Select Committee on European Scrutiny Seventh Report


3 Special Framework of Assistance for Traditional Suppliers of Bananas

(28201)
17033/06
COM(06) 806
Biennial Report from the Commission

Legal base
Document originated15 December 2006
Deposited in Parliament5 January 2007
DepartmentInternational Development
Basis of considerationEM of 16 January 2006
Previous Committee ReportNone; but see HC 38-xi (2004-5) 15 March 2005
To be discussed in CouncilTo be determined
Committee's assessmentPolitically important
Committee's decisionNot cleared; evidence session to be arranged.

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


 
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