Evaluation of Preferential Agricultural Trade Regimes, in ... · SACU Southern African Customs Union SAD Single Administrative Declaration SADC Southern African Development Community

Written by Kantor Management Consultants S.A.

November 2014

AGRICULTURE AND

RURAL DEVELOPMENT

Evaluation of Preferential

Agricultural Trade Regimes, in particular the Economic Partnership Agreements

(EPAs)

Final Report

EUROPEAN COMMISSION

Directorate-General for Agriculture and Rural Development Directorate E — Economic analysis, perspectives and evaluation; communication Unit E.4 — Evaluation and studies E-mail: [email protected]

European Commission B-1049 Brussels

mailto:[email protected]

EUROPEAN COMMISSION

Evaluation of Preferential

Agricultural Trade Regimes, in particular the Economic Partnership Agreements

(EPAs)

Final Report

LEGAL NOTICE

This evaluation, financed by the European Commission, was carried out by Kantor Management Consultants S.A. The information and views set out in this report are those of by Kantor Management Consultants S.A. and do not necessarily reflect the official opinion of the Commission. The Commission does not guarantee the accuracy of the data included in this report. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use which may be made of the information contained therein.

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Abstract

This evaluation assesses the impact of EU preferential trade agreements and arrangements (PTAs) on the development of agricultural trade in the ACP region countries for the period 1990-2012. The study reviews the historical evolution of EU preferential arrangements with ACP countries, including Economic Partnership Agreements (EPAs), several of which have recently been agreed, as well as the

evolution of EU-ACP trade over the above period. Econometric analysis conducted shows that EU PTAs have been effective at promoting ACP countries agricultural trade in most agricultural sectors, and that the positive impact has been larger in the early phases of the ACP PTA agreements. There has been a decline of the ACP countries share in EU agri-food imports from developing countries over the period examined, as well as a loss of competitiveness in the EU market compared to other developing countries. Several drivers for these results are explored. Seven ACP country/product case studies

conducted in the study, reveal that Non-Tariff Measures (NTMs), whilst increasing trade costs, have trade related beneficial effects, such as quality upgrading. The major constraints to ACP agri-food export expansion were found to be supply related. The EU PTAS were concluded to be relevant, coherent and efficient.

Résumé

Cette évaluation analyse l'impact des accords et des arrangements commerciaux préférentiels (ACPr)

de l'UE sur le développement du commerce agricole dans les pays ACP pour la période 1990-2012. L'étude examine l'évolution historique des arrangements préférentiels de l'UE avec les pays ACP, y compris les accords de partenariat économique, ainsi que l'évolution du commerce ACP-UE pendant la même période. L'analyse économétrique montre que les ACPr de l’UE ont favori le commerce agricole des pays ACP dans la plupart des secteurs de l'agriculture, et que l'impact positif a été plus important dans les premières phases des accords ACPr avec les pays ACP. La part des pays ACP des importations agroalimentaires UE provenant des pays en développement pendant la période examinée a baissé,

ainsi que leur compétitivité dans le marché UE par rapport à d'autres pays en développement. Plusieurs facteurs de ces résultats sont examinés. Sept études de cas produit/pays ACP révèlent que

les mesures non tarifaires (MNT), tout en augmentant les coûts du commerce, ont également des effets bénéfiques, par exemple dans l’amélioration de la qualité. Les principaux obstacles à l'expansion des exportations agroalimentaires des pays ACP seraient liés à l'offre. Les ACPr de l'UE ont été trouvés pertinents, cohérents et efficaces.

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This evaluation was conducted by

KANTOR Management Consultants S. A.

Omirou & Vissarionos 1, 10672

Athens, Greece

Tel.: +30 210 7297500

Fax: +30 210 7249528

[email protected]

http://www.kantor-group.eu

Representative: Costas Kastrinakis

This evaluation was directed by Evangelos Penglis, KANTOR, and carried out by the KANTOR team

with the participation of:

Giovanni Anania, Professor in Economics of Agro-Food Markets and International Trade and Trade

Policy, University of Calabria, Italy

Alan Matthews, Professor Emeritus of European Agricultural Policy, Trinity College, Dublin, Ireland

Alessandro Olper, Associate Professor in Agricultural Economics and Policy, University of Milan, Italy

Demetris Psaltopoulos, Professor in Regional and Rural Economics and Policy, University of Patras, Greece

Alexandros Sarris, Professor in Economics, National and Kapodistrian University of Athens, Greece

Dimitris Skuras, Professor in Regional Economics and International Trade, University of Patras, Greece

Acknowledgements to the following experts for their contributions:

Klaus Frohberg, University of Bonn, Institute for Food and Resource Economics

Panos Konandreas, Ph.D. in Agricultural Economics, University of California

George Mergos, Professor in Public Policy, National and Kapodistrian University of Athens

http://www.kantor-group.eu/

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CONTENTS

1. INTRODUCTION 7

2. EVOLUTION OF THE RELEVANT EU LEGISLATION AND AGREEMENTS 10

2.1. The Lomé Conventions 1975-2000 10

2.2. Cotonou Agreement 2000-2020 11

2.3. Economic Partnership Agreements 12

2.4. EU Market Access Regulation 2008 14

2.5. The Generalised Scheme of Preferences (GSP) 15

2.6. The Everything but Arms scheme and Least Developed Countries 17

2.7. South Africa Trade and Development Cooperation Agreement 18

2.8. Conclusions 18

3. EVOLUTION OF EU-ACP AGRICULTURAL TRADE 20

3.1. Agricultural trade between the EU and ACP countries 20

3.2. Global agricultural trade patterns involving the EU and ACP countries 28

3.3. Intra-ACP agri-food trade in 2011 33

4. UTILISATION AND VALUE OF EU-ACP PREFERENCES 35

4.1. Introduction 35

4.2. Utilisation of preferences 35

4.3. Rules of origin and compliance costs 38

4.4. The value of preferences 41

4.5. Conclusions 45

5. ANSWER TO EVALUATION QUESTION 1 46

5.1. Comprehension and interpretation of EQ1 46

5.2. Literature review relevant to EQ1 46

5.3. Methodological approach, data, sources and limitations 53

5.4. Judgement criteria and indicators 67

5.5. Analysis and evidence 68

5.6. Conclusions on EQ1 90




6.3. Methodological approach, data, sources and limitations 94







7.3. Methodological approach, data, sources and limits 113


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7.5. Validity of information used 115


7.7. Interpretation of evidence 118





8.3. Methodological approach, data, sources and limits 129


8.5. Validity of information used 134


8.7. Interpretation of evidence 143


9. THE IMPACT OF EU AGRICULTURAL PREFERENCES FROM INDIVIDUAL ACP COUNTRY PERSPECTIVES 148

9.1. Methodology for the selection of the country case studies 148

9.2. Cameroon – Bananas 151

9.3. Ethiopia – Cut flowers 158

9.4. Ghana – Cocoa 161

9.5. Guyana – Rice 164

9.6. Kenya – Green Beans 167

9.7. Mozambique – Sugar 172

9.8. Namibia – Beef 177

10. CONCLUSIONS AND RECOMMENDATIONS 182

10.1. What we learn from the analysis undertaken 182

10.2. Factors that explain the trade developments outlined above 184

10.3. Are EU PTAs relevant, coherent, and efficient? 186

10.4. Recommendations 187

BIBLIOGRAPHY 191

APPENDIX 199

A.0. Appendix to Chapter 1 ‘Introduction’ 199

A.1. Appendix to Chapter 3 ‘Evolution of EU-ACP Agricultural Trade’ 200

A.2. Appendix to Chapter 5 ‘Answer to Evaluation Question 1’ 216

A.3. Appendix to Chapter 8 ‘Answer to Evaluation Question 4’ 237

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GLOSSARY

ACP African, Caribbean and Pacific

AGE Applied General Equilibrium

BACI CEPII database of international trade

BLNS Botswana, Lesotho, Namibia and Swaziland

BRC British Retailers Consortium

CAP Common Agricultural Policy

CARIFORUM Caribbean Forum

CARIS Centre for the Analysis of Regional Integration at Sussex

CCT Common Customs Tariff

CEMAC Central African Economic and Monetary Community

CEPII Centre d’Études Prospectives et d’ Informations Internationales

CES Constant Elasticity of Substitution

CMS Constant Market Share

CPA Cotonou Partnership Agreement

CTA Technical Centre for Agricultural and Rural Cooperation

DFQF Duty-free and quota-free

EAC East African Community

EAGF European Agricultural Guarantee Fund

EBA Everything But Arms

ECOWAS Economic Community of West African States

EDF European Development Fund

EPA Economic Partnership Agreement

ESA Eastern and Southern Africa

EUREPGAP European Good Agricultural Practices

FDI Foreign Direct Investment

FOB Free on Board

FP7 Seventh Framework Programme

FTA Free-Trade Agreement

GATT General Agreement on Tariffs and Trade

GATS General Agreement on Trade in Services

GLOBALGAP Global Partnership for Good Agricultural Practice

GNI Gross National Income

GNTB Group of Eminent Persons on Non-Tariff Barriers

GSCs Global Supply Chains

GSP Generalised Scheme of Preferences

GTAP Global Trade Analysis Project

GVCs Global Value Chains

HACCP Hazard Analysis and Critical Control Points

HS Harmonised System

ICC International Chamber of Commerce

ILO International Labour Organisation

IPPC International Plant Protection Convention

ISPMs International Standards for Phytosanitary Measures

LDCs Least Developed Countries

MAR Market Access Regulation

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MAST Multi-Agency Support Team

