Select Committee on European Scrutiny Second Report


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: Oral evidence from Ministers on 20 December 2000
Previous Committee Report: HC 23-xxxi (1999-2000), paragraph 9 (29 November 2000)
To be discussed in Council: January 2001
Committee's assessment: Politically important
Committee's decision: Not cleared; request to be kept informed


  3.1  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[11] 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.

  3.2  The current proposal seeks 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, the Commission made the point that, although over 99% of Community trade with the LLDCs already carries zero import duty, and often involves products in which LLDC trade with the Community is very small, 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. It has therefore suggested that, in those cases, free access should be phased in over three years.

  3.3  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 supports the proposal, on the grounds that the LLDCs need assistance to stimulate their own development and growth. However, he added that the Government believed there was a lack of coherence between this proposal and separate Commission proposals for reforming the sugar[12] and rice[13] 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 treatment of bananas[14] would need to be carefully related to the resolution of the current WTO dispute.

  3.4  In view of these concerns, and of those expressed on both sides of the House during the debate in Westminster Hall on 21 November about the impact of this proposal on Community sugar producers and the preferential access to the European market currently enjoyed by ACP suppliers under the Sugar Protocol to the Cotonou Agreement, 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

  3.5  The written evidence we received on this proposal dealt almost exclusively with its effect on the sugar sector, and revealed a wide range of opinion. At one extreme, the NFU is concerned that any possible increase in imports from the LLDCs — which it suggests could reach between 2 and 5 million tonnes in three or four years — would lead to a corresponding reduction in EC production quotas, thereby undermining both domestic production and the ACP countries. It therefore maintains that sugar should be excluded from this initiative, whilst a thorough survey of its likely impact is undertaken. A similar view is taken by the ACP London Sugar Group, which suggests that, although the Cotonou Agreement envisaged an evolving duty free access for the LLDCs for "essentially all products", this was clearly understood to mean the exclusion of "sensitive" products, such as sugar, rice and bananas, and to imply a much longer lead-in period than that now proposed by the Commission. The Group also quotes the Commission as having estimated that some 2 million tonnes of LLDC sugar would enter the Community within 3 years. It describes such an outcome as "devastating" for ACP sugar suppliers. Its interpretation of the wording of the Agreement is shared by the Overseas Development Institute, which also agrees that there is a potential within the LLDCs to increase sugar exports in response to the removal of import duties.

  3.6  These fears are not, however, shared by Oxfam, which considers it is unrealistic to expect the absolute volume of exports from the LLDCs of most of the products to be liberalised to increase significantly over the next few years. It suggests that trade diversion could occur on a significant scale only for sugar, but that, even here, the increase would be small in absolute terms. It adds that, to the extent that this increase might damage the livelihoods of Caribbean producers, it would be important to assist them through transitional arrangements to diversify and improve their competitiveness, rather than to rely on the existing arrangement which excludes "equally deserving" competitors from the LLDCs.

  3.7  A broadly similar view was taken by the Secretary of State for International Development in a letter which she sent to the Chairman of the International Development Committee on 16 December. She makes the point that the average annual per capita income of the Caribbean countries is currently 17 times that of the LLDCs, and that the latter receive under the Sugar Protocol only 4% of the tariff-free quotas available to ACP countries. She adds that maintaining barriers to trade against the LLDCs weakens their prospects for economic development and the effectiveness of aid, and that the Government therefore supports the "everything but arms" proposal. She says that it is difficult to produce a precise estimate of the impact of the proposal, since there are many imponderables, notably over the infrastructure and production constraints in the sugar-producing LLDCs, but she considers that the capacity to take advantage of preferential margins is limited, and that it is "impossible to believe" that the LLDCs will be capable of putting in place the type of "heroic logistical operations" necessary to achieve the level of import surge predicted by some in the UK sugar industry. More specifically, she says that the Government has concluded that new imports of sugar from the LLDCs are unlikely to materialise before 2002 at the earliest, and she stresses that the Community can take safeguard action if such imports cause, or threaten to cause, serious difficulty to its producers. The Secretary of State also says that countries such as Guyana, which have developed plans to adjust their sugar sector, have the best chance of maintaining their exports in more competitive market conditions, and that the Caribbean countries should use the three-year transition period built into the proposal. The UK will seek through the Community, the multilateral agencies and other donors to ensure that any affected countries are assisted in managing the costs of adjustment.

