MID-TERM REVIEW OF EU GSP REGULATION FERM COMMENTS FEBRUARY 2017 SUMMARY Rice is recognised to be one of the European Union's most vulnerable agricultural sectors. Particular attention is paid in bilateral trade negotiations to the sensitivities of rice. Yet, since 2009 the EU has allowed total rice imports under the Everything But Arms Agreement to rise from 0 to almost 500,000t. In this time, Cambodia, has become the largest origin of the imported rice (23%, DG Agri) and the greatest competitive threat to rice produced in the EU. One of the aims of reviewing GSP legislation in 2011 was to ensure that the EU could adequately defend its economic interests. However, the adequacy of existing safeguard clause mechanisms to protect vulnerable agricultural sectors is today in considerable doubt. In spite of the evident capacity of EBA rice imports to disrupt European rice sector, there is no indication that the safeguard clause would be applied. In particular, three problems can be identified: 1. Imports from EBA countries can damage EU interests. Not permitting special safeguards designed to protect agriculture to apply to EBA countries is irreconcilable with the overarching goal of defending European interests. 2. The only remedy the safeguard clauses foresee is the reinstatement of all tariffs, depriving the EU of recourse to other policy measures such as quotas which are an established and more flexible mechanism for balancing offensive and defensive trade interests. 3. The criteria in the standard safeguard clause foreseen for investigating damage to European interests are oriented towards manufacturing and it is questionable whether they can be effectively applied to agricultural interests. 1
A. BACKGROUND As confirmed in recent European Commission research, rice is one of the two agricultural sectors most vulnerable to trade liberalisation. 1 As a result, the EU's trade negotiators have systematically treated rice as a sensitive product and sought adequate mechanisms for defending the sector. For this reason, zero duty access to the EU market under the Everything But Arms Agreement only fully applied to rice from July 2009. Reporting to the Council in July 2016, Italy has described the impact of EBA rice imports as follows: The constant increase in imports of rice from EBA Countries is seriously damaging the market of indica rice cultivated in the EU. Since when (2009/2010 campaign) imports from countries under EBA regime were completely liberalized for rice, imports of duty-free indica milled rice have grown year after year, from 28,000 tons up to 345,969 tons at the end of the marketing year 2014/2015. In the present marketing year the imports trend is dramatically increasing: imports from September 2015 to June 2016 reached 316,974 tons (37,370 tons more than last year). At the beginning, rice imported according to EBA regime came only from Cambodia but soon Myanmar too has begun to sell part of its rice in the EU. Together with milled rice imports, small packages rice imports are increasing, too; this means that both Cambodia and Myanmar are planning to expand further in the Internal market. The imports trend of duty-free indica milled rice is seriously affecting the EU rice sector: in particular, in Italy indica rice area halved over two years: from 72,000 hectares in 2013, to 55,000 hectares in 2014 and 35,000 hectares in 2015. 2 The Commission has consistently argued that the safeguard clause is inapplicable. B. ENSURING DEFENCE OF ECONOMIC INTERESTS AGAINST PRODUCTS FROM ALL ORIGINS Among the aims of the revised 2012 GSP Regulation was: to ensure a better safeguarding of the EU s financial and economic interests and to enhance legal certainty, stability and predictability, the administrative 1 European Commission JRC report, Cumulative Economic Impact of Future Trade Agreements on EU Agriculture (Luxembourg, 2016) 2 Note of the General Secretariat of the Council to the Council (11144/16, 12 July 2016). 2
procedures for safeguard mechanisms are improved by developing clear definitions of key legal concepts. 3 Specifically, European legislators recognised the need to establish safeguards in the textile, agriculture and fisheries sectors, these sectors being particularly vulnerable to competition from GSP countries (Regulation 978/2012, Section II). However, EBA countries were excluded from these special safeguards under Article 29.2. Given that the defence of vulnerable European economic interests is an explicit aim of the legislation and a constant in trade negotiations, there is an obvious policy incoherency in accepting damage to economic interests provided that the damage originates in certain countries. It is possible that the assumption, at the time of the drafting of legislation, was that EBA countries would not be in a position to cause damage to European interests to the extent anticipated for GSP countries. Alternatively, it may have been assumed that by the time EBA countries would become a threat to European interests, these countries would have evolved to an extent that their EBA status no longer applied. The reality, as has been borne out in the case of Cambodian rice imports, is that in an agricultural sector associated with abundant raw materials and limited added value through processing, EBA countries rapidly have the capacity to undermine European interests. In order to secure EU interests