MFN Most-Favoured Nation

MR Multilateral Resistance

MRLs Maximum Residue Levels

NTBs Non-Tariff Barriers

NTMs Non-Tariff Measures

OCTs Overseas countries and territories

ODI Overseas Development Institute

OECD Organisation for Economic Co-operation and Development

OIE World Organization for Animal Health

OPEC Organization of the Petroleum Exporting Countries

PGIs Protected Geographical Indications

PHL Post Harvest Loss

PTA Preferential Trade Arrangement

REPAs Regional Economic Partnership Agreements

ROOs Rules of Origin

SACU Southern African Customs Union

SAD Single Administrative Declaration

SADC Southern African Development Community

SFA Special Framework of Assistance

SIA Sustainability Impact Assessment

SITC Standard International Trade Classification

SPA Special Programme of Assistance

SPS Sanitary and Phytosanitary

SSA Special System of Assistance

SSA Sub-Saharan African

STABEX Système de Stabilisation des Recettes d'Exportation

TARIC Tariff intégré de la Communauté Européenne

TBT Technical Barriers to Trade

TDCA Trade, Development and Cooperation Agreement

TRAINS Trade Analysis and Information System

TRQs Tariff-Rate Quotas

UNCTAD United Nations Conference in Trade and Development

UNECA United Nations Economic Commission for Africa

URAA Uruguay Round Agreement on Agriculture

VCFs Veterinary Cordon Fences

VER Voluntary Export Restraints

WITS World Integrated Trade Solution

WTO World Trade Organization

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1. INTRODUCTION

The objective of this evaluation is to assess the impact of European Union (EU)1 preferential trade agreements and arrangements (PTAs)2 for agricultural products on the development of agricultural trade in countries of the African, Caribbean and Pacific (ACP)3 region. PTAs have formed an integral part of the European Community policy towards developing countries4, including the ACP countries, since the early 1960s. The ACP and the EU have agreed to replace non-reciprocal trade preferences

by reciprocal (but asymmetric) Economic Partnership Agreements (EPAs).

Trade preferences have been an important part of the EU’s development co-operation policy. Under its Generalised Scheme of Preferences (GSP), which also includes the Everything but Arms (EBA) initiative for Least Developed Countries (LDCs)5, the EU has granted non-reciprocal preferences to all developing countries. The Lomé Conventions and the Cotonou Agreement granted additional non-reciprocal trade preferences to ACP countries. The EU has also granted preferences to countries of the

Southern Mediterranean under the so-called EuroMed6 agreements, as well as autonomous trade preferences at various times to countries in Central and Eastern Europe.

In more detail, the GSP, introduced in 1971 (and extended in 1995 and 2005), provided non-reciprocal preferences in the form of lower tariffs or duty-free access for imports from 179 developing countries. The extended GSP (implemented since 2005) includes three arrangements, namely the GSP for all developing countries, the EBA for LDCs which has been in force since 2001, and the GSP+

which provides duty-free access for all products originating from countries with special development

needs. The GSP was amended as of 1 January 2014 to focus on those developing countries most in need, and in the future only countries below the level of upper middle income will benefit from the EU’s GSP.

The Lomé Conventions and the Cotonou Agreement granted additional preferences to now 79 ACP countries.

The Cotonou Agreement provided for the maintenance of these non-reciprocal preferences until the end of 2007, when the WTO-waiver which allowed the continuation of these preferences as an

exception to WTO rules expired. The Agreement envisaged negotiations on reciprocal trade preferences as part of Economic Partnership Agreements (EPAs). Negotiations on EPAs started in 2002 and have now been concluded with the following regions7: the Caribbean (CARIFORUM), West Africa

1 For convenience, the term EU has been used to designate the European Communities or the European Union throughout.

2 Preferential trade arrangements refer to unilateral preferential arrangements that the EU has adopted vis-à-vis developing countries, such as the Everything but Arms (EBA) initiative. Preferential trade agreements refer to bilateral or multilateral preferential agreements between the EU and other countries. In this report both are referred to as PTAs.

3 The list of ACP countries is indicated in Chapter 2 Table 2.2.1.

4 The list of developing countries is indicated in Table A.0.1 of Appendix A.0 to this Chapter.

5 The United Nations (UN) designated LDC group of countries is currently composed of the following 49 countries: 34 in Africa (Angola, Burkina Faso, Burundi, Benin, Chad, Congo (Democratic Republic of), Central African (Republic), Djibouti, Eritrea, Ethiopia, Gambia, Guinea, Equatorial Guinea, Guinea-Bissau, Comoros Islands, Liberia, Lesotho, Madagascar, Mali, Mauritania, Malawi, Mozambique, Niger, Rwanda, Sao Tome and Principe, Sudan, South Sudan, Sierra Leone, Senegal, Somalia, Togo, Tanzania, Uganda, Zambia); 9 in Asia (Afghanistan, Bangladesh, Bhutan, Cambodia, Lao (People's Democratic Republic), Myanmar/Burma, Nepal, Timor-Leste, Yemen); 5 in Australia and Pacific (Kiribati, Samoa, Solomon Islands, Tuvalu, Vanuatu); and 1 in the Caribbean (Haiti)

6 The countries of the EuroMed partnership are: Algeria , Egypt, Israel, Jordan, Lebanon, Libya, Morocco, Occupied Palestinian Territory, Syria, Tunisia, Turkey.

7 The country membership of the 7 different regional EPA groups is the following:

West Africa (ECOWAS or WA): Benin, Burkina Faso, Cape Verde, Ivory Coast, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo, Mauritania.

Central Africa (CEMAC): ): Cameroon, Central African Republic, Chad, Congo (Brazzaville), Congo - Democratic Republic of (Kinshasa), Equatorial Guinea, Gabon, São Tomé & Principe.

Eastern and Southern Africa (ESA): Comoros, Djibouti, Eritrea, Ethiopia, Madagascar, Malawi, Mauritius, Seychelles, Somalia, Sudan, Zambia, Zimbabwe.

East African Community (EAC): Kenya, Uganda, Tanzania, Burundi and Rwanda.

Southern African Development Community (SADC): Angola, Botswana, Lesotho, Mozambique, Namibia, South Africa, Swaziland.

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(WA), the Southern African Development Community (SADC) and East African Community (EAC). The CARIFORUM-EU EPA has been provisionally applied since December 2008, while the WA-EU and SADC-EU negotiations were concluded in February and July 2014 respectively, and the EAC-EU negotiations

in October 2014. The relevant agreements are being prepared for signature and ratification according to the domestic procedures of each partner. In the meantime, interim EPAs have been signed and put into provisional application with the following countries: Cameroon in Central Africa (2007, ratified in July 2014 with provisional application since August 2014); Mauritius, Seychelles, Zimbabwe and

Madagascar in Eastern and Southern Africa (signed in 2009 and provisionally applied since 2012); Papua New Guinea and Fiji in the Pacific (signed in 2009; provisionally applied by Papua New Guinea since 2009 and Fiji since July 2014).

Despite their importance in EU development co-operation and trade policy, trade preferences have been evaluated rather critically in the academic literature. Some critics claim that nonreciprocal preferences have perverse effects (Borchert, 2009), while others criticise preferential trade policies for

being ineffective. It has been suggested that the effectiveness of preferences is curtailed by their limited scope and the exclusion of goods that are important for the economies of developing countries; the uncertainty associated with temporary unilateral agreements which is unfavourable to investment and the creation of long-term trade flows; and the administrative costs of proving eligibility for preferences and complying with RoOs which negate some of the margins and limit the benefits (Panagariya, 2002). These claims have been supported by evidence that preferential tariffs

have not generated significant trade flows (Brenton and Ikezuki, 2006).

Other analysts worry about the wider political economy impacts of preferences. For example, preferences are used by LDCs and other African countries as an argument against a general liberalisation of trade and the removal of trade-distorting policies in agriculture by the EU, because of fears about the potential negative effects of an erosion of preferential access (Limão and Olarreaga, 2006). Preferences can lead to inefficient allocation of resources in sectors where a receiving country does not have a comparative advantage, which makes it harder to restructure the economy when they are removed or eroded over time (Hoekman and Özden, 2005). Others point out that preferences

create controversy among developing countries themselves as some countries are concerned about the discrimination they face in the EU market as a result of better access granted to preferred developing countries on a nonreciprocal basis.

The following quotation sums up well the widespread scepticism about the benefits of preferences:

The jury remains out on whether trade preferences have actually made a substantive difference in the welfare of recipient countries. The developing countries that were granted the

fewest preferences at the inception of the programme in the 1960s, those in East Asia, have subsequently grown the fastest. Those granted the deepest preferences, including the least

developed countries in Sub-Saharan Africa, have not managed to increase their per capita incomes or diversify their exports significantly in the last 40 years. To a large extent, outcomes in both regions are due more to domestic policies and institutions than to trade policies in OECD countries. Most analysts would agree that the major constraints on export diversification and expansion in Africa are the investment climate and supply capacity.

