134. Although most of our witnesses had come
to accept that export subsidies will be withdrawn and a numbernotably
the UK governmentstrongly support that commitment, some
witnesses did express their unease at the prospect. Andy Robertson
of the Scottish NFU warned of the impact of eliminating export
subsidies on domestic markets, noting that EU producers who no
longer receive export subsidies might instead sell into the internal
market, including the UK, and "pull down the market"
(Q 351). The Food and Drink Federation drew attention to
the issue of sequencing, insisting that export refunds for Non-Annex
1 products "should
not be phased out until we have a level playing field" in
terms of import tariffswhich result in EU food and drink
manufacturers paying higher prices for raw materials than their
competitors elsewhere in the world (Ruth Rawling, Q 824). "Once
we are able to buy raw materials at the same price as everybody
else then we do not need them", Ms Rawling suggested (Q 828).
Her colleague Tim Innocent, who is also Head of Purchasing at
Nestlé, explained that sugar is one of the company's key
raw materials, and that even after the recent reform of the sugar
regime, the price of sugar in the EU is not expected to arrive
at the world level, resulting in a discrepancy. He consequently
argued that "to make us competitive with our confectionery
products to export to the free market, to the world market, we
do need to continue to see some form of export refund for processed
products" (Q 825).
135. The Food and Drink Federation was broadly
supportive of the EU's commitment to reduce import tariffs, explaining
that "what we are supporting really is alignment of prices"
(Q 827). Ms Rawling pointed to the recent decision to suspend
import duties on grain temporarily in light of soaring demand,
and suggested that this might "help people see that in fact
there is no need to be quite so scared of some of this reduction
of tariffs" (Q 827). Meanwhile Commissioner Mandelson
told us that import tariffs needed to fall due to internal demand,
as well as external pressure: "our demand for agricultural
produce and food is outgrowing our ability and the capacity of
the shrinking farm sector to provide for that. We need to import
more because demand is growing", he insisted (Q 754).
136. Even among the FDF's own ranks, however,
some members were uneasy at the prospect of cuts in import tariffs.
Sugar producerswho are facing a cut of approximately 70
per cent in the import tariff applied to third-country sugar importsviewed
this as "extremely damaging for the remaining European producers"
and are therefore pressing for sugar to be treated as a sensitive
product, we were told (Q 832). The President of the Scottish
NFU warned that "the real danger is on import tariffs"
(Q 351). Taking the example of Brazilian beef, he argued
that if tariffs were substantially reduced, "then obviously
Brazilian beef becomes much cheaper and it will drag the market
price down in this country very substantially and it will do severe
harm to an industry which already is being paid a price which
is well below what is needed to meet their costs of production."
He insisted that "we run the risk of tariffs being dismantled
and product coming in which is inferior and undercutting us."
137. The issue of perceived inferiorityin
terms of production standardsof agricultural imports from
outside the EU was raised by a number of witnesses.
The French government was most insistent in this regard. Yves
Madre argued that "it is a question of us being fair and
if we want very strict rules on our farmers on what they produce
in the European Union I have some difficulty understanding why
we should allow anything to be imported within the European Union"
(Q 531). He argued that this was also a question of food
safety: "we need to be sure that what is imported and what
will be imported is safe", adding that "if it is safe
and everybody has the same rules there are no problems."
For these reasons, Andy Robertson of the Scottish NFU argued that
it would be "irresponsible not to include production standards
in WTO negotiations" (Q 352). Some Council delegations
have also emphasised "the need to promote health and animal
welfare standards at international level that are as exacting
as Community standards."
SPS Standards Explained
|Article 20 of the General Agreement on Tariffs and Trade (GATT) allows governments to place restrictions on trade in order to protect human, animal or plant life or health, provided they do not use such restrictions as disguised protectionism. A separate agreement on food safety and animal and plant health standards (the Sanitary and Phytosanitary Measures Agreement or SPS) sets out the basic rules.|
It allows countries to set their own standards, but stipulates that such standards must be based on science, and should be applied only to the extent necessary to protect human, animal or plant life or health.
