Background
3.1 Banana imports into the European Union have traditionally
been regulated by a quota system with strong preferential treatment
for Africa, Caribbean and Pacific (ACP) bananas. The EU agreed
to introduce a "tariff only" regime for banana imports
no later than 1 January 2006. The ACP countries would continue
to benefit from a tariff preference under the new regime: their
preferential advantage on the market would, however, depend on
the agreed level of the tariff. In order to make it easier for
the twelve traditional ACP banana suppliers to cope with the transition
to the new market conditions, a Special Framework of Assistance
(SFA) was put in place in 1999, through a dedicated budget line.
Five African and seven Caribbean countries were considered to
be traditional suppliers and are therefore beneficiaries.[4]
3.2 The SFA provides technical and financial support
to specific projects presented by the countries concerned, based
on a long-term strategy previously agreed with and approved by
the Commission. The overall objective is either to improve the
competitiveness of traditional ACP banana production or to support
diversification wherever competitiveness is no longer attainable,
which was to be achieved by funding projects designed to:
- increase productivity without
causing damage to the environment;
- improve quality, including phytosanitary measures;
- adapt production, distribution and marketing
to meet the Community's quality standards;
- establish producers' organisations focusing on
improvements in marketing and on the development of environmentally-friendly
production methods, including fair-trade bananas;
- develop marketing and/or production strategies
designed to meet the requirements of the EU common market organisation
for bananas;
- assist banana producers in developing environmentally-friendly
production methods, including fair-trade bananas;
- assist with training and market intelligence,
and improve the distribution infrastructure; and
- support diversification wherever the banana sector
cannot be competitive.
3.3 Article 9 of Council Regulation (EC) No. 856/1999
specifies that by 31 December 2000, and every two years thereafter,
the Commission shall present a report on the operation of this
Regulation to the European Parliament and the Council, accompanied
if appropriate by proposals.
3.4 In March 2005, the then Committee considered
the second biennial report. Both it and the Minister's accompanying
16 February 2005 Explanatory Memorandum revealed what the Committee
characterised as a tale of unadulterated woe, featuring all the
traditional defects of Commission-administered projects. Surprisingly,
only now was the SFA being properly evaluated. But even on the
available evidence the SFA had been plagued especially by over-complex
procedures and poor management by the Commission, both central
and local. At the first ever International Banana Conference in
2004, the Minister said, "poorly designed projects and rigid
Commission procedures regarding disbursements were flagged as
factors contributing to this failure".
3.5 Despite what the Minister said, the Committee
felt that the objectives of the SFA were indeed clear. Small,
over-stretched bureaucracies are a given in developing countries:
there was no excuse for the Commission exacerbating that problem
in ways that were all too familiar in similar contexts. Given
that the Department for International Development (DFID) was having
to provide technical and analytical assistance to the EC Delegation
in the eastern Caribbean, the Committee felt that it was hard
to see why the Minister should believe that greater decentralisation
would improve matters. The only positive note was that the then-new
Development Commissioner (whom the Minister said he and the Secretary
of State had been lobbying) appeared to accept that major improvements
were necessary, and that most of those had to be made by the Commission.
3.6 The Minister pointed out that the lessons to
be learnt and changes to be made would be important not only for
banana producers, but also for developing-country producers of
other commodities and products faced with the need to undergo
some sort of painful transition, and often in societies where
those commodities or products are central to its economy and,
thereby, political stability. The Committee felt that the review
to which he referred, and what it led to, would thus be of much
wider importance than just to the future of the SFA. Despite the
concern that it felt about what the report revealed, the Committee
cleared the report and asked the Minister to inform it of the
outcome and his views thereon, which, he said, would be completed
by mid-2005 and in which "we shall engage strongly".[5]
3.7 The Minister wrote to us on 15 December 2005
to say that DG Agriculture had been asked to assess the operation
of the Bananas Common Market Organisation (CMO), with a special
focus on the SFA; they had then decided to ask the EuropeAid Cooperation
Office (AIDCO) to commission its own study, with two main aims
— an assessment of the efficiency of the SFA for 2003-04,
and assessing the "viability of the banana strategies of
countries with regard to the implementation of tarification".