(Francois et al., 2006, p. 197)

The European Commission has also noted that the ACP countries have not been able to take advantage of all the opportunities offered under the Lomé/Cotonou preferences. Its Green Paper on relations between the EU and the ACP countries on the eve of the 21st century examined the impact of trade preferences granted under Lomé and concluded that ‘as regards impact, in general the Lomé trade preferences have not been sufficient to enhance export growth and increase diversification (...) Neither have they managed to diversify exports significantly and most still rely on a few primary

products’ (CEC, 1996, p. 17).

However, many of the early studies on which these conclusions were based suffered from weaknesses in their empirical specification and estimation procedures. More recent studies using improved methodologies conclude that ‘EU preferences matter and have a positive impact on [developing

Caribbean (CARIFORUM): Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Dominican Republic, Grenada, Guyana, Haiti, Jamaica, St Lucia, St Vincent and the Grenadines, St Kitts and Nevis, Suriname, Trinidad and Tobago.

Pacific: Cook Islands, Fiji, Kiribati, Marshall Islands, Micronesia, Federated States of, Nauru, Niue, Palau, Papua New Guinea, Samoa American, Samoa Western, Solomon Islands, Tonga, Tuvalu, Vanuatu.

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country] agricultural exports at both the extensive and intensive margins8, although with significant differences across sectors’ (Cipollina and Salvatici, 2010).

Given this background, this evaluation was tasked with assessing the impact of the EU’s preferential trade regimes on the evolution of ACP agri-food exports to the EU and elucidating the drivers of this impact.

This evaluation answers four core evaluation questions:

Evaluation Question 1: Where and to what extent has the market access under the different

EU preferential trade regimes impacted on agricultural trade?

Evaluation Question 2: Which were the drivers that contributed to the impact/absence of impact on agricultural trade under consideration of the market access under the different preferential trade regimes?

Evaluation Question 3: Which was the role of non-tariff measures on composition, volume and value of agricultural trade between the EU and the ACP? (Including rules of origin, public and

private standards, trade defence instruments, etc.).

Evaluation Question 4: To what extent is the implementation of the preferential agricultural trade regimes efficient, relevant and coherent with regard to their objectives?

The report is organized as follows. Chapter 2 presents a description of the evolution of the relevant EU legislation and agreements as a background to the current negotiations and context. Chapter 3 presents a description of the evolution of agricultural trade for the period and country groups studied. Chapter 4 describes the utilisation of preferences by ACP exporters and discusses some estimates of

their value. Chapters 5-8 present the answers to the four evaluation questions posed above. These chapters constitute the heart of the evaluation report. They take up in sequence each of the four evaluation questions, and for each one review the relevant literature, and describe the methodology followed, the analysis and results, and the conclusions reached.

Apart from the empirical work based on desktop analysis of existing data, the evaluation team undertook visits to seven ACP countries, to collect primary data and material, as well as to interview relevant actors. These country case studies explored the impacts of the EU’s preferential trade

regimes in a specific major agricultural sector of importance for trade between that country and the EU, and were selected on the basis of several criteria. The answers to three of the four evaluation questions utilize the results of these case study country visits, the main findings and conclusions of which are summarized in Chapter 9.9 The final Chapter 10 summarizes the conclusions and recommendations of the report.

8 The intensive margin refers to the value and/or volume of trade. The extensive margin refers to the diversity of trade, normally thought of as the number of products that are traded between two countries or groups of countries. 9 The country-product case studies were the following: Cameroon-bananas, Ethiopia-cut flowers, Ghana-cocoa. Guyana-rice, Kenya-green beans, Mozambique-sugar, and Namibia-beef.

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2. EVOLUTION OF THE RELEVANT EU LEGISLATION AND AGREEMENTS

There is a long history of preferential trade relations between the EU and developing, especially ACP, countries, in which the agricultural sector has played a significant role. It is thus important to put this evaluation in context by reviewing the history of relevant agreements between the EU and the ACP countries, with a particular emphasis on preferences for agricultural trade.

2.1. The Lomé Conventions 1975-2000

The relationship between the EU and the ACP countries has its origins in the Treaty of Rome, which included provisions (Articles 131 and 136) for the then colonies of the EU’s founding members to be included in the customs union. When most of these colonies gained independence at the beginning of the 1960s, the EU negotiated arrangements to provide eighteen of them with continued preferential access to the Common Market. These arrangements were codified in the first Yaoundé Convention of

1963, and were renewed in the second Yaoundé Convention of 1969. The UK’s accession to the EU in 1973 required a rethink of this relationship to accommodate the special arrangements that the UK had made for trade with its former colonies and dominions. This led to the negotiation of the first Lomé Convention in 1975. While under Yaoundé former colonies were obliged to give European exports preferential access to their markets, the EU abandoned its insistence on reverse preferences in favour

of non-reciprocal concessions on trade. Under Lomé, the ACP countries were obliged merely to treat imports from the EU at least as favourably as those from their most-favoured industrialised country

trading partners (Ravenhill, 2002).

The four Lomé Conventions set out the principles and objectives of EU cooperation with ACP countries. Their main characteristics are: the partnership principle, the contractual nature of the relationship, and the combination of aid, trade and political aspects, with a long-term perspective. The ACP Group of States was founded by the Georgetown Agreement in 1975. The first three Conventions were concluded for a period of five years. The fourth Convention covered the period from March 1990 to February 2000.

The basic principle (Article 2) of the Lomé Convention was that 'products originating in the ACP states shall be imported into the Community free of customs duties and charges having equivalent effects'. This was modified by section 2 of the same Article to the effect that ACP countries were granted only restricted access to EU markets regulated by the Common Agricultural Policy (CAP). Agricultural preferences under the Lomé Conventions came in various forms (see Tangermann, 2000 for a detailed review). Preferences were specified by tariff line and limited to products listed in an annex to the

agreements. Preferences took the form of a reduction in the Most-Favoured Nation10 (MFN) tariff or in

the ad valorem component of mixed tariffs, and were sometimes limited to specific quantities. Four products, bananas, beef, sugar and rum, were covered by specific regulations in Protocols and received particular preferences.

As far as agricultural products are concerned, what resulted was a broad classification of products into three categories (Schrader, 1990):

Products originating in ACP countries and not produced within the EU, which could be imported

duty-free to the EU.

Products imported from ACP countries and covered by the CAP, which received a product-specific low preference margin.

Four products covered by a commodity protocol offering sizeable preference margins for some or all ACP exporters. In the sugar protocol, the EU undertook to purchase and import at guaranteed prices 1.3 million tons of cane sugar originating in specific ACP states and India, per year, for an indefinite period. The banana protocol provided that, in respect of banana

exports to the EU market, no ACP state ‘shall be placed as regards access to its traditional markets and its advantages on these markets, in a less favourable position than in the past or

the present’. Under the beef protocol, certain ACP states were allowed to export specified quantities of boneless meat to the EU at import duties reduced by 90%. The Lomé Convention also provided for an annual quota within which rum could be imported duty-free. However, ACP rum was granted unrestricted duty-free access to the EU market in 2000, and the rum

protocol was eliminated in the Cotonou Agreement. The other commodity protocols were terminated with the expiry of the Cotonou trade preferences in 2007.

10 Most Favoured Nation (MFN) is the term enshrined in the World Trade Organization (WTO) founding text to designate non-discriminatory trade treatment of members. MFN tariffs are those which countries impose on other members of the WTO, although preferential tariffs are allowed as part of a free trade agreement or customs union or a permitted preferential trade arrangement.

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2.2. Cotonou Agreement 2000-2020

By the end of the 1990s there was a sense of frustration that the significant trade preferences for ACP

exports had failed to stem the steady fall in ACP countries’ share of total extra-EU imports. There was also a need to re-evaluate the EU-ACP relationship more generally in the light of far-reaching geo-political changes that had taken place, including the end of the Cold War, which had led the EU to redefine its political and security interests. The European Commission published an extensive Green Paper in 1996 which reflected on these changes and what they might mean for the future of EU-ACP

relations (European Commission, 1996). On the trade dimension of this relationship, the Commission identified a menu of future trade options that ran from the maintenance of the status quo through a reciprocal preferential agreement with the ACP as a single region or as multiple regions, to the abandonment of the trade provisions of Lomé in favour of an expanded GSP. The Commission’s preferred option was clearly the negotiation of what it termed regional economic partnership agreements (REPAs). These would be enhanced reciprocal regional PTAs, which meant that their trade

provisions would be supplemented by EU development assistance. The EU would seek an extension of the WTO waiver to allow existing trade relations to continue for a further five years to provide an opportunity for ACP countries to take the necessary measures to prepare for reciprocal preferential agreements. Least developed ACP countries, however, would benefit from trade arrangements at least equal to the status quo, provisions that the Commission proposed to extend to all UN-designated LDCs (Ravenhill, 2002).

