Cutting the tariffs?!

James Gubb, 10 April 2007

On the very day I chose to slate the EU for inconsistencies between its ‘world leadership’ in distributing aid to developing countries, and policies such as the Common Agricultural Policy and excessive tariffs that quite frankly screw the very same countries over, what does the EU go and do? Propose to: “remove all remaining quota and tariff limitations on access to the EU market for all African, Caribbean and Pacific regions including agricultural goods like beef, dairy, cereals and all fruit and vegetables [from 1 Jan 08]”. If it comes to fruition, this move should be applauded. Such tariffs currently cost the world’s poorest countries dearly, because it mitigates their ability to sell such produce at a cheaper price and, ultimately, make a decent living.
However, we should be guarded in our optimism…

For one, it is not just tariffs that harm developing countries when it comes to trading with the European Union. The Common Agricultural Policy offers subsidies in the form of Single Farm Payments, which effectively enable farmers to sell their produce at lower prices than would otherwise be possible – thereby artificially allowing them to compete with developing countries. What is more, the EU frequently intervenes in the agricultural market, either by creating food mountains in the EU or subsidising export of the product below cost price – i.e. dumping it in developing countries. Nothing in cutting tariffs addresses this issue.
The EU has other tricks up its sleeves too in the guise of health and safety ‘standards’, which act as yet more hidden barriers. For example, EU standards to protect consumers against traces of the chemical aflatoxin have been the subject of a number of World Bank papers, one of which concluded the cost to African producers to be $670m p.a. with exports cut by 64%. The latest example is the REACH directive, which the EU is acutely aware may have a significant effect on ACP countries. ‘REACH-affected’ exports from ACP countries average €6.5 billion per year; most are from small companies, who will struggle to meet the costs of the new chemical testings.
We should also be wary of the EU’s motives. The tariff cuts are being offered as part of the Economic and Partnership Agreements (EPAs) currently being negotiated with ACP countries. These provide for reciprocal free trade agreements between the EU and ACP countries, replacing the non-reciprocal trade preference agreements. It is undeniable that the EU now removing all tariffs is meant to be a carrot for ACP countries to agree to liberalise their trade with the EU. Yet the risks to developing countries of too speedy a transition to such a regime could be catastrophic. The communiqué talks much about ‘development focus’, but the EU is already showing signs of playing it dirty when it comes to the relationship between aid and EPAs (click here); the same should not be done here. It is noticeable that the EU excludes South Africa from the removal of tariffs because it has “a number of globally competitive products”.
So, a cautious welcome, but not a headline-grabbing one.