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The Framework of EU-MED The Framework of EU-MED agreements :agreements :

Assessment and future Assessment and future perspectives in the fruit and perspectives in the fruit and

vegetable sectorvegetable sectorEmmanuelle CHEVASSUS-LOZZA (INRA, Nantes - France)

Jacques GALLEZOT (INRA, Paris - France)

CAL-MED workshopMontpellier - June 2006

European Project EU-MED – AgPol- FP6 -Impacts of agricultural trade liberalization between the EU and Mediterranean Countries

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Introduction : The EU-MED Introduction : The EU-MED liberalisation processliberalisation process

Barcelona 1995 : Free Trade Area by 2010 Full liberalisation for industrial products Agricultural products : preferences for certain products and countries

Important stakes for Med Countries ….. Food security for primary products An improvement of the EU market access for their exports (Fruit

and vegetables)

…..And for the EU protection of European producers of « mediterranean products » An increase of EU exports of cereals, dairy products or meat…

F&V : a sensitive sector in the negotiations

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A regional/bilateral liberalization A regional/bilateral liberalization process in a moving contextprocess in a moving context

This liberalization process : not a regional one but the compilation of bilateral agreements. A very heterogeneous area regarding the intensity and the structure of

exports Agreements are at a very different stage in the negotiation process

A moving context which can call the process into question. The multilateral trade negotiations

A greater openness of the EU market to all third countries A potential impact on EU-MED agreements?

The likely enlargement of the EU to Turkey Towards a EU-Turkish Custom Union

Conversely, some external reasons push the EU-MED liberalisation process USA = preferential agreements with Morocco, Jordan, Egypt and Israel

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Two questions in my presentationTwo questions in my presentation

Where are we heading in the EU-MED process? What are the preferences allowed by the EU to the Med

countries?

What is the likely impact of the multilateral trade negotations on the EU-MED agreements? Is it a serious concern for the preferential margins?

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The outlook of my talk The outlook of my talk

Principles of the tariff protection applied by the EU to third countries in the F&V sector

The preferences allowed to the MED countries = Bilateral agreements Very heterogeneous

The likely impact of the WTO negotiations on the EU-MED agreements.Is it a serious concern for MED Countries?

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1. The protection of the 1. The protection of the EU market of F&V.EU market of F&V.

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A Key point of the European F&V Common Market Organisation

F&V are not supported neither by direct payments nor guarantee prices

The market regulation is achieved through border protection

Duties = Ad-valorem Taxes (%) and/or specific duties (€/100kg)

The protection varies during the year (windows of protection)

For twelve products : Entry price system Tomatoes, cucumbers, artichokes, courgettes, lemons, grapes,

apples, apricots, cherries, peaches, plums, fruit juices. But these products are very important for the EU production :

- And 41% of intra-EU trade of F&V (2004)- 29% of the EU imports of F&V (2004)

The EU tariff protection :The EU tariff protection :A very complex system in the F&V sectorA very complex system in the F&V sector

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The entry price system :The entry price system :Or …… the ceiling duties is at the floor price!

Entry priceTaxe (%)

Equivalent ad valorem

(%) (€/100kg)>=84,6 8,8 0 8,882,9 8,8 1,7 10,981,2 8,8 3,4 13,079,5 8,8 5,1 15,277,8 8,8 6,8 17,5<77,8 8,8 29,8 47,1

Specific duty (€/100kg)

MFN duties : from 1 January to 31 marchTomatoes

Taxe (%)

Taxe+maximum of specific duty

Trigger price

92% of the Trigger price

Taxe + specific dutySpec duty=TP-entry priceEntry price

Sort of minimum import price

Only these two duties are notified at the WTO

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2. 2. Preferences granted by Preferences granted by the EU within the the EU within the

framework of the EU-MED framework of the EU-MED agreementsagreements

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Bilateral agreementsBilateral agreements

which are at different stages of negotiation from one country to another. And which do not concern all the productsNo pref EU-MED SPG total

Algeria 23,32% 10,3% 66,4% 100%

Egypt 18,03% 49,8% 32,1% 100%

Israël 80,41% 19,6% 0% 100%

Jordan 23,53% 8,6% 67,9% 100%

Lebanon 9,91% 79,7% 10,42% 100%

Libya 26,3% 0,0% 73,7% 100%

Morocco 17,56% 46,5% 35,9% 100%

Palestine 92,27% 7,7% 0% 100%

Syria 26,07% 1,5% 72,4% 100%

Tunisia 22,16% 13,2% 64,7% 100%

Turkey 15,99% 84,0% 0% 100%

Breakdown of tariff lines (CN10), by country and tariff regime – fresh fruit and vegetables– Year 2004

