The Four
Protocols and Vulnerable States
125. In addition to the Lomé preferences generally
available to the ACP countries there are four special `protocols'
which provide preferential access for some more `sensitive' products
covered by the Common Agricultural Policy. The four protocols
allow special market access for sugar, bananas, beef and veal,
and rum. We do not intend in this Report to examine what are complicated
arrangements in great detail. We will confine ourselves to giving
an account of the main issues raised with the Committee.
126. The Beef and Veal Protocol allows the importation
into the EU on concessional terms of 52,100 tonnes of boneless
beef per year from six ACP countries. In the past the ACP states
have had difficulty supplying the full annual quantity. The BSE
crisis has also reduced demand for beef in the EU with a depressing
effect on market prices. This decline in prices has already reduced
the value of the concession and possible reform of the system
of beef subsidy to EU farmers could well reduce their value even
further.[216] Ms Fowler
criticised the fact that the EU's Agenda 2000 document, whilst
proposing a reduction in the internal price of beef of 30 per
cent, made no attempt to discuss the impact on developing countries.[217]
Mr Jones Parry asked what the effect would be "where in the
shorter term, if we drop the Community price, the price of sendings
to the European Union will be reduced ... how does the Commission
envisage that countries like Botswana would actually come out
of that, is there going to be an increased quantity that they
would be permitted to send, with consequent dislocation for Community
producers, or is it going to be a different pricing system?".[218]
127. The Rum Protocol imposes a tariff quota on imports
of traditional (dark) rum (the quota on light rum has recently
been abolished). The quota on dark rum increases annually to the
end of 1999. The memorandum from the West Indies Rum and Spirit
Producers Association complained about the 1997 `White Spirits
Agreement' between the EU and the US which will in effect mean
that the EU opens its market to competition from the US offshore
territories and other third countries from 2003. The rum producers
argue for a continuation of preferences after the year 2000, which
would require a further waiver from the WTO, to help them penetrate
an EU market to which they have had in past years only restricted
access.[219]
128. The Sugar Protocol differs from the other protocols
in being of indefinite duration, with explicit provision for it
to continue should the Lomé Convention cease. The Protocol
commits the EU to purchase and import at guaranteed prices 1,294,700
tonnes of sugar per year from the ACP countries. The guaranteed
price is to be negotiated annually within the price range obtaining
within the Community.[220]
EU market prices are currently significantly higher than those
on the world markets. The prospect of possible CAP reform, however,
could mean change to the EU's support arrangements for domestic
producers. As the EU internal price moves closer to the world
price, the value of the sugar preference will decrease. The Government
said that it was encouraging all sugar suppliers to increase their
competitiveness in the current period of stability so as to prepare
for the future more liberal regime.[221]
129. Perhaps the most controversial of the four protocols
is the Banana Protocol. This Protocol is designed to ensure a
market for bananas from ACP countries in the EU. These bananas
are more costly to grow than bananas from South and Central America.
There have, however, been criticisms of the labour and environmental
policies of these cheaper Latin American banana producers, in
contrast to the production of bananas in the Caribbean. The Protocol
provides for a fixed duty-free quota for traditional ACP suppliers
and a tariff quota for other third country suppliers. Tariffs
both for ACP countries and for third country suppliers for imports
in excess of their respective quotas are set at prohibitive levels.
These arrangements preserve a share of the market for ACP bananas
and to some extent mitigate the fact that `dollar bananas' are
so much cheaper to produce. It remains, however, much more profitable
to import dollar bananas than ACP bananas "because dollar
bananas can be bought fob at about half the cost of [ACP and EU
bananas] and yet are sold on the same market, often at a premium.
Moreover the cost of shipping Caribbean bananas is also higher,
because the volumes are lower, the number of port calls greater,
and there is not the same scope for economies of scale".[222]
It was therefore also necessary to provide an incentive to import
the ACP banana in spite of the higher costs involved to the supplier.
The Protocol achieved this through the `Category B allocation'.
30 per cent of the tariff quota of dollar bananas was allocated
to those operators who imported or ripened bananas from the EU
and ACP. The profits from the dollar bananas could thus cross-subsidise
the importing of ACP bananas.
130. The Banana Protocol has in recent months attracted
particular attention as a result of a ruling of a WTO Appellate
Body that it contravened WTO rules. In that the Protocol is discriminatory
the EU had already secured a waiver for its provisions. Mr Eglin
explained, however, that the United States and certain countries
in Central and South America had challenged the allocation of
Category B licences.[223]
The problem arose because "the existing waiver for the existing
Lomé Convention did not cover some of the details that
the EU applied through the Banana Protocol".[224]
In other words, the original waiver did not cover the Category
B allocation. The EU has to put proposals to the WTO to remedy
the situation, presumably through some sort of waiver, and then
the regime will have to be negotiated again, and if necessary
a waiver requested, in the year 2000.