WTO members are encouraged to use international standards and guidelines where they exist. They may set SPS rules that result in higher standards and more trade restrictions, but only if there is scientific justification for doing so. The SPS Agreement also clarifies which factors should be taken into account in carrying out risk assessments.
The WTO itself does not set SPS standards and has made clear that it does not intend to.
138. Duncan Sinclair, Agriculture Manager at Waitrose, warned
that production standards would be a "very difficult issue"
on which to try and reach agreement, pointing to previous experience
in the Uruguay Round of trade negotiations (Q 873). Baroness
Young of Old Scone, Chief Executive of the Environment Agency,
told us that "the business of consistent global standards
is quite a difficult one", and that at least with regard
to environmental standards, these were "only a small part"
of what determines competitiveness (Q 195). Labour market
costs, by contrast, "are probably the biggest single factor
in terms of a level playing field", she suggested.
139. Commissioner Mandelson insisted that the
obligations placed on EU producers "are designed to make
them competitive", and are "going where the market is
heading in any case" (Q 756). He anticipated that "we
are going to produce quality products which people can absolutely
rely on in health and other terms which will correspond to the
sorts of high standards that European consumers, and people like
European consumers, want to pay for." He suggested that the
EU was "at that end of the market" and that in that
sense, agriculture is no different from any other production sector
in Europe. Commissioner Mandelson also dismissed concerns about
the safety of imported agricultural produce, pointing out that
"as tariffs go down and our markets open then other goods
will come towards our markets, that is absolutely true, but they
do not just pass freely into our markets because they have to
get over the hurdle of our SPS
agreement" (Q 766). He also emphasized that third countries
needed to know that if they were producing safely and supplying
products that meet EU standards there would be no penalisation
of their produce, "no artificially high SPS standards which
will be a bar which is impossible for them to get over" (Q 759).
140. Some of our witnesses, however, were sceptical
of the route EU producers were being asked go down. Dai Davies
of the NFU Cymru explained that while Welsh farmers have been
trying to produce a branded product in an attempt to add value,
"at the end of the day, the vast majority of products sold
abroad are sold on a price basis", meaning that ultimately
"it is only a small section of our production that we can
sell in that way" (Q 352). On behalf of the Spanish
government, Valentin Almansa de Lara also called for reflection
"on this so-called quality European standard", suggesting
that "consumers are not prepared to pay for it" (Q 551).
Duncan Sinclair of Waitrose explained that "many consumers
expect imported product to reach the exact same standards as we
would have within the European Union and in a whole range of different
sectors that is not the case" (Q 873). He suggested
that the EU might therefore need to consider whether it should
try to differentiate EU produce in the marketplace, for example
through welfare labelling.
141. Professor Alan Buckwell of the Country
Land and Business Association drew attention to the environmental
consequences of agricultural trade liberalisation: "If Europe
insists on having higher and higher environmental standards, as
it is and as we support, and wants to liberalise trade and implicitly
reduce its production, who does it think these additional imports
are going to come from and with what environmental impacts?"
(Q 208). On behalf of the New Zealand government, however,
Murray Sherwin pointed out that "if you can take a product
unsubsidised and deliver it into the market at a competitive price,
you are unlikely to be embodying a lot more energy than the price
that you are competing against; you simply cannot afford that"
(Q 313). He consequently emphasised the need to ensure that
these issues are considered not just in terms of food miles, but
as part of "a broader greenhouse gas footprinting approach,
which is much more on the full life cycle." Duncan Sinclair
of Waitrose concurred on the need to look at the entire picture,
"including inputs and production system" (Q 868).
142. We commend the European Union's decision
to commit itself to the removal of export subsidies, and strongly
support the Commission's intention to ensure that subsidised sales
do not form part of the CAP in future. We recognise the logic
of the argument put to us by the Food and Drink Federation in
respect of export subsidies for Non-Annex 1 products, but view
it as a reason to cut import tariffs rather than keep export refunds.
