EUROPEAN COMMISSION 2. EVOLUTION OF THE RELEVANT EU LEGISLATION AND AGREEMENTS

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1 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 The Lomé Conventions 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 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 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 The first three Conventions were concluded for a period of five years. The fourth Convention covered the period from March 1990 to February 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 Nation 10 (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 productspecific 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 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. -10-

2 2.2. Cotonou Agreement 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 geopolitical 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 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). -11-

3 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 Negotiations on EPAs were then launched in Brussels on 27 September 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 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 -12-

4 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 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 provides an overview of the state of play as of October Trade liberalisation commitments in the interim EPAs have been asymmetric. The EU has offered dutyfree 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). -13-

5 Table 2.3.1: State of play of Economic Partnership Agreement negotiations, October 2014 EU-ACP subgroup Caribbean Central Africa West Africa Status of agreement 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 Haiti is not yet applying the agreement pending ratification. Interim EPA with region initialled in 2007 and approved by the European Parliament in Cameroon is the only country which signed (Jan 2009) and ratified (July 2014) the interim EPA. Full EPA initialled on 30 June 2014 by ECOWAS and 16 countries in West Africa. Eastern Southern Africa and 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 The European Parliament approved this interim EPA in January East African Community Southern African Development Community Full EPA agreed with East African Community members Burundi, Kenya, Rwanda, Tanzania, Uganda Kenya initialled on 16 October Signature and ratification pending. Full EPA initialled by Botswana, Lesotho, Namibia, Swaziland, Mozambique and South Africa in July 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 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 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 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 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 -14-

6 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 The Generalised Scheme of Preferences (GSP) The EU introduced its GSP 13 in 1971, with the intention that it should be implemented through tenyear 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 ( ) and was subsequently renewed for a second decade ( ). 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 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 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 Rollover 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 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. -15-

7 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) -16-

8 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 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 ) 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. -17-

9 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 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 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 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 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 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 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 -18-

10 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 The Cotonou Agreement signed in 2000 foresaw the end of the non-reciprocal trade arrangements at the end of 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 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 All other ACP countries with significant agricultural exports to the EU were given duty-free access in 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. -19-