Brussels, 16 December 2002
Facts and figures on EU Trade in agricultural products: open to trade, open to developing countries
The EU is open to trade in farm products
Since the conclusion of the last round of World Trade Organisation (WTO) trade negotiations, so-called Uruguay Round in 1995, the EU has continuously opened up its market to imports of agricultural products from third countries. The EU has respected the commitments adopted in 1995 both to reduce the level of tariff as well as to reduce the level of domestic and export support afforded to agricultural products. In addition, the EU has concluded a number of bilateral free trade agreements as well as preferential trade arrangements, which have substantially benefited third countries and in particular developing countries.
Some of the most salient features of the EU trade in agricultural products include:
- The EU is the world largest importer of agricultural goods - $60bn in 2001(1).
- The EU is the world largest importer of farm products from developing countries: it imports from developing countries as much as the US, Japan, Canada, Australia and New Zealand taken together.
Source: COMEXT for EU, COMTRADE for other countries.
Recognising the need for further flexibilities for developing countries, the Commission proposes the creation of a 'food security box' that would allow developing countries to:
Undertake less market liberalisation and at a slower pace. Implementation period would be 10 years for developing countries and 6 years for developed countries.
- Protect their markets for sensitive food products by using a special safeguard instrument.
- Have more flexibility in supporting their agricultural sectors for food security and development reasons.
The main elements of market access are the level of the tariffs, the existence of tariff peaks and tariff escalation and the existence of quotas. The performance of the EU regarding all these elements leaves no doubt about the EU's commitment to freer trade in farm products:
- EU tariffs can only be properly analysed if the effect of preferential access for developing countries is taken into account. Of all industrialised countries, the EU gives by far the highest level of preferential access to developing countries.
- The EU has continued to reduce its tariffs since the Uruguay Round. The USA say that our average tariff is 30%? We say it is approximately three times lower in real terms.
- A total of 142 developing countries benefit from the extensive EU preferences under the recently enhanced "General System of Preferences" (GSP). In addition, 77 Africa Caribbean and Pacific countries (ACPs) also benefit from preferential access to the EU market (more than 80% of African exports enter the EU at preferential or zero rates). Furthermore, the EU has concluded free trade agreements with a number of developing countries (this is the case for Mexico, South Africa and Mediterranean countries). This preferential access is reflected in the much higher level of exports from these countries to the EU, compared to other Quad members (see table 1).
- The EU has also unilaterally reduced the tariffs applied to the poorest countries. The 'Everything But Arms' initiative gives the 49 poorest countries duty and quota free access to the EU market, including for such sensitive products as beef, dairy products, fruit and vegetables. This initiative has already enabled these countries to export goods that they had previously exported only in limited quantities or not at all (e.g. exports of sugar by Sudan and tomatoes by Senegal).
- The percentage of total agricultural tariff lines subjected to tariff peaks is around 10%, covering a limited number of farm products such as beef and lamb sectors, dairy products and sugar. In addition, it is important to underline that the majority of developing countries are not subject to these peaks in the Community market due to their preferential access (Generalised System of Preferences, Everything but Arms, Cotonou Agreement with Africa, Caribbean and Pacific countries, Mediterranean agreements etc).
- This is a real problem for development, because tariff escalation in agricultural processed products encourages developing countries to export their raw commodities without adding any value. This is particularly the case for least developed countries. It is therefore very difficult to exploit the dynamics of industrialisation and development that accompany the processing of agricultural commodities. For these poorest countries, tariff escalation in the EU market is not a problem since, given the Everything But Arms initiative, they face no tariffs.
- The EU is not a great user of tariff escalation, ie does not have a tariff structure that is very progressive. In comparison, Japan and Canada are much more progressive.
- Tariff escalation is also very high in developing countries, in particular in Egypt and India. This is particularly damaging as 40% of developing countries' exports are to other developing countries. In Asia, countries like China, Malaysia or the Philippines suffer directly from the very high levels of tariff escalation in some Asian markets.
- Trade in agro-food products is one of the most dynamic areas of world trade. In the long term, it is therefore, important to reduce tariff escalation. On products of particular interest to developing countries.