Following a lengthy ratification process, the Cotonou Partnership Agreement (CPA) signed in 2000

(CPA I) entered into force in 2003 (Official Journal of the European Union, 2000). In line with the provisions foreseen in Article 95 of the CPA, two revisions have taken place since, the first signed in Luxembourg in 2005 (CPA II) and the second in Ouagadougou in 2010 (CPA III) (Official Journal of the European Union, 2010). A third revision is scheduled for 2015, but this occasion is seen more as an opportunity to reflect on the prospects for EU-ACP cooperation before the CPA expires in 2020 (Carbone, 2013).

A common feature of the Lomé Conventions and the Cotonou Agreement was their expanding

geographical scope. The number of ACP countries, which was 46 at the time of the signing of Lomé I, grew to 71 at the time of the negotiation of the Cotonou Agreement, and currently is 79. All of them, except Cuba, are signatories to the Cotonou Agreement. The expansion of the ACP Group is shown in Table 2.2.1.

Article 36 of the CPA set out the principles for the new trading relationship between the EU and the ACP countries. The mandate for the negotiation of EPAs is set out in Article 37 (the wording is from

CPA II signed in 2010):

Negotiations of the Economic Partnership Agreements will be pursued with ACP countries which consider themselves in a position to do so, at the level they consider appropriate and in accordance with the procedures agreed by the ACP Group, and with a view to supporting regional integration process within the ACP. Negotiations of the Economic Partnership Agreements shall aim notably at establishing the timetable for the progressive removal of barriers to trade between the Parties, in accordance with the relevant WTO rules. On the

Community side trade liberalisation shall build on the acquis and shall aim at improving current market access for the ACP countries through inter alia, a review of the rules of origin. Negotiations shall take account of the level of development and the socio economic impact of trade measures on ACP countries, and their capacity to adapt and adjust their economies to the liberalisation process. Negotiations will therefore be as flexible as possible in establishing the duration of a sufficient transitional period, the final product coverage, taking into account sensitive sectors, and the degree of asymmetry in terms of timetable for tariff dismantlement,

while remaining in conformity with WTO rules then prevailing.

The Cotonou Agreement provides for special treatment for LDCs. Article 37.9 specified that ‘The Community will start by the year 2000, a process which by the end of multilateral trade negotiations and at the latest 2005 will allow duty-free access for essentially all products from all LDCs building on

the level of the existing trade provisions of the Fourth ACP-EC Convention and which will simplify and review the rules of origin, including cumulation provisions, that apply to their exports.’ This led

ultimately to the introduction of the EBA arrangement within the EU’s GSP (see below).

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Table 2.2.1: The growth in cooperation between African, Caribbean and Pacific countries and the EU

ACP Members

Yaoundé I (1963) Benin - Burkina Faso - Burundi - Cameroon - Central African Republic - Chad - Congo (Brazzaville) - Congo (Kinshasa) - Côte d'Ivoire - Gabon - Madagascar - Mali - Mauritania - Niger - Rwanda - Senegal - Somalia - Togo

Yaoundé II (1969) Kenya - Tanzania - Uganda

Lomé I (1975) The Bahamas - Barbados - Botswana - Ethiopia - Fiji - Gambia - Ghana - Grenada -

Guinea - Guinea-Bissau - Guyana - Jamaica - Lesotho - Liberia - Malawi - Mauritius - Nigeria - Samoa - Sierra Leone - Sudan - Swaziland - Tonga - Trinidad and Tobago - Zambia

Lomé II (1979) Cape Verde - Comoros - Djibouti - Dominica - Kiribati - Papua New Guinea - Saint Lucia - Sao Tome and Principe - Seychelles - Solomon Islands - Suriname - Tuvalu

Lomé III (1984) Angola - Antigua and Barbuda - Belize - Dominican republic - Mozambique - Saint Kitts and Nevis - Saint Vincent and the Grenadines - Vanuatu - Zimbabwe

Lomé IV (1990) Equatorial Guinea - Haiti

Lomé IV revised (1995) Eritrea - Namibia - South Africa

Cotonou (2000) Cook Islands - Marshall Islands - Federated States of Micronesia – Nauru - Niue – Palau

Current ACP members Angola - Antigua and Barbuda - Belize - Cape Verde - Comoros - Bahamas

- Barbados - Benin - Botswana - Burkina Faso - Burundi - Cameroon - Central African Republic - Chad - Congo (Brazzaville) - Congo (Kinshasa) - Cook Islands - Côte d'Ivoire - Cuba - Djibouti - Dominica - Dominican Republic - Eritrea - Ethiopia - Fiji - Gabon - Gambia - Ghana - Grenada - Republic of Guinea - Guinea-Bissau - Equatorial Guinea - Guyana - Haiti - Jamaica - Kenya - Kiribati - Lesotho - Liberia - Madagascar - Malawi - Mali - Marshall Islands - Mauritania - Mauritius - Micronesia - Mozambique - Namibia - Nauru - Niger - Nigeria - Niue - Palau - Papua New Guinea -

Rwanda - St. Kitts and Nevis - St. Lucia - St. Vincent and the Grenadines - Solomon Islands - Samoa - Sao Tome and Principe - Senegal - Seychelles - Sierra Leone - Somalia - South Africa -

Sudan - Suriname - Swaziland - Tanzania - Timor Leste - Togo - Tonga - Trinidad and Tobago - Tuvalu - Uganda - Vanuatu - Zambia - Zimbabwe

2.3. Economic Partnership Agreements

The Council adopted the European Commission’s negotiating directives for Economic Partnership Agreements (EPAs) on 17 June 2002. Negotiations on EPAs were then launched in Brussels on 27

September 2002. It was agreed to divide the negotiations in two phases. The first phase, at an all-ACP-EC level, would address issues of interest to all regions. The second phase, at the level of individual ACP countries and regions, would address regionally specific issues and commitments.

The all-ACP-EC level negotiations were concluded at an ACP-EC ministerial meeting on 2 October 2003, which produced a joint report that provided a point of reference for negotiations with six (later, seven) regional groupings of ACP states and noted areas of convergence and divergence. The next phase of regional negotiations then began with each ACP region and the Commission agreeing a joint

‘roadmap’ for negotiations. The roadmaps set out the regionally specific structures, priorities and

phasing of negotiations within a common framework. The roadmaps took forward the issues raised in the 2003 joint paper, reflecting ACP regional priorities. Formal regional negotiations were launched with West Africa (October 2003), Central Africa (October 2003), Eastern and Southern Africa (February 2004), the Caribbean (April 2004), Southern Africa / SADC (July 2004) and the Pacific (September 2004). Countries of the East African Community formed a separate negotiating group in

August 2007.11 A Sustainability Impact Assessment (SIA) of the EPAs was launched in September 2002 and completed in 2007 (Price Waterhouse Coopers, 2007).

11 Initially, four of the five EAC countries, namely Burundi, Kenya, Rwanda and Uganda began EPA negotiations in the Eastern and Southern African configuration, which is drawn from the Common Market for Eastern and Southern Africa (COMESA). Tanzania, on its side, started negotiations under the SADC configuration. However, as

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Negotiations made slow progress and by the beginning of 2007 no successor trade agreements to the Cotonou Agreement had yet been agreed. In deference to the rapidly approaching end-of-year deadline, the European Commission agreed in October 2007 to split the negotiations into two stages:

(i) the conclusion of interim (also called stepping stone or framework) EPAs, to be concluded by the end of 2007, involving an FTA on goods alone between the EU and the ACP countries willing to prevent a loss of market access to the EU after 2007; followed by (ii) further negotiations towards comprehensive EPAs to be concluded at the regional level. By the end of 2007, 18 ACP countries had

initialled interim EPAs (Zambia subsequently initialled an iEPA in 2008). A number of these interim agreements were subsequently amended, either as a result of ‘legal scrubbing’ or of further negotiation on details (Stevens, 2008). As already mentioned in the introduction, by the end of 2013, countries in three of the EPA regions were implementing their agreements: the CARIFORUM EPA, the EPA with Papua New Guinea in the Pacific, and four countries in the Eastern and Southern African configuration (Zimbabwe, Seychelles, Mauritius and Madagascar). Further developments took place in

2014. Cameroon ratified the EU-Central Africa interim EPA, Fiji started to apply the EU-Pacific interim EPA, and negotiations on full EPAs were concluded with West Africa, the SADC and the EAC EPA regions. The latter three still need to be signed, ratified and applied. Table 2.3.1 provides an overview of the state of play as of October 2014.

Trade liberalisation commitments in the interim EPAs have been asymmetric. The EU has offered duty-free and quota-free access for all exports from ACP countries, while the ACP countries have generally

exempted up to 20% of their imports from tariff reductions as well as phasing in their tariff reductions

over very long periods of up to 25 years for the rest.12 Focusing on the treatment of staple foods in the ACP tariff liberalisation schedules, Matthews (2013) found that ACP countries have made use of flexibilities in the EPA negotiating process to exclude from liberalisation products that are important in terms of food security. Where staple food tariff lines are included in the liberalisation schedule, very often either liberalisation has been postponed until the end of the transition period (with low initial tariff rates) or the EU is not a major supplier of the product in question.

negotiations progressed, in particular in market access for trade in goods, and as the December 2007 deadline for the expiry of the WTO was approaching, it became evident that the EAC countries could not conclude the EPA under different configurations. Indeed, as members of a Customs Union, the external tariff that would apply to the EU in their market access offers had to be aligned with the rates of the EAC common external tariff. It was therefore decided at the EAC Summit Meeting August 2007 that they would conclude the EPA as a single block (Ramdoo and Walker, 2010).