The study would thus only cover the SFA from 2003 onwards (to
reflect the change of purpose at that time from improving the
efficiency of banana industries to diversification) and not be
produced until March 2006. The Minister said "we will pursue
the issue of the performance of the SFA with the Commission, as
we had hoped to do on the publication of the originally proposed
report" and would write again following publication. In the
meantime, he mentioned ways in which DFID had been working to
improve the effectiveness of the SFA and also of STABEX funds
(the EC's compensatory finance scheme to stabilise ACP export
earnings) in conjunction with eastern Caribbean countries and
the local Commission Delegation; and with the World Bank and the
Commission to facilitate the disbursal of SFA/STABEX monies within
a joint World Bank-EC programme of budget support, for example
in Dominica.
3.8 We replied on 11 January 2006, saying that we
did not find this at all reassuring — more confusion and
delay by the Commission, with DFID seemingly still doing the Commission's
job — and reminding him of the importance of this study
and looking forward to clear evidence of the strong engagement
by him and his Department that he anticipated in his original
Explanatory Memorandum but of which there was no mention in his
letter.
3.9 The Minister wrote again on 31 January 2006 to
say that he very much shared our concerns about the delays and
the potential of the final report really to lead to improvements
to the SFA. DFID and other interested Government Department officials
had been in contact throughout the year with the Commission and
other EU Member States about the need urgently to address the
problems of the SFA to assist Caribbean banana producers. Both
the Minister and the Secretary of State had raised the issue with
Commissioners. But the UK had been "a lone voice" among
Member States in pushing AIDCO to prioritise the review. The Caribbean
states themselves had also largely been silent about the SFA,
reflecting in part their frustrations with the SFA mechanism,
and had instead focussed on the changes to the EU tariff regime
and the licensing system, where DEFRA and DFID officials had been
engaged "to ensure an outcome which is as developmentally
beneficial as possible". Nonetheless, he would continue to
pursue the issue of SFA effectiveness with the Commission, and
engage with them on the report's contents when it was published.
3.10 He went on to say that, unfortunately, the problems
with the SFA were symptomatic of the wider issues of the effectiveness
and coordination of EC development assistance, and that it might
therefore be more productive to address the SFA problems through
a wider approach, including providing more EC aid as budget support
in the Caribbean and engaging with the Commission on mechanisms
to improve the effectiveness of its development assistance —
"an issue that has more interest and support from other EU
Member States and where there is much more engagement from the
Commission".
3.11 We told the Minister that we found this slightly
odd. The implication was that the review had been narrowed down
so much that it was now regarded as something of a distraction
from the business of improving the effectiveness of EC-delivered
development assistance. However, it seemed to us that:
—
a review focussing on EC support for the diversification process
— on how best to help, and not hinder, fragile economies
in societies with weak bureaucracies who are forced to diversify
out of non-viable products by changes in the external environment
— would be central to assessing and improving the effectiveness
and coordination of EC development assistance;
— the context had a much wider relevance
than that of the banana producers; it was hard, for example, to
see how increased budget support was the answer, since small,
over-stretched bureaucracies are a given in many developing countries;
— there should have been more interest
in learning the lessons from an exercise where, in one year alone,
£25 million was spent on what he described in his original
Explanatory Memorandum as poorly designed projects involving rigid
Commission procedures regarding disbursements that the recipients
regarded as factors contributing to the mechanism's failure.
3.12 We looked forward to hearing from him again
as and when the review was finally published, in the hope that
there was more evidence then of the Commission taking it more
seriously than then appeared to be the case.
The Biennial Report
3.13 This third biennial report by the Commission
on the operation of the SFA fulfils the obligation referred to
above with regard to the years 2005 and 2006, when the budget
lines were €34.5 million and €30.7 million respectively.
Over 1999-2006 the budgets totalled €288 million (£193.4
million). The final allocations will be made in 2007 and 2008,
at which time the framework will come to an end.
3.14 As with its predecessor, it sets out the market
background, changes to the administrative procedures of the SFA
and summarises the SFA's performance. It notes that further changes
to the EU's trade arrangements for bananas took place on 1st January
2006, to meet the commitment to move to a tariff only regime.
Although traditional suppliers still benefit from a duty free
quota of 775,000 tonnes, any bananas entering the EU outside of
this quota must now pay a tariff of €176 (£118.2) per
tonne. In 2005, South American bananas represented 80% of EU imports.
3.15 In 2005, 48% of the SFA budget was dedicated
to enhancing competitiveness of banana exporters. This number
fell to 39% in 2006. This includes actions such as helping producers
acquire or maintain the quality certifications that are required
by large European retailers. The remaining funds are dedicated
to diversification, which could include vocational training to
improve employment opportunities in the service sector for former
banana workers.