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The preferences vary a lot. The preferences vary a lot.

from one product to another, from one month to another and from one country to another

total exemption or reduction of the ad-valorem part of the tariff or the specific duties (except for entry price products)

Preferences may be allowed : During a precise period (windows) And/or inside a quota

The special case of Morocco (negotiated entry prices for tomatoes, courgettes, cucumbers, artichokes and clementines)

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The special case of Morocco for The special case of Morocco for tomatoestomatoes

WTO Trigger price 84,60 € 8,80% 0 € 0% 0 € 0% 0 €92% WTO TP <79,8€ 8,80% 29,80 € 0% 29,80 € 0% 0 €Morocco TP 46,10 € 8,80% 29,80 € 0% 29,80 € 0% 0 €92% Morocco TP < 42,4€ 8,80% 29,80 € 0% 29,80 € 0% 29,80 €

MFN regim Turkey MoroccoFrom November to March

In 2004 = 200 000 tons monthly distributed from October to May

A specific entry price called conventional price or agreed price

This preference is granted within a quota

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This system offers huge preferences to This system offers huge preferences to Morocco exportersMorocco exporters

40,00

45,00

50,00

55,00

60,00

65,00

70,00

75,00

80,00

85,00

90,00

Entry

pric

e (€

/100

kg)

Turkey

Morocco

MFN Countries

Source : TARIC Database

Delivered price” if tomatoes enter the EU at the level of the Moroccan agreed price. Theoretical example

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On the whole, On the whole, what is the level of preference what is the level of preference granted by the EU to Mediterranean granted by the EU to Mediterranean

countries ?countries ?

Tariff applied by the EU to the Mediterranean countries – Arithmetic mean – year 2004 –

Fresh F&V products

2,89

4,314,92

6,21

8,88 9,23 9,62 9,63

11,312,14

0

2

4

6

8

10

12

14

LB TR MA EG TN JO DZ SY IL PS

MFN= 12,8%pr

efer

entia

l mar

gin

Source : TARIC Database

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The future of liberalization in the The future of liberalization in the EU-Med Agreements. EU-Med Agreements.

Bilateral negotiations are going ahead But no multilateral negotiations between the EU and the group

of EU-MED countries (neither regional agreement nor preference harmonisation)

Toward a gradual and reciprocal liberalization concerning all the sectors (not only F&V)

But for each country, a list of sensitive products is established – for these products a total liberalisation is excluded.

Turkey is out of the Barcelona process. It is negotiating its entrance in the EU

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3. The multilateral negotiations 3. The multilateral negotiations : a serious concern for the EU-: a serious concern for the EU-

MED process? MED process?

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The stakes of multilateral trade The stakes of multilateral trade negotiations (WTO- Doha Round)negotiations (WTO- Doha Round)

At the moment, no clear ideas on the results of the negotiations on market access, BUT

– The principle of a tariff reduction has been ratified => a greater openness of the EU market for all the third countries

– The stumbling block of the negotiations : the rate of the reduction and the so-called sensitive products (notably in the F&V sector)

Whatever the outcomes of the negotiations, two main questions for the EU-MED process :

– What is the likely impacts on preferential margins? – Is the impact the same among MED countries?

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Some methodological points to Some methodological points to understand our simulationunderstand our simulation

Concerning WTO scenario : the G20 Tariff-cutting formula i.e

Concerning our simulations :- The tariff bands are defined from the bound tariffs - The tariff cut is simulated on applied tariffs (nc10 – monthly data)

– no Binding overhang for F&V (except entry price products)- On MFN tariffs - and then on preferential tariffs – because they are defined as a proportion

of MFN tariff.- No sensitive products- The treatment of entry price products

Thresholds in bound AVEs Linear Cuts

020 45%

>20 50 55%

>50 75 65%

>75 75%

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Some methodological points : Some methodological points : the treatment of entry pricesthe treatment of entry prices