12 The official texts for each agreement can be found as follows: Cameroon (Central Africa) ((Official Journal of the European Union, 2009a); Côte d’Ivoire (Official Journal of the European Union, 2009b); East African Community (European Commission, 2007); Economic and Southern Africa (Official Journal of the European Union, 2012) (individual schedules setting out the individual exclusion lists for partner countries have been separately agreed); Ghana (Council of the European Union, 2008); Pacific States (Official Journal of the European Union, 2009c); SADC States (Official Journal of the European Union, 2009d); CARIFORUM (Official Journal of the European Union, 2008).

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Table 2.3.1: State of play of Economic Partnership Agreement negotiations, October 2014

EU-ACP sub-

group Status of agreement

Caribbean Full EPA initialled in Dec 2007 and signed in October 2008 (and December 2009 by Haiti) and approved by the European Parliament (March 2009). Provisionally applied since 29 December 2008. Haiti is not yet applying the agreement pending ratification.

Central Africa Interim EPA with region initialled in 2007 and approved by the European Parliament in 2013. Cameroon is the only country which signed (Jan 2009) and ratified (July 2014) the interim EPA.

West Africa Full EPA initialled on 30 June 2014 by ECOWAS and 16 countries in West Africa.

Eastern and Southern Africa

Interim EPA initialled by Zimbabwe, Seychelles, Mauritius, Comoros, Madagascar, Zambia (Nov-Dec 2007) and signed by Zimbabwe, Seychelles, Mauritius and Madagascar only (August 2009). Zimbabwe and Seychelles have in the meantime ratified the agreement while Madagascar and Mauritius have notified provisional

implementation since May 2012. The European Parliament approved this interim

EPA in January 2013.

East African Community

Full EPA agreed with East African Community members Burundi, Kenya, Rwanda, Tanzania, Uganda Kenya initialled on 16 October 2014. Signature and ratification

pending.

Southern African

Development Community

Full EPA initialled by Botswana, Lesotho, Namibia, Swaziland, Mozambique and South Africa in July 2014. Signature and ratification pending.

Angola was an observer in the negotiation but is not party to the EPA.

Pacific Interim EPA signed by Papua New Guinea (PNG) (July 2009) and Fiji (Dec 2009)

and ratified by PNG (February 2011). Provisional application began by PNG in Dec 2009 and by Fiji in July 2014. Successive rounds of negotiations on a full EPA have been held since Oct 2012 but not concluded.

Source: European Commission

2.4. EU Market Access Regulation 2008

Annex V of the Cotonou Agreement, which provided for unilateral trade preferences for the ACP countries, expired on 31 December 2007. The expectation had been that these arrangements would be replaced by EPAs. To bridge the gap for countries that were not yet in a position to apply these EPAs, as they were awaiting ratification, the EU set out interim arrangements applying as from 1 January 2008 to products from the countries in question in Council Regulation (EC) No. 1528/2007, the so called Market Access Regulation (MAR). This regulation governed the EU import regime for the ACP countries that initialled Economic Partnership Agreements in 2007. It basically unilaterally

anticipated the duty-free access that the EU offered in these agreements.

The Market Access Regulation opened duty-free and quota-free (DFQF) access to the Union market to those ACP states that had initialled agreements with the EU (South African imports continue to be governed by the Trade Development and Cooperation Agreement). The offer covered all products, including agricultural goods like beef, dairy, cereals and all fruit and vegetables. DFQF access applied in full from 1 January 2008 with the exception of a transition period for rice and sugar.

Initially 35 ACP States which had initialled WTO-compatible agreements benefited from the new arrangements, with Zambia added in 2008.

Because several ACP countries had neither taken the necessary steps towards ratification of an EPA nor concluded comprehensive regional negotiations, the MAR was amended (Regulation 527/2013) to reserve free access to those countries that had taken the necessary steps towards ratification of their EPA by 1 October 2014 (Official Journal of the European Union, 2013). Only those countries that have

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ratified or applied their interim EPA by that date or had concluded negotiations for a regional full EPA retain duty-free quota-free access after that date under the MAR, unless they are LDCs and as such benefit from the EBA scheme. Otherwise, the GSP applies.

2.5. The Generalised Scheme of Preferences (GSP)

The EU introduced its GSP13 in 1971, with the intention that it should be implemented through ten-year long programmes. In practice, the GSP regulations generally lasted for three years, allowing in

effect the EU’s GSP regime to change over time. Changes, sometime substantial, in GSP provisions thus occurred at interim reviews (Gasiorek et al., 2010). The first EU GSP scheme spanned an initial phase of ten years (1971-1981) and was subsequently renewed for a second decade (1981-1991). Following a successful challenge by India at the WTO to the drugs arrangement part of the GSP, and based on guidelines drawn up in 2004, a third EU GSP scheme was adopted on 27 June 2005 under Council Regulation (EC) No. 980/2005 covering the period from 1 January 2006 to 31 December 2008.

The scheme now consisted of three arrangements, namely the general arrangement; a special incentive arrangement for sustainable development and good governance (‘GSP+’); and a special arrangement for LDCs (the ‘Everything but Arms’ initiative). The scheme was extended by Council Regulation (EC) No 732/2008 that entered into force on 1 January 2009 and which was due to expire on 31 December 2011. However, in order to allow time to properly prepare a new GSP revision, the

preferences under Regulation No 732/2008 were extended until 31 December 2013 by the GSP ‘Roll-over’ Regulation No. 512/2011. The general arrangements cover roughly 7,000 products, of which

3,250 are classified as non-sensitive and 3,750 are classified as sensitive products. The sensitivity of products is determined by the situation of the sector manufacturing the same products in the Union. Sensitive products are assumed to require a higher border protection, while non-sensitive products can compete with duty-free imports from developing countries.

The EU adopted a new GSP regulation on 31 October 2012 (Regulation No 978/2012) with extensive changes. In order to allow ample time for economic operators to adapt to the new scheme, the new preferences applied as of 1 January 2014. The new scheme is focused on fewer beneficiaries (90

countries) to ensure more impact on countries most in need. At the same time, more support will be provided through GSP+ to countries which are serious about implementing international human rights, labour rights and environment and good governance conventions. With the exception of EBA, which has no expiry date, the new scheme will last 10 years, instead of three years under the previous scheme. This will make it more attractive for EU importers to develop supply links with GSP beneficiary countries. In addition, procedures have been made more transparent, with clearer, better

defined legal principles and objective criteria.

The new GSP removes the possibility of ‘overlapping preferences’ by excluding countries that already have preferential access to the EU which is at least as good as under GSP, for example, under a free trade regime or a special autonomous trade regime, as well as concentrating preferences on countries most in need by removing countries which have achieved a high or upper middle per capita income, according to the World Bank classification. Thus, out of the current 177 beneficiaries, 90 countries will continue to benefit from the EU's preferential tariff scheme, 67 will benefit from other arrangements

with privileged access to the EU market, but will not be covered by the GSP, while 20 will stop benefitting from preferential access and their exports will now enter the EU with a tariff applicable to all other developed countries. (See Table 2.5.1)

13 In many discussions GSP is mentioned as the Generalized System of Preferences.

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Table 2.5.1: Classification of countries following the introduction of the new GSP regime on 1 January 2014

Country classification

1. The 90 countries which will receive preferences under the reformed GSP include 49 least

developed countries (LDCs) under the Everything But Arms (EBA) scheme and 41 other low and lower-middle income partners.

1a. LDCs under EBA (49):

34 in Africa (Angola, Burkina Faso, Burundi, Benin, Chad, Congo (Democratic Republic of), Central African (Republic), Djibouti, Eritrea, Ethiopia, Gambia, Guinea, Equatorial Guinea, Guinea-Bissau, Comoros Islands, Liberia, Lesotho, Madagascar, Mali, Mauritania, Malawi, Mozambique, Niger, Rwanda, Sao Tome and Principe, Sudan, South Sudan, Sierra Leone,

Senegal, Somalia, Togo, Tanzania, Uganda, Zambia);

9 in Asia (Afghanistan, Bangladesh, Bhutan, Cambodia, Lao (People's Democratic Republic), Myanmar/Burma, Nepal, Timor-Leste, Yemen);

5 in Australia and Pacific (Kiribati, Samoa, Solomon Islands, Tuvalu, Vanuatu);

1 in the Caribbean (Haiti).

1b. Other low and lower-middle income partners under GSP (41):

Armenia, Azerbaijan, Bolivia, China, Cape Verde, Colombia, Cook Islands, Costa Rica,

Ecuador, Georgia, Guatemala, Honduras, India, Indonesia, Iraq, Islamic Republic of Iran, Kyrgyzstan, Maldives, Marshall (islands), Micronesia (federate States of), Mongolia, Nauru, Nicaragua, Nigeria, Niue, Pakistan, Panama, Paraguay, Peru, the Philippines, El Salvador, Sri Lanka, Syrian (Arab Republic), Tajikistan, Thailand, Congo (Republic of), Tonga, Turkmenistan, the Ukraine, Uzbekistan, Vietnam.

