Select Committee on European Scrutiny Seventh Report


DUTY-FREE ACCESS FOR PRODUCTS ORIGINATING IN THE LEAST-DEVELOPED COUNTRIES


(21715)
12335/00
COM(00) 561

Draft Council Regulation amending Council Regulation (EC) No. 2820/98 applying a multiannual scheme of generalised tariff preferences for the period 1 July 1999 to 31 December 2001 so as to extend duty-free access without any quantitative restrictions to products originating in the least-developed countries.


Legal base: Article 133 EC; qualified majority voting
Department: Trade and Industry
Basis of consideration: EM of 22 February 2001 and Minister's letter of 26 February 2001
Previous Committee Report: HC 23-xxxi (1999-2000), paragraph 9 (29 November 2000), and HC 28-ii (2000-01), paragraph 3 (10 January 2001)
Agreed in Council: 26 February 2001
Committee's assessment: Politically important
Committee's decision: For debate in European Standing Committee C

Background

  2.1  Under the Generalised Scheme of Preferences (GSP), developed countries offer preferential market access to products from developing countries in order to promote their development and growth. However, in 1996, the World Trade Organisation (WTO) recommended that the least-developed countries (LLDCs) should be given duty-free access on a separate basis, and the Community decided the following year to implement this recommendation in two stages. Initially, LLDCs not party to the Cotonou Agreement[13] would be granted preferences equivalent to those enjoyed by its signatories, whilst, in the medium term, duty-free access would be provided for essentially all LLDC products.

  2.2  The current proposal sought to give effect to that intention, and indeed to go beyond it, by granting duty-free access without any quantitative restrictions to all products (except arms and munitions) from the LLDCs with effect from 1 January 2001. However, since liberalisation would have consequences for a number of products subject to the Common Agricultural Policy, and which are currently being (or due to be) revised, such as bananas, rice and sugar, the Commission had suggested that, in those cases, free access should be phased in over three years.

  2.3  As we noted in our Report of 29 November 2000, we had been told by the Minister for Trade at the Department of Trade and Industry (the Rt. Hon. Richard Caborn) that the UK strongly supported the proposal, on the grounds that the LLDCs need assistance to stimulate their own development and growth, but that there was a lack of coherence between this proposal and separate Commission proposals for reforming the sugar[14] and rice[15] regimes, which had not taken account of the potential impact of the proposal. The Government would therefore be pressing for the implications of the proposal to be properly considered in the parallel negotiations on the reform of the sugar regime, and believed that a workable solution can be found on rice. It also considered that the treatment of bananas[16] would need to be carefully related to the resolution of the current WTO dispute.

  2.4  In view of these concerns, and of those expressed during the debate in Westminster Hall on 21 November 2000, we decided to invite written comments from a number of interested organisations, and to seek oral evidence from the Minister and from the Minister of State (Commons) at the Ministry of Agriculture, Fisheries and Food (the Rt. Hon. Joyce Quin).

Written evidence received

  2.5  The written evidence we received on this proposal dealt almost exclusively with its effect on the sugar sector, and is summarised in paragraphs 3.5-3.7 of our Report of 10 January 2001. Not surprisingly, it revealed a wide range of opinion. On the one hand, the NFU, the ACP London Sugar Group, and the Overseas Development Institute saw a potential increase in imports from the LLDCs, and were concerned that this would undermine both domestic production and preferential imports from the ACP countries. They therefore maintained that sugar should be excluded from this initiative whilst a thorough survey of its likely impact was undertaken.

  2.6  On the other hand, Oxfam felt that, with the exception of sugar, the absolute volumes of exports from the LLDCs of most of the products to be liberalised were unlikely to increase significantly over the next few years. It also suggested that those Caribbean sugar producers whose livelihoods might be damaged could be helped to diversify and improve their competitiveness. A broadly similar view was taken by the Secretary of State for International Development in a letter to the Chairman of the International Development Committee on 16 December 2000. She said that maintaining barriers to trade against the LLDCs would weaken their prospects for economic development and the effectiveness of aid, and that the Government therefore supported the proposal. She also considered that the sugar-producing LLDCs had limited capacity to take advantage of preferential margins, but added that the UK would seek through the Community, the multilateral agencies and other donors to ensure that any affected countries were assisted in managing the costs of adjustment.

Oral evidence

  2.7  In taking oral evidence from the two Ministers on 20 December 2000, we were aware from the Secretary of State's letter of the Government's general support for this measure, and of the reasons for this.