Oral evidence

  3.8  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. We therefore concentrated on two particular aspects of the proposal.

  3.9  First, we sought to establish the extent to which the Council might be inclined to take a decision without having fully assessed the impact which the proposal could have both on producers within the Community and on those from ACP countries currently enjoying preferential access for the three most sensitive products, in particular sugar. We were told that, in the light of the discussions which had already taken place within the Council, the Commission was expected — possibly the following day (21 December)[15] — 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 (Q.9). He expected the proposal to go back to the General Affairs Council, where he said there was "now a general consensus" among Member States (Q.12), though he gave no indication of the basis of that consensus. 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 (Q.22). However, the Minister confirmed (Q.26) that final decisions would be made before the impact assessment had been properly assessed.

  3.10  Secondly, we 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 (Q.38) that, in the light of experience in other sectors, the Government considered that it would take a "long time" for the LLDCs to increase their current export level of 250,000-300,000 tonnes of sugar.

  3.11  It was also stressed that the proposal contained two important safeguards for non-LLDC suppliers. First, there was a safeguard clause providing for the possible suspension of the concession in the case of "huge" increases in imports from the LLDCs "beyond their usual output or export capacity" Secondly, there was 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 (Q.7) that the UK has been pushing for changes to the latter "which are consistent with the 'everything but arms' approach".

  3.12  So far as the other two sensitive commodities are concerned, we received no clear answer to the concern (Q.59) that the proposal might undermine the tariff preference which the ACP producers would need under any future arrangements aimed at safeguarding them against the sort of recent challenges in the WTO to the Community's banana regime. However, the Minister of State did make the point (Q.64) that the extension to the LLDCs of preferences similar to those currently enjoyed by the ACP countries might exacerbate the objections which the United States had made to the present arrangements. On rice, we were told that the "everything but arms" proposal does offer potential for some of the LLDCs, but that the Commission's proposal for reforming the Community's rice regime were probably a matter of greater concern.


  3.13  Whilst we understand the reasons why the Government supports the "everything but arms" proposal, and would ourselves accept the case in principle for giving greater market access to the least-developed countries, it is clear that the proposal contains a number of uncertainties, which in turn give rise to legitimate concerns among those who might be affected by it, including of course those ACP suppliers to the Community market which currently enjoy substantial preferences for both sugar and bananas. We therefore believe that it would be a mistake if the Council were to agree to this proposal before it had had an opportunity to consider the impact assessment which the Commission is said to be producing. However, since the Commission is thought to be considering certain, albeit marginal, amendments to its original proposal, we hope that the impact assessment will become available before any such amendments are considered by the Council.

  3.14  In the meantime, our own scrutiny of the proposal has enabled us to consider both the written evidence we have received and the oral evidence which the two Ministers gave us on 20 December. We are also conscious that the matter was debated at some length in Westminster Hall on 21 November. We are, therefore, not minded to recommend a further debate in European Standing Committee A , since, on present indications, it seems unlikely this would raise any fresh points. However, we are for the time being continuing to withhold scrutiny clearance, on the grounds that, if the Commission does produce shortly both an impact assessment of the present proposal and some amendments to the proposal, we would like the Government to let us know and to provide us with a Supplementary Explanatory Memorandum.

11  Formerly the Lomé Convention, this provides preferential access for African, Caribbean and Pacific countries, some of which are also classified as LLDCs. Back

12  (21743) 12087/00; see HC 23-xxxi (1999-2000), paragraph 10 (29 November 2000). Back

13  (21358) 9439/00; see HC 23-xxiv (1999-2000), paragraph 7 (12 July 2000). Back

14  (18808) 5357/98; see HC 155-xvi (1997-98), paragraph 1 (11 February 1998). Back

15  We have subsequently learned, however, that the Commission did not consider this question on 21 December 2000, though it is still expected to do so shortly. Back

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