2. Countries for which preferences are deferred are:

2a. 33 overseas countries and territories (OCTs), as they already have alternative trade arrangements for accessing the EU market: Anguilla, Netherlands Antilles, Antarctica, American Samoa, Aruba, Bermuda, Bouvet Island, Cocos Islands, Christmas Islands, Falkland Islands, Gibraltar, Greenland, South Georgia and South Sandwich Islands, Guam, Heard Island and McDonald Islands, British Indian Ocean Territory, Cayman Islands, Northern Mariana Islands, Montserrat, New Caledonia, Norfolk Island, French Polynesia, St Pierre and Miquelon, Pitcairn,

Saint Helena, Turks and Caicos Islands, French Southern Territories, Tokelau, United States Minor

Outlying Islands, Virgin Islands – British, Virgin Islands- US, Wallis and Futuna, Mayotte.

2b. 20 high and upper middle income countries (as classified by the World Bank during three consecutive years, based on Gross National Income (GNI) per capita: Saudi Arabia, Kuwait, Bahrain, Qatar, United Arab Emirates, Oman, Brunei Darussalam, Macao (territory), Argentina, Brazil, Cuba, Uruguay, Venezuela, Belarus, Russia, Kazakhstan, Gabon, Libya, Malaysia, Palau

2c. 34 countries with a preferential or free trade agreement (PTA or FTA – with two years of transition to allow for adjustment to the new regime) or a special autonomous trade regime (such

as the Market Access Regulation, and the regimes for Western Balkans and Moldova) covering substantially all preferences for trade in goods under GSP.

Euromed: Algeria, Egypt, Jordan, Lebanon, Morocco, Tunisia.

CARIFORUM: Belize, St. Kitts and Nevis, Bahamas, Dominican Republic, Antigua and Barbuda, Dominica, Jamaica, Saint Lucia, Saint-Vincent and the Grenadines, Barbados, Trinidad and Tobago, Grenada, Guyana, Surinam.

Economic Partnership Agreement Market Access Regulation: Côte d'Ivoire, Ghana, Cameroon,

Kenya, Seychelles, Mauritius, Zimbabwe, Namibia, Botswana, Swaziland, Papua New Guinea, Fiji.

Other: Mexico, Chile, South Africa.

The regulation provides that these countries will receive preferences once again if they fall out of the high and upper middle income categories, or the PTAs are revoked or expire, or the autonomous trade regime is phased out.

Source: European Commission (2013a,b)

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Agricultural products included in the GSP enjoy only limited tariff concessions, mainly to maintain higher preference margins for the EU’s preferred ACP and Mediterranean partners. Coverage was limited to around 385 tariff lines in the mid-1980s. The original idea was only to offer preferences on

processed agricultural products. Under the stimulus of the first EU enlargement and the UK’s desire to favour Commonwealth countries in Asia as well as the major focus on tropical products during the GATT Tokyo Round of trade negotiations, the list of 385 tariff lines included many fresh fruits and vegetables of tropical origin, herbs and spices, vegetable oils, fish and shell-fish. However, it excluded

products covered by market arrangements under the CAP and protected by levies or similar devices. The tariff treatment was generally a tariff reduction, rather than completely duty-free entry, which was available on only a quarter of all products (European Commission, 1985). Some additional preferences on agricultural products were subsequently added to the GSP general arrangement, but concessions remained limited; more generous preferences were given to the beneficiaries of the GSP+ arrangement introduced for vulnerable countries.

2.6. The Everything but Arms scheme and Least Developed Countries

The EU’s GSP scheme provides for more favourable tariff treatment for LDCs. Since 1977 a series of supplementary measures almost totally liberalised GSP access for LDCs (although most LDCs were also ACP states which benefited from Lomé preferences). LDCs were given greater preferences on

industrial products, including textiles, benefiting not merely from duty-free entry but complete exemption from the application of preferential quantity limits. They also benefited from duty-free

entry on all agricultural products covered by the GSP plus a supplementary list of some 370 products. This extended list included nearly all agricultural/fishery products in the Harmonized System (HS) customs tariff sections 1-24 which were not protected by a levy or similar device, thus putting LDCs very nearly on a par with ACP countries.

In September 2000, the Commission issued a statement proposing to go beyond previous EU commitments by granting unrestricted duty-free access to all products (except arms) from all LDCs. In February 2001, the Council adopted the so-called ‘EBA Regulation’ (Regulation (EC) No. 416/2001).

The provisions of this Regulation were subsequently incorporated into the GSP Regulation (EC) No. 2501/2001. The EBA Regulation foresees that the special arrangements for LDCs should be maintained for an unlimited period of time and not be subject to the periodic renewal of the Community's scheme of generalised preferences. Therefore, the date of expiry of Council Regulation (EC) No. 2501/2001 does not apply to its EBA provisions.

The significance of the EBA Regulation was to extend trade preferences to LDCs on products excluded

from the EU’s other preferential schemes, such as Cotonou and the GSP. A total of 919 tariff lines (out

of the 10,500 tariff lines in total) were affected, almost entirely agricultural products covered by the CAP. Only imports of fresh bananas, rice and sugar were not fully liberalised immediately. Duties on those products were gradually reduced and duty-free access was granted for bananas in January 2006, for sugar in July 2009 and for rice in September 2009 (see Table 2.6.1).

Table 2.6.1: Treatment of the most sensitive agricultural products not subject to immediate

liberalisation in the EBA

Product treatment

Fresh bananas (CN code 0803 0019) EBA provided for full liberalisation between 1 January 2002 and 1 January 2006 by reducing the full EC tariff by 20% every year.

Rice (HS 1006) Customs duties on rice were phased out between 1 September 2006 and 1 September 2009 by gradually reducing the full EU tariff to zero. During the interim period, in order to provide effective market access, LDC rice was allowed to enter the EC market duty-free within the limits of a tariff quota. The initial quantities of this quota were based on best LDC export levels

to the EU in the past years, plus 15%. The quota was to grow by 15% every year from 2,517 tons (husked-rice equivalent) in 2001/2002 to 6,696 tons in 2008/2009 (the marketing year starts in September and finishes in August of the following year).

Sugar (HS 1701) Full liberalisation was phased in between 1 July 2006 and 1 July 2009 by gradually reducing the full EU tariff to zero. In the meantime, as for rice, LDC raw sugar could come in duty-free within the limits of a tariff quota, which was to grow by 15% every year: from 74,185 tons (white-sugar equivalent) in 2001/2002 to 197,355 tons in 2008/2009 (July to June marketing year). Imports of sugar under the ACP-EC sugar protocol were excluded from the above calculations so as to uphold the viability of this protocol.

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2.7. South Africa Trade and Development Cooperation Agreement

Shortly after the end of apartheid, South Africa joined the Lomé Agreement under special

arrangements in 1997 and the agreement entered into force in June 1998. Work then began on establishing trade relations between the EU and South Africa, and an extensive Trade, Development and Cooperation Agreement (TDCA) was signed in October 1999 (Official Journal of the European Union, 1999). This agreement entered fully into force on 1 May 2004 (Official Journal of the European Union, 2004), but the EU tariff concessions were applied as of 1 January 2000. When the Cotonou

Agreement was signed in 2000, South Africa also became a signatory but was not a party to the preferential trade arrangements granted to ACP countries, retaining instead the TDCA trade regime.

In 2004 the Commission, the Member States and the Republic of South Africa conducted a review of the TDCA, in accordance with the requirements of Articles 18 and 103 calling for a review within five years of its entry into force. The review focused primarily, but not exclusively, on those sections of the TDCA that were being provisionally applied. It led to the adoption by the Cooperation Council on 23

November 2004 of ‘Joint Conclusions’ setting out broad guidelines for a revision of the TDCA. This revision was completed in 2007 under Titles I (Political Dialogue), IV (Economic Cooperation), V (Development Cooperation), VI (Other areas of cooperation, and VII (Financial aspects of cooperation) of the TDCA, and signed during the 2nd SA-EU Summit in September 2009.

As regards the revision of the trade chapters (Title II – Trade, and Title III – Trade related issues), in

March 2007 it was decided to separate them from the broader TDCA revision and to conduct them under the SADC EPA negotiating process. South Africa thus joined the negotiations with the SADC EPA

group in March 2007. Five of the seven countries in the SADC Group initialled an interim EPA, but South Africa opted not to join at that stage so its trade relations with the EU continued to be governed by the TDCA. In July 2014, the SADC EPA group including South Africa successfully concluded their negotiations on a SADC EPA. Under this agreement, South Africa will continue to trade with the EU under the TDCA but with improved conditions.