  2.8  We therefore sought first to establish the extent to which the Council might be inclined to take a decision without having fully assessed the impact of the proposal, particularly as regards sugar. We were told that, in the light of the discussions which had already taken place within the Council, the Commission was expected to consider its proposal further, following which it might put forward some changes to meet the concerns which had been expressed. However, the Minister for Trade thought that any changes would be at the margin. We were also told that the Commission had in hand an impact assessment, but that the Government did not know the exact timetable for this. However, the Minister confirmed that final decisions would be made before the impact assessment had been properly assessed.

  2.9  We also sought to establish what effect the proposal might actually have on Community and ACP producers, and the extent to which this proposal, and that recently put forward by the Commission on the reform of the sugar regime, addressed any such difficulties in a coherent way. We were told that the Government considered that it would take a "long time" for the LLDCs to increase their current export level, and that the proposal contained two important safeguards for non-LLDC suppliers — a safeguard clause providing for the possible suspension of the concession in the case of "huge" increases in imports from the LLDCs, and the fact that the concession would be phased in over a three-year period. However, on this last point, the Minister of State (MAFF) again highlighted the lack of coherence between this proposal and that on the reform of the sugar regime, and, without being specific, she added that the UK has been pushing for changes to the latter "which are consistent with the 'everything but arms' approach".

  2.10  On bananas, we received no clear answer to the concern that the proposal might undermine the tariff preference which the ACP producers would need under any future arrangements safeguarding them against challenges in the WTO to the Community's regime. On rice, we were told that the proposal offered potential for some of the LLDCs, but that the Commission's proposals for reforming the Community's rice regime were probably a matter of greater concern.

  2.11  In the conclusion to our Report, we said it was clear that the proposal contained a number of uncertainties, which in turn gave rise to legitimate concerns among those who might be affected by it. We therefore believed that it would be a mistake if the Council were to agree to the proposal before it had had an opportunity to consider the impact assessment which the Commission was said to be producing. We added that, although we were not minded to recommend a debate in view of the close scrutiny the proposal had already been given by us and in the Westminster Hall debate, we would for the time being continue to withhold scrutiny clearance. We added that, if the Commission did produce shortly both an impact assessment of the present proposal and some amendments to it, we would like the Government to let us know and to provide us with a Supplementary Explanatory Memorandum.

Explanatory Memorandum of 22 February 2001

  2.12  In his Explanatory Memorandum of 22 February 2001, the Minister for Trade said that the Commission's original proposal had not yet been agreed, and that the Trade Commissioner (Mr Lamy) had received a mandate from his colleagues to explore with Member States some "fine tuning". As a result, the Swedish Presidency had produced on 16 February a compromise text, which sought to set out in writing the Commission's ideas as regards the three most sensitive products.

  2.13   For bananas, the phasing out of tariffs would start on 1 January 2002, and finish at the end of 2005, meaning complete tariff elimination from 1 January 2006. For rice and sugar, the start of the tariff elimination would be deferred until 2006 and completed in 2009, using the respective marketing years of the two products for annual cuts in tariff rates. In addition, and in order to provide market access for these last two commodities before the implementation of full tariff elimination, global duty-free tariff quotas would be opened, based on the LLDCs "best ever" exports during the 1990s, and increasing by 15% a year: thus, the quotas for rice would increase from 2,500 tonnes in 2001-02 to 6,700 tonnes in 2008-09, whilst the corresponding increase for sugar would be from 74,000 tonnes to 197,000 tonnes. The safeguard mechanism referred to in paragraph 2.9 above would remain, as would the existing rules of origin and cumulation provisions for ensuring that the benefits of the preferences go where it is intended.

  2.14  The Minister reiterates that the UK "strongly supports" the original Commission proposal, and that the Community sees this as a confidence-building measure with the aim of securing the agreement of developing countries to the launch of a new round of WTO negotiations. He stresses that the Government has continued to press for the implications of the proposal for sugar and rice to be properly considered in the negotiations on the reform of the respective Community regimes, and for the treatment of bananas to be carefully related to the resolution of the current WTO dispute. It will also seek to ensure that the impact of the proposal on the non-LLDC ACP countries is properly identified, and that any affected are helped by the Community to manage associated adjustment costs.

  2.15  The Minister comments that the Presidency compromise is helpful, in that it allows the impact of LLDC duty-free access to be considered in the sugar and rice reforms, and ensures that the quantities of sensitive products imported are capped at low levels, thus "satisfying those who believed that the Community market would be flooded with cheap imports". He says that it also ensures that the budgetary consequences are zero for sugar, whilst for rice they would amount to 1.9 million euros in 2001-02, rising to 5.06 million euros in 2008-09. On the other hand, he points out that the compromise would effectively put off for six years the value of the initiative for about 60-70% of all dutiable imports from the LLDCs, and that the interim quota arrangements for rice and sugar are "poor". He also concedes that, although the proposal is designed to be budget-neutral for sugar, it does mean that any imports from the LLDCs will simply displace current sendings from existing preferential suppliers under the Special Preferential Sugar arrangement, principally the Caribbean. In other words, "whatever the LLDCs may gain is at the expense of the other developing country suppliers".