3.16 The report notes that cumbersome financial rules
have slowed commitments and disbursements from the SFA budget
in the past. It says that changes to these rules have had a very
positive impact, with rising rates of commitment and disbursement
in 2005 and 2006. Notable among the changes was the devolution
of responsibility for managing programmes in all beneficiary states
to the respective European Commission delegations, so as to improve
the quantity of contracts signed and the quality of the programmes.
The report notes that that the European Commission expects to
be able to recover some lost ground in the coming two years.
3.17 In his accompanying 16 January 2007 Explanatory
Memorandum, the Parliamentary Under-Secretary of State at the
Department for International Development (Mr Gareth Thomas) confirms
that an external evaluation of the impact of the SFA was completed
in early 2006 and says:
"the findings of this evaluation are outlined
in the report. It found that the medium term strategies agreed
by each country (competitiveness enhancement or diversification)
have generally been relevant. It concluded that the SFA has had
an impact in improving productivity where competitiveness was
the objective. Diversification activities received a more mixed
assessment, although it is too early to measure the impacts properly".
The Government's view
3.18 The Minister welcomes the increased speed of
disbursement in 2006 which resulted from changes to financial
rules and looks forward to continuing improvement in this area,
as foreseen by the European Commission. He continues as follows:
"There are lessons from the SFA for the administration
of transitional assistance to sugar producing countries. These
include the impact of rules and procedures on disbursement rates,
and the importance of encouraging recipient countries to draw
up their plans well in advance. Over the past two years DFID has
stressed to the European Commission the importance of learning
from the SFA experience.
"DFID has continued to work with European Commission
delegations in the Caribbean region in order to improve the performance
of the SFA. DFID funded studies during 2006, to evaluate the potential
for spending the EU's assistance to St Lucia and St Vincent through
their respective government's budgets. A move to providing SFA
assistance through budget support could greatly improve the performance
of the SFA in these countries, where roughly two-thirds of allocated
funds remain un-committed to contracts. We are advocating that
funds from both the banana and sugar transitional budgets should
be made available to some recipient countries as budget support.
"The external evaluation of the SFA does not
make substantial recommendations about how the SFA could be improved
and says little about administrative problems. We will press for
future evaluations to be more comprehensive".
3.19 The Minister says that "as this is a report
on past activities there are no financial implications";
it will be discussed in the ACP Working Group before being presented
to Council, with no timetable for these discussions.
Conclusion
3.20 We find it extraordinary that the Minister
should say that the report has no financial implications. Nearly
£200 million has been devoted to the SFA, yet the best that
can be said is that individual strategies have "generally
been relevant"; that the SFA has "had an impact in improving
productivity where competitiveness was the objective" and
that, after 6 years, it is "too early to measure the impacts
properly". When will it be possible? And who will do this?
3.21 We are also surprised not to have heard before
now from him about the eventual outcome of this long-delayed review.
Having told us that he and his officials would "engage strongly",
he now says that "the external evaluation of the SFA does
not make substantial recommendations about how the SFA could be
improved and says little about administrative problems".
Given the history, which we have rehearsed in detail, we find
it extraordinary that he can, it seems, accept such findings.
We also find it hard to be reassured when he now says that he
will press for future evaluations to be more comprehensive.
3.22 Nor are we reassured when he says that over
the past two years DFID has stressed to the European Commission
the importance of learning from the SFA experience. We would have
liked to have had some examples from him of how the Commission
has taken those lessons on board, particularly since they appear
to have dragged their feet from the outset in finding out what
those lessons are. Instead, it seems to us that the Minister's
continuing endorsement of using budget support to disburse the
remaining funds is based more on a lack of confidence in the Commission
delegations than anything else. The impact of rules and procedures
on disbursement rates is one thing. But simply to stress the importance
of encouraging recipient countries to draw up their plans well
in advance ignores how this is to be done, given the very limited
capacity of the countries concerned.
3.23 All in all, this continues to be a sorry
saga, which we propose to explore further by asking the Minister
to appear before us to give oral evidence.
4 Belize, Cameroon, Cape Verde, Dominica, Grenada,
Ivory Coast, Jamaica, Madagascar, Saint Lucia, Saint Vincent and
the Grenadines, Somalia, and Surinam. Back
5
See headnote. Back