143. The plight of manufacturers who use agricultural
raw materials serves to highlight the broader redistributive impact
of import tariffs, which protect producers of agricultural goods
at the expense of consumers of those goodsbe they households
or large multinationals. In our view, this aspect of the CAP is
without justification, and we therefore support further reductions
in tariffs on all types of agricultural goods, including sensitive
products. Current market conditions and the medium-term outlook
for agricultural commodities
could, moreover, help to provide a soft landing for most sectors
in the event of tariff reductions.
144. With respect to the production standards
imposed on agricultural producers in the EU, we recognise the
frustration felt by farmers who resent being exposed to competition
while forced to observe rules that they regard as a competitive
handicap. In our view, the demands placed on farmers are partly
a consequence of the need to find a justification for the maintenance
of direct subsidies. If direct payments are withdrawn and import
tariffs reducedas the UK Government advocatesthen
the production standards that EU producers of agricultural goods
are obliged to respect should be re-examined. EU farmers might
in future be asked to produce to SPS standards, with targeted
financial incentives on offer through Pillar II for the provision
of specific public benefits (e.g. high standards of animal welfare)
that are not delivered by these production processes.
145. While supporting efforts to encourage
other countries to adhere to production standards similar to those
currently in force in the EU, we would not welcome attempts to
impose such standards on other countries, nor the prospect of
their being used as non-tariff barriers on imports. Agricultural
products that meet the SPS standards stipulated by the EU should
be allowed to enter. Consumers should then be allowed to choose
among products produced to different standards above that basic
threshold. Labelling will take on great importance if consumers
are to make informed choices. Labelling should, however, be based
on a comprehensive assessment of environmental impact and welfare
standards, rather than relying on crude indicators such as whether
a product has been air-freighted.
24 COM (2007) 722. Back
England technically operates a dynamic hybrid system, meaning
that it will gradually move to flat-rate payments. Denmark, Germany
and Finland also operate dynamic hybrid systems. Luxembourg and
Sweden operate static hybrid systems, meaning that they intend
to maintain mixed systems. Of the other Member States who use
the Single Payment Scheme, nine use historical models, and two
(Slovenia and Malta) use area-based models. The remaining new
Member States use the Single Area Payment Scheme (SAPS) rather
than the SPS. Back
COM (2007) 722, Para. 2.1. Back
Commission Memo 07/476, 20 November 2007. Back
Commission Memo 07/476, p.4. Back
Commission Communication (2007) 722, p.5. Back
Note, however, that a reduction in subsidies above a certain threshold
would mean that those expanding their businesses above that threshold
would not reap the full return from economies of scale, as some
of those returns would instead offset the reduction in subsidies.
Incentives would therefore be distorted to that extent. Back
COM (2007) 722, Para. 2.2. Back
Duncan Sinclair, Waitrose, Q 870; National Farmers' Union Memorandum
Para. 33; Farmers' Union of Wales Memorandum Para.22; Hannah Bartram,
Environment Agency, Q 173. Back
Q 177. Back
COM (2007) 722, Para. 2.3 and MEMO/07/476, p.3. Back
NFU Cymru and NFU Scotland also support full decoupling. Back
See also Para. 9 of this report. Back
Commission MEMO/07/476, p.5. Back
Commission Communication (2007) 722, Pa. 3.3. Back
Commission Communication on the Health Check, Para. 3.1. Back
Op. cit. Para. 3.2. Back
Op. cit. Para. 3.4. Back
HM Treasury/DEFRA 'A Vision for the Common Agricultural Policy',
Para. 1.18, December 2005. Back
Commission Communication on the Health Check, Para.3.1. Back
Value-added products produced with CAP agricultural raw materials
that were not included in the list of agricultural products annexed
to the Treaty of Rome and subsequent EU treaties. Back
See for example Q 807. Back
Press Release 15333/07 on the Agriculture and Fisheries Council
Meeting held in Brussels on 26-27 November 2007, p. 9. Back
Sanitary and phytosanitary standards that cover food safety and
animal and plant health. Back
See for example the Food and Agriculture Organization of the United
Nations' "Food Outlook", November 2007 and agribusiness
consultants Bidwells' report on "The 'Bull Run' in Soft Commodities",
October 2007. Back