1. 1 The Framework of EU-MED agreements : Assessment and future perspectives in the fruit and vegetable sector Emmanuelle CHEVASSUS-LOZZA (INRA, Nantes - France) Jacques GALLEZOT (INRA, Paris - France) CAL-MED workshop Montpellier - June 2006 European Project EU-MED – AgPol- FP6 - Impacts of agricultural trade liberalization between the EU and Mediterranean Countries

2. 2 Introduction : The EU-MED liberalisation 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

3. 3 A regional/bilateral liberalization process 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

4. 4 Two 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?

5. 5 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?

6. 6 1. The protection of the EU market of F&V.

7. 7 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 : A very complex system in the F&V sector

8. 8 The entry price system : The entry price system : Or …… the ceiling duties is at the floor price! Tomatoes Taxe (%) Taxe+maximum of specific duty Trigger price 92% of the Trigger price Taxe + specific duty Spec duty=TP-entry price Entry price Sort of minimum import price Only these two duties are notified at the WTO

9. 9 2. Preferences granted by the EU within the framework of the EU-MED agreements

10. 10 Bilateral agreements which are at different stages of negotiation from one country to another. And which do not concern all the products No prefEU-MEDSPGtotal Algeria23,32%10,3%66,4% 100% Egypt18,03%49,8%32,1% 100% Israël80,41%19,6%0% 100% Jordan23,53%8,6%67,9% 100% Lebanon9,91%79,7%10,42% 100% Libya26,3%0,0%73,7% 100% Morocco17,56%46,5%35,9% 100% Palestine92,27%7,7%0% 100% Syria26,07%1,5%72,4% 100% Tunisia22,16%13,2%64,7% 100% Turkey15,99%84,0%0% 100% Breakdown of tariff lines (CN10), by country and tariff regime – fresh fruit and vegetables– Year 2004

11. 11 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)

12. 12 The special case of Morocco for tomatoes 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

13. 13 This system offers huge preferences to Morocco exporters Source : TARIC Database Delivered price” if tomatoes enter the EU at the level of the Moroccan agreed price. Theoretical example

14. 14 On the whole, what is the level of preference granted by the EU to Mediterranean countries ? Tariff applied by the EU to the Mediterranean countries – Arithmetic mean – year 2004 – Fresh F&V products Source : TARIC Database

15. 15 The future of liberalization in the 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

16. 16 3. The multilateral negotiations : a serious concern for the EU-MED process?

17. 17 The stakes of multilateral trade 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?

18. 18 Some methodological points to understand 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 AVEsLinear Cuts 0  20 45% >20  50 55% >50  75 65% >7575%

19. 19 Some methodological points : the 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 duty Spec duty=TP-Entry Price 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

20. 20 A significant improvement of the EU market access for all the MED Countries Source : TARIC Database Evolution of the tariff applied by the EU – Comparison between 2004 and the results of G20 proposals – F&V – arithmetic average

21. 21 A substantial erosion of the preferential margins Source : TARIC Database 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

22. 22 And a reduction of the spread between countries 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 Difference between the country preferential margin and the area margin = relative margin.

23. 23 What is the picture while taking the exchanges into account? Source : COMEXT-TARIC Database 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

24. 24 What is the picture while taking the exchanges into account? (ctd) The comparison of the relative margin - Weighted and unweighted measure - 2004 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

25. 25 What is the likely impact of MFN tariff cuts on the preferential margins? Evolution of the countries margins relatively to the area’s margin

26. 26Conclusions 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