131. Discussion of the effectiveness of the Protocols
follows very much the same lines as the more general debate on
preferences outlined above. We received evidence of the importance
of all four protocols for countries or groups of countries. The
memorandum from Mr Satendra Prasad gave details of how the Sugar
Protocol had been central to the establishment of an equitable
and prosperous economy on Fiji.[225]
The memorandum from MAFF quotes estimates that the value of the
Sugar Protocol to ACP countries between 1975 and 1991 was ECU
14.4 billion and the value of transfers under the current Banana
regime was ECU 130 million in 1995.[226]
The University of Reading identified Botswana and Zimbabwe as
two countries to have benefited from the Beef and Veal Protocol.[227]
The West Indies Rum and Spirits Producers Association emphasised
in their memorandum to the Committee the importance of rum as
"one of the few agro-based industries in the Caribbean to
improve its market share in Europe".[228]
132. There was also criticism of the Protocols. MAFF
pointed out that in general they benefited middle income countries.
They also considered that "the presence of a high price market
has reduced the incentive for diversification and, in some cases,
helped to maintain high cost production. As a result many of the
ACP beneficiaries have become heavily dependent on exports of
a single product to the EU under the Protocols. In the Windward
Islands, for example, banana exports account for 30-50 per cent
of export earnings, while sugar exports account for 22-45 per
cent of export earnings for the three largest exporters under
the Sugar Protocol - Mauritius, Fiji and Guyana".[229]
133. The evidence received sets out these and related
issues in much more detail. In the context of a more general Report
on the whole of the Lomé Convention we would draw out some
of the broad matters which we think should be urgently addressed.
It is clear with regard to both the Beef and Veal Protocol and
the Sugar Protocol that future reform of the CAP could seriously
affect the value of these preferences. As we stated earlier, we
recommend that the Commission urgently prepare studies of the
likely impact of CAP reform in beef and sugar on developing countries.
On the basis of these studies we recommend that concerted action
be taken to provide assistance to enable ACP countries to deal
with the necessary adjustments.
134. The Caribbean Banana Exporters Association considered
that the continuation of the Banana Protocol was essential. Tariffs
alone were not enough since the Caribbean industry did not have
the resources to engage in a battle for market share with the
three large `dollar banana' companies. Nor was aid a satisfactory
alternative. It did not benefit the farmers as directly as banana
sales and was vulnerable to changes in aid policy, thus continuing
the damaging uncertainty under which the Caribbean banana industry
was currently labouring. Aid could have the effect of easing growers
out of banana production which could in turn lead to a cycle of
collapse as volumes fell and shipment costs rose. The Association
accepted that in the long term greater economic diversification
was necessary but pointed out the problem of difficult terrain,
climatic hazards, and the small size of farms and local markets
which preclude economies of scale.[230]
135. It is clear that the need for a Banana Protocol
is closely related to the peculiar circumstances of small island
states such as those in the Caribbean. It is also clear that the
rules of the WTO do not take account of such circumstances. We
received evidence on the place of small states in the global trading
system. Dr Paul Sutton from the University of Hull argued that
small states (which he defined as having a population of fewer
than 1.5 million persons) were vulnerable and required special
assistance. Small states faced diseconomies of scale, limited
capacity, an exceptional vulnerability to external economic developments
in respect of trade, high international transport costs, and small
island developing states faced a wide range of environmental risks.[231]
136. We have discussed above the need to have a more
graduated definition of poverty in dealing with questions of world
trade. Mr Bloomer also wanted to address "issues of vulnerability
so that the small island states of the Caribbean ... should be
included in a group which is ... going to receive a longer term
preferential access. There needs to be a review of that category
so that it becomes more effective in ensuring that the European
Union's offer in terms of a poverty reduction focus is effective
and does not miss out ... also people who are vulnerable to economic
shocks who could very quickly see their income drop drastically
through very small changes in the European Union's own trade relationship
with their country".[232]
137. Clare Short also accepted that vulnerable and
small island economies "need special consideration"[233]
but she did not think that some sort of tariff arrangement was
necessarily the most beneficial form of assistance. It was rather
"collaboration and partnership and resources to assist diversification
and technical assistance which is the most beneficial support
which can be provided".[234]
She did not want to see the Caribbean economies paralysed into
banana production and aid only going to banana farmers.[235]
138. We strongly support the provision of aid for
trade development and diversification. In the case of the Caribbean
states we have doubts as to how much room there is in such economies
for diversification (though more could certainly be done). We
support the efforts being made by the Government, the EU and the
ACP to agree a new Banana Protocol to begin in the year 2000.
Any request for a waiver to the WTO should be carefully drawn
up so as to ensure that it remains possible and profitable for
banana producers and suppliers to grow and import ACP bananas
into the EU market. We also recommend that the Government urge
the WTO to consider the inclusion of a `vulnerability'/`small
state' category in its rules which might qualify for special and
discriminatory treatment.
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