Under the current TDCA, the EU grants complete duty-free access to South African industrial goods but continues to restrict imports of agricultural products. The Commission estimated that around 61%

of South African imports (based on 1994-1996 trade statistics) would be admitted duty-free by the end of the transition period (European Commission, 1999). The list of excluded agricultural products comprises around 26% of all South African agricultural export products (Meyn, 2004a). It includes beef, sugar, some dairy products (incl. milk, butter, and whey), sweet corn, maize and maize products, rice and rice products, starches, citrus, apples, pears, grapes, bananas, tomatoes, vermouth, ethyl alcohol and fish. However, South Africa was granted tariff rate quotas for some

products covering around 11.5% of South African exports (TDCA, Annex IV, list 5-6) where tariffs were retained by the EU, the most important of which cover canned fruit, fruit juices, cut-flowers,

wines and sparkling wines, as well as cheese. 0.5% of all European agricultural products is definitely excluded from the TDCA as these products are protected by geographical indications like port, sherry, Parma ham etc. (Meyn, 2004a).

One consequence of South Africa entering into a free trade agreement with the EU is that it also locked neighbouring Botswana, Lesotho, Namibia and Swaziland (BLNS) into its trade liberalisation

programme in relation to the EU (Meyn, 2004b). The BLNS countries, together with South Africa, form the Southern African Customs Union (SACU). Although the BLNS countries’ trade relations with the EU were fixed under the non-reciprocal Cotonou Agreement, they had to implement the TDCA liberalisation schedule, given that they did not have the capacity to monitor indirect imports from the EU into their countries.

2.8. Conclusions

A number of significant determinants shaped the evolution of the EU-ACP trade relationship. It began at the foundation of the European Economic Community with the association of the then colonies of various member countries under Part IV of the Treaty. Reciprocal preferences continued with these

countries when they gained their independence under the two Yaoundé Conventions. The UK joined the EU in 1973 at a time when developing countries were pressing for a new international economic order. The first Lomé Convention signed in 1975 introduced the principle of non-reciprocal trade

preferences, and founded the ACP group which embraced a larger number of countries.

As a result of the Lomé Convention non-reciprocal trade preferences, the ACP countries were often described as being at the top of the EU’s hierarchy of trade preferences. This was particularly true with respect to agricultural trade, where the market access arrangements for ACP countries were generally superior to those under the general GSP arrangement or competing schemes such as the EuroMed trade arrangements. Nonetheless, ACP preferences for agricultural products supported by the EU’s CAP were generally limited to the ad valorem element of the EU tariff, together with special

arrangements for the protocol commodities sugar, bananas and beef. The position of most preferred

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suppliers was taken by LDCs following the introduction of the Everything but Arms scheme in 2001 which extended duty-free and quota-free access to these countries for all tariff lines except arms including all agricultural products (with transitional arrangements for sugar, bananas and rice). South

Africa benefited from extensive preferential access for its exports, with some limitations for agricultural products, under its Trade and Development Cooperation Agreement which the EU applied since 2000.

The Cotonou Agreement signed in 2000 foresaw the end of the non-reciprocal trade arrangements at

the end of 2007. This partly reflected an internal process of discussion within the EU following the publication of a Commission Green Paper in 1996 which built on a sense of frustration that the significant trade preferences for ACP exports had failed to stem the steady fall in the share of ACP countries in total extra-EU imports. There was also a need to re-evaluate the EU-ACP relationship more generally in the light of the far-reaching changes that had taken place, including the end of the East-West conflict, which had led the EU to redefine its political and security interests. Finally, the

system of non-reciprocal preferences under Lomé/Cotonou was not compatible with WTO rules for preferential trade agreements. Hence, the proposal to replace them with reciprocal (even if asymmetric) trade preferences was part of a deeper trade and investment relationship in the form of Economic Partnership Agreements.

Following the expiry of the Cotonou non-reciprocal trade regime at the end of 2007, those ACP countries which had signed an EPA with the EU (CARIFORUM) or an interim EPA were also granted

duty-free and quota-free access to the EU market including for all agricultural products (with transition

periods for sugar and rice). Those countries which had initialled an interim EPA gained duty-free access for a transitional period under the EU’s Market Access Regulation (36 countries in all). ACP LDCs which had not concluded interim EPAs continued to benefit from duty-free quota-free access under the EBA while a further ten ACP non-LDCs reverted to GSP status. This regime was amended with effect as of 1 October 2014 so that countries that have not taken the necessary steps towards ratification of their EPA no longer benefit from the MAR.

By the end of 2013, countries in three of the EPA regions were implementing their agreements: the

CARIFORUM EPA, the EPA with Papua New Guinea in the Pacific, and four countries in the Eastern and Southern African configuration (Zimbabwe, Seychelles, Mauritius and Madagascar). Further developments took place in 2014. Cameroon ratified the EU-Central Africa interim EPA, Fiji started to apply the EU-Pacific interim EPA, and negotiations on full EPAs were concluded with West Africa, the SADC EPA region and the EAC. The latter three still need to be signed, ratified and applied.

As a result of the evolution of the EU-ACP trade relationship over time, there has been a slow but

gradual improvement in the conditions of access for ACP countries to the EU market for their agricultural exports. Full duty-free and quota-free access for agricultural exports (with a transitional

period for sugar, rice and bananas) was given to the ACP LDC exporters in 2001. All other ACP countries with significant agricultural exports to the EU were given duty-free access in 2008. Yet despite this gradual improvement in market access conditions, ACP agricultural exporters have continued to lose market share on the EU market. This evolution of ACP export performance is discussed in detail in the following Chapter.

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3. EVOLUTION OF EU-ACP AGRICULTURAL TRADE

This chapter contains a description of the evolution of the agricultural trade between EU and the ACP region for the trade regimes studied, as a background to understanding the importance of the ACP group in EU agri-food trade.

3.1. Agricultural trade between the EU and ACP countries

In this section the evolution of trade between the EU and the ACP countries is examined for the period 1990-2012. ACP trade performance over the period 1990-2012 has been examined so as to highlight four periods. These coincide with significant changes in preferential trade regimes between the EU14 and the ACP15 countries and is consistent with the subsequent Constant Market Share (CMS) analysis. The four periods are indicated in Table 3.1.1 below. The analysis has been carried out according to the WTO product classification, as indicated in Table A.1.1 of Appendix A.1. All data in this section is

sourced from the import data in the Eurostat COMEXT trade database.

Table 3.1.1: Periods of different ACP preferences

1990-1995 Lomé IV preferences; initial GSP preferences

1995-2001 Lomé IV preferences continue; significant changes in GSP scheme in 1995

2001-2008 EBA scheme introduced in 2001 for least developed countries: GSP+ scheme introduced in 1998

2008-2012 Market Access Regulation introduced; end of commodity protocols; new GSP+

scheme in 2006

Agricultural trade between the EU and developing countries

Figure 3.1.1 presents the total EU imports of agricultural products from all developing countries for the beginning, intermediate and end dates of the periods identified in Table 3.1.1 between 1990 and 2012 (the list of all developing countries is shown in Table A.0.1). For a breakdown of this analysis per product category (according to HS classification) see Table A.1.3 of the Appendix. The major

observations from this analysis are the following:

The 1995 enlargement from the then EU12 to EU15, increased the EU agri-food imports from developing countries by 25.6%.

Enlargement to EU27 in 2004, does not seem to have changed very much the overall agri-food imports into the EU from developing countries, as the total EU27 agri-food imports in 2004 were only 8.5% higher than those of the EU15 in the same year. Although not shown in the figure, of the EU27 total agri-food imports from all developing countries in 2012, 80% were

accounted for by the pre-1995 12 EU members.

EU12 agri-food imports from developing countries between 1990 and 1995 decreased by 2.9%, while EU15 agricultural imports from 1995 to 2004 increased by 18.7%. Between 2004 and 2012, agricultural imports from developing countries into the EU27 increased considerably (by 65%), with the largest increase between 2004 and 2008.

14 During the period 1990-2012 the EU has undergone successive enlargements, and some assumptions had to be made to facilitate the exposition. The descriptive data in this analysis considers as EU the 12 member states for years before and until 1995 (abbreviated as EU12), the 15 members states for year 2001 (abbreviated as EU15), and the post 2004 27 member states for the periods after 2004. Nevertheless, for comparison purposes trade flows have been estimated in 1995 for both EU12 and EU15 and in 2004 for both EU15, as well as all the EU27, in order to give a sense of the difference the enlargements have made to EU trade in agri-food products with developing and ACP countries.

15 There are currently 79 ACP countries (including South Africa) which enjoy preferences in the EU market. For this analysis Cuba has been counted as part of the non-ACP developing countries and South Africa as part of the ACP non-LDC group respectively. Cuba is not a signatory of the Cotonou Agreement and benefits only from GSP preferences, while South Africa has its own Trade Development and Cooperation Agreement (TDCA) with the EU. Of the 77 remaining ACP countries, 40 are considered LDCs for the purposes of this analysis, and the remaining 37 are non-LDCs.

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Figure 3.1.1: Total EU imports (EUR million) of agricultural products from all developing countries 1990-2012 at current prices

Source: Own calculations using COMEXT data

Agricultural trade between the EU and ACP countries

Figure 3.1.2 exhibits EU imports of agri-food products from ACP countries in absolute terms and as shares of EU imports from all developing countries over time. For a breakdown of this analysis per product category (according to HS classification) please see Tables A.1.4, A.1.5 and A.1.6 of the Appendix to this chapter. The major observations from this exposition are the following:

In 2012 the ACP countries accounted for EUR 13.3 billion or 21.9% of all EU27 agri-food imports from all developing countries.