- A preliminary clarification is required: since the Uruguay Round, there are no quotas applied in agricultural trade, either by the EU or elsewhere. What 'quotas' now exist are the 'tariff rate quotas' which the EU, along with other WTO partners, uses in agriculture. This is not a quota. A quota restricts imports to a given quantity. Tariff rate quotas don't limit trade. On the contrary they provide for imports at a favourable tariff up to a given limit. Beyond these limits imports are unlimited, although they are subject to higher tariffs.
- The EU has 87 tariff rate quotas. These tariff rate quotas (TRQs) were opened as a result of the Uruguay Round.
- TRQs are managed by the European Commission on a fully transparent basis and are handled either on a "first come first served" basis (20 TRQs out of 87) or on the basis of licenses (44 TRQs) or on historic imports (22 TRQs).
- Despite the EU clear and transparent rules on TRQ, third countries have only used around 67% of the TRQ each year.
- Due to the EU's initiatives EBA and GSP and other preferential schemes (where no TRQ are applied), TRQs are simply not relevant to least developed countries and less relevant to many other developing countries. In some cases, such as bananas, a TRQ system has been put in place primarily to safeguard the interests of certain traditional exporters from developing countries.
- Agricultural trade is often subject, in one way or another, to non tariff measures based on the desire to protect human health, bio-diversity or the environment. Although not all countries use these sort of measures they nevertheless directly affect at least 40% of trade in agricultural products.
- According to a recent study (2), these measures particularly affect the exports of least developed countries: Almost 40% of their agricultural exports are affected, a figure that is twice as high as for industrialised countries or other developing countries. The EU is not by any means the main user of such measures. The biggest users are Latin America (90% of their agricultural imports are affected on average) Japan (80%), Australia and New Zealand (70%), the US (60%) and Canada (50%). Only 25% of EU imports are affected.
- Many of these measures reflect real concerns about public health and the protection of the environment. However, their multiplication in some countries which are often the only users of certain measures, gives cause for concern.
But the EU is committed to a further opening of its agricultural market while proposing a fair burden sharing among all developed countries.
The Commission proposes(3):
The EU has complied with the commitments undertaken at the UR in terms of exports subsidies and it is committed to continued substantial reductions. However it believes that all support for export should be subject to disciplines.
The Commission proposes:
- An average substantial cut in the volume of export subsidies and an average 45% cut in the level of budgetary outlays,
- Total elimination of export refunds for certain key products (such as wheat, oilseeds, olive oil and tobacco) provided that no other form of export subsidisation is given for the products in question by other WTO Members
- Treatment of all forms of export support on equal footing and in particular:
- Subject export credits to strict disciplines
- Food aid in kind to be provided only for well-defined vulnerable groups, emergencies and humanitarian crisis
- Disciplines for state trading enterprises
Domestic farm support: a political choice…
Source: European Commission
|Agricultural Area (000 Ha)||Farms (000)||Average farm size Ha|
|10 Candidate countries||3 800||38 500||5 200||7|
|EU 15||6 800||132 000||7 000||19|
Table 3: US-EU Farming structure
Oecd = OECD figures for 2000; es = Eurostat figures
|Production (farm gate value)OECD oecd
Number of farms ("holdings"; 1996)es
Farmland ("UAA" 1997)es
Average size of holding
Total Support Estimate TSE (2000)oecd
TSE per capita oecd
TSE as %GDP oecd
Producer Support Estimate PSE (2000) oecd
PSE / full time farmer equivalent oecd
|$ 190 billion
2 058 000 farms
425 million ha
$ 92.3 billion
$ 49.0 billion
$ 20 000 /farmer
|$ 197 billion
7 370 000 farms
134 million ha
$ 103.5 billion
$ 90.2 billion
$ 14 000 /farmer
The Commission proposes:
No dirty tarification!: Tarification (manner in which non-tariff measures (e.g. quotas) on agricultural products were transformed into tariffs and tariff quotas in the context of the UR) has been strongly criticised. Developed countries, including the EU, have been accused of artificially increasing their protection through this process, by basing their calculations on inflated world prices. Thus, the argument goes, the average reductions of 36% on tariffs achieved during the UR were at least partially offset by the preceding inflation of the level of protection.