  2.16  The Minister's Explanatory Memorandum was accompanied by an informal copy of the impact assessment carried out by the Commission, which he describes as "useful, up to a point". However, he points out that it is out of date, in that it does not address the Commission's "fine-tuning" ideas contained in the Presidency text, and that, although several scenarios are depicted, the Commission makes no attempt to say which would be more likely to occur. He also says that the assessment does not take into account the Community's track record in invoking safeguard measures where imports threaten serious difficulties for Community producers.

Minister's letter of 26 February 2001

  2.17  In his letter of 26 February 2001, the Minister says that the UK voted earlier that day in the General Affairs Council in favour of the Presidency compromise, with some minor amendments. He describes it as "most unfortunate" that this should have happened before we had given scrutiny clearance, but says that the proposal was only issued on 16 February, after the House had risen, making it impossible to complete the usual scrutiny procedures.

  2.18  He justifies this on the grounds that the agreement reached is advantageous to the UK, in that it will significantly change the climate of expectation for the new WTO trade round in which the Community and the UK have an "enormous" commercial interest. He also says that it was essential to reach agreement quickly, since delay would have further diluted the benefits and jeopardised the ability to portray this as the positive measure "it is intended to be", and that it would have been "hugely embarrassing" for the Community to arrive at the Third UN Conference on LLDCs, to be held in Brussels in May, with a weak proposal. He adds that the "cost" of the proposal to the Community is so small that its derailment by "vocal lobbies" would be seen by a broader group of developing countries as clear evidence that the Community is unable to enter into meaningful negotiations on further multilateral liberalisation. A further reason advanced by the Minister is that withholding approval would have resulted in a much worse outcome, since several Member States were arguing for a watered-down proposal, and there would have been a clear blocking minority against the compromise if the UK had not voted in favour of it.

  2.19  The Minister sums up the situation by saying that the compromise does in fact address most of the concerns we had voiced as regards the impact on the Community's producers and its traditional suppliers from the non-LLDC ACP countries, and in some respects goes even further. He therefore believes it was right not to argue further in favour of the original proposal, and instead to accept what he considers was " the best deal possible".

Conclusion

  2.20  As we have consistently made clear, we can understand the Government's wish to support the "everything but arms" proposal. Despite this, and the explanation given by the Minister in his letter of 26 February, we regard the United Kingdom's acceptance of the compromise proposal at the General Affairs Council earlier that day as not simply "unfortunate", but a serious breach of the scrutiny arrangements put in place by the House. Our concerns on that score are reinforced on two counts. First, although the impact of the proposal on Community and African, Caribbean and Pacific producers has clearly been diluted, at least as regards rice and sugar, it is still not clear precisely what those effects might be. The Minister's Explanatory Memorandum simply says that the Government will seek to ensure that the impact on African, Caribbean and Pacific non-least-developed countries is "properly identified", though we also note that any gain for the least-developed countries on sugar would be "at the expense of the other developing country suppliers". Secondly, his Explanatory Memorandum suggests that any impact of the proposal "can be considered in the reforms proposed for the Community sugar and rice regimes", but it provides no indication as to what this might entail. Nor have we received from the Ministry of Agriculture, Fisheries and Food Minister of State (Commons) the clarification we sought in paragraph 4.10 of our Report of 10 January of the sort of changes to the sugar regime she said in her oral evidence the United Kingdom had been pressing for to accommodate the "everything but arms" proposal.

  2.21  In view of this, and in particular the fact that the measures adopted by the Council differ considerably from the original Commission proposal, we believe on reflection that it would be right for the whole matter to be debated in European Standing Committee C. This will give the House the opportunity to question the Minister further on his reasons for agreeing the proposal before scrutiny clearance had been given, and more particularly to explore both the precise impact on Community and African, Caribbean and Pacific producers of what has been agreed, and also what changes the Government now considers should be made to the Common Agricultural Policy regimes concerned.



13   Formerly the Lome Convention, this provides preferential access for African, Caribbean and Pacific (ACP) countries, some of which are also classified as LLDCs. Back

14   (21743) 12087/00; see HC 23-xxxi (1999-2000), paragraph 10 (29 November 2000). Back

15   (21358) 9439/00; see HC 23-xxiv (1999-2000), paragraph 7 (12 July 2000). Back

16   (18808) 5357/98; see HC 155-xvi (1997-98), paragraph 1 (11 February 1998). Back


 
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