..

..

..

..

..

..

.

Mala

ya-

Malaisie

.......

..

United

King

domDependencies:

Terr

.d6

pend

ant

duRoyaume-Unl:

British

East

Afri

caAfrique

orientale

brit.

Rhod

esia

&ilyasaland,

Fed.

Rhoddsie

&Hyassaland,

Fdd.

Taivan

(195

5).

..

.......

a (I i S

29 0.3

3.4 27 0.3

0.2

30.2

40.5 483

4.9 27 0.3 15 1.1 7 8

0.1 411 5.3

12159

0.2

2.0

Unit

edNorth

Rest

ofTotal

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omAm

eric

athe

Worl

dRo

yauu

o-Am6

rique

Reste

duI

Uni

ddu

Nord:

onde

~~~~~~i

-_..

....

(78)

(9.4)

5,67

43.6

4,43

5 1.9

15,235

44.2 539

5.4 27 0.3 18 1.3 7

0.1 8

0.1

582

7.5

221

26.7

61,6

4539.0

160,930

69.8

5,92

617.2

1,31

513

.310,

191 97.5 835

59.1

8,148

65.8

6,78

698.0

1,355

17.4

10 1.2

24,830

15.7

21,7

28 9.4

2,855

8.3

1,33

918.6 224

2.1

109

7.7

1,98

216

.3 28 0.3

1,16

715

.0

519

62.7

65,759

41.6

43,5

9718.9

10,452

30.3

6,197

62.7 11 0.1

452

32.0

2,055

15.9 140

1.6

4,66

560

.0

Inte

rnat

iona

llea

Commit

tee,Bu

lletin

ofStatistics;

Congo

Delge

etRuanda

Urud

,Co

amor

ceEx

t6ri

eur.

1955.

Tota

lEx

port

sExport.

tota

les

828

100.0

157,9

08100.0

230,740

100.0

34,470

100.0

9,89

0100.0

10,453

100.

01,414

100.0

12,192

100.0

8,96

2100.0

7,76

910

0.0

Sour

ces

:0

L/805/Add.3-

Table

C

Import

sof

Teain

1956

(SlTC

074)

(met

ric

tons

and

per

cent

oftotal

Tablee

a

Import

ations

deTh6e

n19

56(CTCI

074)

(metricton

sandp

ercent

ofto

talimport

s)entonn

esm6t

riques

eten

pour

cent

age

des

import

ations

tota

les)

Import

sin

toDe

stin

atio

nIm

port

sfr

omProvenance

Tota

l.

..

..

..

..

..

..

..

Belg

ian

Cong

o-

Congo

beige

...

Ceyl

on-

Ceyl

an..........

Indi

a-

Inde

..

.

Paki

stan

..

..

..

..

..

.

Indonesia

-In

dond

sle

..

..

.

Malaya

-Mal

alaisi

e.

..

..

..

Japa

n-Japon.........

Rhod

esia

and

Nyasaland,

Fed.

Rhod6sie

etNyassaland,

Fed.

*United

Kingdom

Dependencies

:Te

rr.

depe

ndan

tdu

Royaume-Unl:

Kenya,

Tang

anyi

ka,

Ugan

daKenya,

Tang

anyi

ka,

Ouganda

**

;

Moza

mbiq

ue.

..

..

A

Sour

ce:Com

madity

Trade

Statis

Belgiu

m-Unitod

United

Luxoem

burg

F.ance

German

yIta

lyNetherlands

Ki'ngd

onStates

Union

Eron.

Alle

magn

eItalie

Pais.

Bas

Total

Roya

ume-

Etat

s-Bol

go-Lux

IUni

Unis

486

1,652

6,41

21,3

4010,

263120

,153

232,759

45,647

100.0

100.0

100.0

100.0

100.

045,

647100.0

100.

0100.

0-

-29

.11

40461

750.5

0.1

0.2

0.2

0.2

701,0

091,1

9775

51,170

4,201

57,120

19,023

14.4

61.1

18.7

56.3

11.4

20.8

24.5

41.7

618

02,7

92222

1,101

4,301

136,

052

14,378

1.210.9

43.5

16.6

10.7

21.3

58.5

31.5

__0_

8:

86,3

4430

0.6

_.

2.70.1

1,53

6195

6,761

8,49

23,

699

5,510

24.0

14.6

65.9

42.1

1.6

12.1

-17

-14

311,618

_0.3

0.1

0.2

0.7

__

1414

1,308

1,607

0.2

0.1

0.6

3.5

__

_-_

__

8,303

943.6

0.2

_~

2020

8,031

1,395

0.2

0.1

3.5

3.1

_60

99159

5,071

558

10.9

1.0

0.8

2.2

1.2

LIlS,

united

Nation

sita

tistic

alPap

ers,

Series

0.

Cana

daJapan

.Jap

on

20,9

53669

100.

0100.0

.-I

8,865

42.3

9,51

6-45.4 94 0.4

104

0.5

295

1.4 19 0.1

831

4.0

539

78.2 21 3.0 49 7.1

L/805/Add.3

20

-.

..

.

i