While in nominal terms EU27 agri-food imports from ACP countries have grown considerably (by 41.1%) during the recent period 2004 to 2012, they still represent at 21.9% a smaller

share of total EU agri-food imports from developing countries compared to the shares of 26.6% and 22.6% of ACP imports in EU12 imports from developing countries for 1990 and 1995 respectively.16

The shares of ACP agri-food imports in total EU agri-food imports from developing countries in

2008 and 2012 (20.6% and 21.9% respectively) are considerably smaller compared to the similar shares of the EU15 throughout the period 1995-2004 (26.6%, 29.3% and 27% respectively).

A considerable decline in the ACP share in total EU27 imports of agri-food products from developing countries occurred during the recent 2004 to 2012 period. A similar decrease in ACP share occurred in the period 1990 to 1995 for the EU12. However, ACP countries improved their share of all developing country imports into the EU15 between 1995 and 2001,

and there has also been some recovery in ACP exporters’ share of the EU27 market between 2008 and 2012.

16 The evolution for the ACP share in EU12 imports from all developing countries is the following:

1990 1995 2001 2008 2012

26.6% 22.6% 20.2% 19.8% 20.9%

Source: Comext

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Figure 3.1.2: Total EU imports of agricultural products from ACP countries in value and as a percentage (of total EU agricultural imports from all developing countries 1990-2012)


As shown in Figure 3.1.3 below, the majority (63.9% in 2012) of EU agri-food imports from ACP countries in 2012 was made up of the following four product categories: cocoa and preparations

(HS18); edible fruits and nuts (HS8); coffee, tea and spices (HS9); and sugar (HS17).17 In terms of product composition, in 1990 the above four HS product categories accounted for 62.6% of all agri-food imports of the EU12 from all ACP countries. While there has been little change in the overall importance of these top four product groups in EU agri-food imports from the ACP countries in the period 1990-2012, there have been significant shifts within this group of products. Cocoa has nearly doubled in importance at the expense of declining shares for coffee, tea

and spices, and sugar.18

17 Table A.1.6 shows the product composition of EU imports for the rest of agricultural products imported from ACP countries for the period 1990-2012. 18 Although not analysed here, some of this product composition shift could be due to relative price changes. However, perusal of World Bank of IMF world commodity price data reveals that this is unlikely as the relative prices between coffee and cocoa between 1990 and 2012 have not changed that much.

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Figure 3.1.3: Major EU agri-food imports from ACP countries 1990 vs. 2012 (% of total agri-food import value from ACP countries)


As shown in Figure 3.1.4, although the share of ACP countries in total EU27 agri-food imports from developing countries was 21.9% in 2012, there were some product categories where this share was

considerably higher. Notable among these are cocoa and preparations (91.5%), live trees and plants (56.9%), sugar (44.3%) and tobacco (29.9%). It thus appears that, among developing countries, the ACP region exports to the EU a relatively specialized set of agricultural products.

Figure 3.1.4: Share of ACP countries in total EU27 agri-food imports from developing

countries in 2012 (%)


As shown in Figure 3.1.5 there were few product categories where this share has increased

significantly in the 22 years (1990 to 2012) of the period examined, most notably live animals (but here the overall value of trade is tiny). There are many others where this share has decreased considerably, such as tobacco; coffee, tea, spices; cereals; lac, gums, resins; sugar; and beverages, spirits, vinegar. In products such as coffee and sugar, the EU share of imports from all developing countries supplied by ACP countries as a group has been declining.

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Figure 3.1.5: Product categories where share of ACP countries in total EU27 agri-food imports from developing countries changes significantly over the period 1990-2012 (%

change in share)


Agricultural trade between the EU and ACP LDC countries

Figure 3.1.6 exhibits the evolution of total EU agricultural products from ACP LDC countries in absolute value and as a share of EU agricultural imports from all ACP countries. For a breakdown of this analysis per product category (according to HS classification) see Tables A.1.7 and A.1.8 of Appendix A.1. The group of ACP LDCs exhibits a varying but on the whole deteriorating performance in the period 1990 to 2004, in terms of absolute value of agricultural imports into the EU, but after 2004 its

performance improves considerably, with the absolute value of agri-food exports to the EU27 growing by 99% between 2004 and 2012. In terms of shares, its share in total ACP agri-food imports exhibited

a sharp growth during the period 1990 to 1995, but since then it deteriorated continuously until 2004. From 2004 to 2012 it seems to have increased rapidly, climbing from 14.7% of all ACP agri-food imports to 19.2% in 2012. This is the period of the application of the EBA and Market Access Regulation. It thus appears that the period of application of more generous EU preferences

has coincided with an increase of the share of agricultural exports of ACP LDCs in total agri-food imports of the EU from all ACP countries. Whether there is a causal link is explored in responding to EQ 1 on the impact of preferences in Chapter 5.

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Figure 3.1.6: Evolution of total EU agricultural products from ACP LDC countries in absolute value and as a share of EU agricultural imports from all ACP countries 1990-2012


Agricultural trade between the EU and ACP regions

Figure 3.1.7 exhibits EU agricultural imports from each ACP regional group for 1990 and 2012. For a breakdown of this analysis per product category (according to HS classification) please see Table A.1.9 of the Appendix.19 As shown in Figure 3.1.7, in 1990 the major ACP agricultural importer group into the EU was the geographical group of the West Africa region (ECOWAS) with 29.8% of EU12 agri-food imports from the ACP region, with the second being the SADC region (18.3% of EU12 agri-food

imports). After more than two decades and two EU enlargements, in 2012 ECOWAS still accounted for the bulk of agri-food imports into the EU27 from all ACP countries, with an increased share of 33.8%.

The second largest importer ACP group was still the SADC region with almost the same share as in 1990 (18.9%). The third and fourth largest ACP regions in terms of agri-food imports into the EU were ESA and EAC in 1990 (shares 16.2% and 12.3% respectively), and they continued in the same positions in 2012 with shares 16.5% and 12.9% respectively. Thus, there has been relative

stability in the geographical structure of EU agri-food imports from the ACP regions over the past 22 years.

19 In 1990 the EU consisted of 12 member states, while in 2012 it consisted of 27. The analysis reflects this.

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Figure 3.1.7: Evolution of EU agricultural imports for each ACP regional group 1990-2012 (% of all ACP agri-food imports into the EU)


The various ACP regional groups are quite specialized in what they provide to the EU, as already indicated for the total ACP group earlier. In the four largest product categories exported to the EU, figure 3.1.8 (based on data from Appendix Table A.1.9) shows that the largest providers in 1990 further increased their shares in 2012, and accounted for approximately 50% or higher of all EU27 imports (and almost 90% in the case of cocoa). In 2012 cocoa (HS18) was the largest agri-food

import group from ACP into the EU27, and the region dominating this sector both for 1990 and 2012 was ECOWAS with 82.9% and 87.8% share of EU imports respectively, followed by CEMAC with 13.3% and 8.9%. Additionally, the figure shows that some exporting regions within each of the four product categories changed their ranking. In 1990, coffee, tea and spices (HS9) constituted the largest ACP agri-food import into the EU12, and the biggest exporters were EAC with 44.8% and CEMAC with 20.2%, which together provided 65% of all EU12 HS9 imports from all ACP regions. In 2012 the section coffee, tea and spices was the third largest agri-food import from ACP into the EU27,

and two regions, EAC and ESA, which overtook CEMAC, were the largest providers, with 48% and 29.8% respectively. The same can be said for sugar, where ESA increased its share from 45.5% in

1990 to 50.6% in 2012, and while CARIFORUM was the second largest exporter with 28.1% in 1990, in 2012 it was overtaken by SADC (25%) in second place.

It thus appears that the biggest exporting regions in the major products exported to the EU have expanded their shares in the period 1990 to 2012, but there has also been some

reallocation of shares amongst the remaining regions. At the regional level, there have been only slight shifts in the geographical origins of ACP agri-food imports into the EU over time.

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Figure 3.1.8: Major EU agricultural imports from the different ACP regional groups in 1990, and 2012 (% from each region)


Agricultural trade between the EU and ACP countries under different import regimes

Table 3.1.2 indicates the different trade regimes utilized by EU27 for the importation of agricultural

products from ACP countries in the period 2000 to 2013 using data drawn from the COMEXT database. It can be seen that a major portion of EU agricultural imports from ACP countries (33% in 2013) enter under an MFN regime, with zero MFN tariff. The bulk of EU agricultural imports from ACP countries enter under GSP and/or other preferences with zero tariffs (60% in 2013). The zero tariff preferential agricultural imports declined as a share of total agricultural EU imports from ACP, between 2000 and 2005, from 52.2% of the total to 38%, but their share increased thereafter reaching 60% of total

agricultural imports from ACP in 2013. This coincides with the application of the EBA and EPA agreements, albeit causality cannot be assumed. In 2013, 93% of all ACP agri-food imports into the EU entered duty-free (33% under MFN and 60% under GSP and/ or other preferences), compared to 72% in 2000 and 84% in 2008. Therefore,

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