– Entry prices are not notified at the WTO- Only the ad-valorem part ; the maximum of specific duties (MSD)- A list of Ad-valorem equivalent (“official”AVE) has been given by the EU

to the WTO in order to classify the product in a tariff “band”

Example for tomatoes - the “official” AVE is for January = 48.15% => the rate of reduction =

65% => The new ad valorem tax = 3,6% and new MSD = 13.41 €/100kg

– The new MSD=13,41 € > 6,8€ => Not necessary to change the value of Entry prices

Taxe + specific dutySpec duty=TP-Entry Price

Taxe (8.8% -> 3.6%)

Taxe (8.8% -> 3.6%)+ MSD (29,8 -> 13,4€)

Trigger price = 84.6€

92% of the TP= 77.8 € Spec duty = 6,8€/100kg

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A significant improvement of the EU market A significant improvement of the EU market access for all the MED Countries access for all the MED Countries

2,9

4,34,9

6,2

8,9 9,2 9,6 9,6

11,312,1

1,1 1,6 2,1 2,5

4,0 4,1 4,2 4,35,1 5,6

0

2

4

6

8

10

12

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LB TR MA EG TN JO DZ SY IL PS

MFN 2004 = 12,79%

MFN DOHA-G20 = 5,91%

Applied tariff - G20

Applied tariff - 2004

Source : TARIC Database

Evolution of the tariff applied by the EU – Comparison between 2004 and the results of G20 proposals – F&V – arithmetic average

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A substantial erosion of the preferential A substantial erosion of the preferential marginsmargins

Source : TARIC Database

0

2

4

6

8

10

12

LB TR MA EG TN JO DZ SY IL PS

EU-MED margin -2004 = 5,54

country margin 2004

country margin - G20

EU-MED margin (G20) = 2,77

Evolution of the preferential margins of the MED countries – F&V sector

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And a reduction of the spread between And a reduction of the spread between countriescountries

The advantages and the disadvantages are highly reduced.The lowering of the advantages = the lowering of the competitive position of the countries compared with the rest of the EU MED area

Source : TARIC Database

-6,0

-4,0

-2,0

0,0

2,0

4,0

6,0

8,0

LB TR MA EG TN JO DZ SY IL PS

2004

G20

area margin - in 2004 = 5,54 G20 = 2,77

Difference between the country preferential margin and the area margin = relative

margin.

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What is the picture while taking the What is the picture while taking the exchanges into account?exchanges into account?

Source : COMEXT-TARIC Database

0

5

10

15

20

25

30

35

40

SY DZ MA IL EG LB TR TN JO PS

MFN 2004 = unweighted average

MFN 2004 = weighted average

Comparison between weighted and unweighted MFN tariffs in 2004 .

•How to define the country’s sensitivity to MFN tariff cuts?

•The larger the share of exports with a high preferential margin, the higher the likely impact of multilateral negotiations

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What is the picture while taking the What is the picture while taking the exchanges into account? (ctd)exchanges into account? (ctd)

The comparison of the relative margin -

Weighted and unweighted measure - 2004

3,72,1

17,8

2,6

-1,1

6,0

-0,8

2,1 1,6

-0,3

5,84,2 3,5

2,0

-1,0 -1,4 -1,9 -1,9-3,8 -4,7

-10

-5

0

5

10

15

20

LB TR MA EG TN JO DZ SY IL PS

weighted relative margin

un-weighted relative margin

•Morocco and in a lesser extent Jordan benefit from very high preferences for their specialisation

•Israel : few products with pref. but concentrated on its main exports

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What is the likely impact of MFN tariff What is the likely impact of MFN tariff cuts on the preferential margins?cuts on the preferential margins?

Evolution of the countries margins relatively to the area’s margin

-12

-10

-8

-6

-4

-2

0

2

4

LB TR MA EG TN JO DZ SY IL PS

Evolution of the weighted relative margin

Evolution of the unweighted relative margin

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ConclusionsConclusions

• EURO –MED bilateral agreements and very heterogenous

• Multilateral negoitations have a significant impact– An improvement of the access to the EU market– But also an erosion of trade preference

• The higher the preferences the higher the erosion

• Is it a serious concern for MED countries?– The results depend on the reasons of the agreements

• If the aim of the agreement is only a commercial one = the improvement of the EU market acces may be benefit

• If the objective is a development purpose, the impact is less favorable. The erosion of trade preference will increase the competition between countries and limit the economic support given by the EU to these countries