in the way intended, special agricultural safeguards should therefore be applicable to all GSP beneficiaries, including EBA countries. C. ENSURING RESPONSES THAT BALANCE DEVELOPMENT AND AGRICULTURAL INTERESTS In bilateral negotiations, the tool typically available to trade negotiators seeking to manage sensitive agricultural sectors is quotas. Quotas are also considered to be an appropriate response to increases in imports threatening the European market when these imports concern non-gsp countries. Article 15.1.b of the general safeguards Regulation 2015/478 foresees the possibility to alter the import rules for the product in question by making its release for free circulation conditional on production of an import authorisation, the granting of 3 Proposal for a Regulation of the European Parliament and of the Council applying a scheme of generalised tariff preferences (COM(2011) 241 final) 3
which shall be governed by such provisions and subject to such limits as the Commission shall lay down. By contrast, the GSP safeguard clause appears to offer only one remedy, namely that "normal Common Customs Tariff duties on that product may be reintroduced." (Regulation 978/2012, Article 22.1) Concerns about the economic efficiency of tariff rate quotas and equity among market operators are well-known. Nevertheless, the non-inclusion of an opportunity to introduce quotas in the GSP seems irreconcilable with overall policy as: it, counterintuitively, provides the EU with fewer market management tools in the context of unilateral market access concessions than in cases where market access is reciprocated. it obliges the EU to reinstate MFN tariffs, potentially bringing to a halt market access that has been secured by developing countries, rather than allowing the consolidation of market gains. This runs counter to the continuity and predictability intended by the 2012 legislation. it suggests a lack of confidence in the capacity of quotas to provide meaningful and stable market access although this is a common feature of bilateral treaty negotiations. Quotas offer an important tool for the European Commission to balance the dual aims of development and protection of the EU interests. They allow significant market access and predictability without unduly compromising vulnerable agricultural sectors. D. ENSURING A SAFEGUARD CLAUSE THAT IS ATTUNED TO AGRICULTURE In discussions with DG Trade on the operation of a standard (i.e. not special) safeguard clause, there appeared to be considerable doubt as to whether the safeguard clause, traditionally applied in the context of manufacturing, could apply to farmer groups. In particular, questions were raised as to whether rice farmers could be considered "Union producers" within the meaning of Article 23 of Regulation 978/2012. This in turn provoked discussion as to the meaning and pertinence of the criteria established in points (a) to (j) of Article 23 in an agricultural production context. 4 Further questions were raised by DG Trade as to whether milled rice entering from EBA countries could be 4 Article 23(e) information on bankruptcies has proved a particularly contentious and provocative criterion given the underlying premise of a safeguard clause, namely, to anticipate and protect against economic damage. 4
considered "like or directly competing products" within the meaning of Article 8.1.b of Regulation 1083/2013, and therefore whether the identified problem could be subject at all to a safeguard investigation. The impact of a surge of a low price imports on the short-term and long-term viability of agricultural production, the implications (economic and environmental) of eventual switches in crop production is a complex analysis. In particular, assessment of the structural and long-lasting impact of a switch away from rice production is not necessarily captured through the markers of short-term change characterised in article 23. The type of questions emerging from debates with the Commission, raise serious doubts as to whether the current standard safeguard clause gives an adequate framework for taking into account and defending both agricultural and industrial interests. E. CONCLUSIONS In practice, it is extremely difficult for the European Commission to apply the current GSP safeguard clause. For vulnerable sectors, a more automatic safeguard clause underpinned with established criteria provides a securer, more transparent and more objective basis for Commission action. This is provided by special safeguard clauses foreseen for the textiles, agriculture and fisheries sectors. However, in order to adequately defend European interests, these safeguards should be available in respect of imports from all countries. EBA countries should not be excluded. To ensure that EBA countries do not, through the reinstatement of MFN tariffs, lose the market access to the EU already gained, quotas should be available as a market management tool under the safeguard clause. The single option of reinstating tariffs currently available to the Commission only exacerbates the difficulties it faces in applying the safeguard clause. Finally (and only if special safeguard clauses cannot be extended to EBA countries) reflection is needed on the extent to which the criteria currently foreseen in the GSP legislation is adequate for the protection of agricultural as well as industrial interests. 5