- A 55% reduction in the "amber box" support (the most trade distorting agricultural support), starting from the level of commitments made in the last round of negotiations,
- Define non-product specific domestic support, as measures not related to the type or volume of production, prices, or the factors of production employed.
- Eliminate the "de minimis" exception for developed countries (a loophole in the agreement on domestic support that allows some subsidies not to be counted. In one non EU developed country WTO Member, this could amount to $20 billion
Some more facts
- The manner in which current tariffs were established is no longer at issue. The fact is that an exercise like the conversion of non-tariff barriers to tariffs will always attract criticism, as it necessitates a choice which can only ever be ad-hoc. The key point is that the trading system which emerged is far more transparent and less distorting than that which preceded it. Like all other trading partners, the EU now only applies tariffs or tariff rate quotas at its borders. In addition, the EU has fully respected its commitment to tarification and reduction. Indeed, if this had not been the case, they could have been pursued within the Dispute Resolution procedure of the WTO, as the tarification procedure was an integral part of the Uruguay Round agreements. However no panel has ever been initiated on this issue.
- Domestic support to agriculture does not necessarily mean higher food prices for consumers: the part of the agricultural raw material in the retail price of finished food products is between 15% and 20%. It diminishes as the level of processing increases. A good illustration of a basket of agricultural products is a burger containing beef, wheat, dairy products, sugar and vegetables. The price of a certain standard burger where the ingredients are purchased on local markets was recently published in The Economist magazine. The price on the so-called protected and high priced € area was $2.37 and in the supposedly more liberal US, a more expensive $2.49!
- Farming is no privileged sector in the EU: the average income in the agricultural sector (including fishing and forestry) in the EU was €14,870 in 1998 compared with €28,245 for a services employee and €33,753 for a general industrial worker. Even if an average for agricultural income includes a wider variation than for other sectors (as much depends on type and size of farm), as a general rule, these figures show that they are by no means privileged. Furthermore, direct aids received by farmers are a compensation for the changes in policy imposed on them which otherwise would have drastically reduced their incomes. In the future, these payments will be made subject to strict compliance with obligations such as effective management of the landscape and environmental protection.
- EU cows receive more than $2 a day: this argument distracts the attention from the key issue at stake: the question is not how much a country supports its farming community, but rather what part of this support is trade-distorting. Putting a large percentage of Europe's dairy farmers out of a job would not provide food for the millions in Africa who face food crisis, nor would it increase potential for poor farmers seeking to export to our market! The EU system is aimed at protecting smaller dairy farmers in peripheral regions. Were we to do away with support for the dairy industry the result would be a consolidation of intensive farming in the most productive parts of the union and bankruptcy for the smaller dairy farmers. No immediate benefit for third countries;
- To be noted that the European Union and its member countries give more development aid to developing countries than all other regions of the world put together. While ensuring coherence between development policies and agricultural policies, it is important to distinguish both from the trade distorting effects that agricultural policies may have. One of the main effects of the reform of the common agricultural policy proposed by the Commission is to reduce its trade-distorting elements.
(1)Source from Comext
(2)Figures in this section come from a study undertaken by CEPII A first aassessment of environment-related trade barriers, Fontagné et all, 2001, CEPII Working Paoer, 2001-10.
(3)Still subject to approval by the EU Council of Ministers.
(4)IMF World Economic Outlook, September 2002 How do Industrial country agricultural policies affect developing countries ?
(5)According to the OECD the PSE is an indicator of the value of gross transfers from consumers and taxpayers to agricultural producers due to policy measures regardless of their objectives or impacts. (OECD,1999). There are two components. Firstly the market price support is calculated as the difference between the countrys commodity price and the price on the world market multiplied by the value. This is considered to be paid by the consumer. To this is added the direct payments, paid by the taxpayer. The PSE was created to facilitate comparisons of support between countries. However it is often criticised as direct payments made by certain OECD members are not included.
(6)Total Support Estimate includes some measures like marketing assistance and all types of food aid, which are used to a great extent in the US to benefit farmers, but are excluded from the PSE calculation of farm support.