Trade liberalisation or erosion of preferences? The impact of, and prospects for, 'everything but arms'

6 July 2006

Ivano Casella, Coordinator of Trade Relations with Southern Africa, Economic Partnership Agreements, in the European Commission’s Directorate-General for Trade, opened the discussion by explaining that the EU had launched the 'Everything but Arms' (EBA) initiative in 2001 to support the world’s Least Developed Countries (LDCs).

EBA provides unlimited tariff-free access to the EU market for these countries’ products (with the exception of arms). Three products - bananas, sugar and rice - are not yet covered by the EBA, but are being phased in.

By helping to increase the LDCs’ market share, EBA aims to use trade to lift these countries out of poverty. In the five years since the initiative was launched, exports from Africa and Asia to EU markets have increased, with exports of agricultural products and processed food doubling.

Mr Casella acknowledged that measures were needed to simplify the ‘rules of origin’ for processed products from LDCs. He was confident that liberalising the markets in multilateral negotiations would help LDCs to overcome the losses they might incur from any erosion of preferences, but stressed that this would provide more benefits for countries which exported a range of goods than for those which concentrated on just one export product.

He explained that the Commission was introducing “flanking measures”, such as trade-related assistance, and providing financial support to countries which produced goods such as bananas or sugar that are not yet included within the scope of EBA.

Mr Casella insisted that while the take-up of the EBA initiative had originally been criticised, it had proved itself by delivering positive results.

Business fears tariffs will rise

David Zimmer, Secretary General, Association of the Chocolate, Biscuit and Confectionary Industries of the EU (CAOBISCO), explained that his members incorporate LDCs’ raw materials (such as sugar) into their finished products, which are then consumed in Europe or re-exported.

For this reason, his organisation strongly supports the EBA mechanism and is opposed to any “tariff escalation” on these products. “It is not possible to go back on EBA,” insisted Mr Zimmer, arguing that neither the Commission nor the Council of Ministers should take any action to reduce its impact.

He said that COABISCO members needed access to raw materials at reasonable prices to enable them to deliver their products globally. They were therefore unhappy about paying European prices for sugar which were three times the world price, particularly when they then re-exported foods which contained them. He also argued that under the current regulations, the LDCs were making disproportionately small financial gains.

He added: “Don’t allow the EBA agreement to be diluted. Play games with legal aspects and definitions, but don’t play with EBA itself!”

Ensuring EBA helps small producers

Anja Osterhaus, Coordinator at the Fair Trade Advocacy Office, explained that the Fair Trade Movement was both a business and an NGO. Its objective was to ensure that export products from developing countries were produced under fair conditions and that trade benefited poor workers in ‘the South’.

She agreed with Mr Zimmer that EBA “must not be pulled back, but should be improved”. It provided tariff-free access for LDC goods to the EU market, although its impact was limited and there were still some insurmountable difficulties for exporters relating to the ‘countries of origin’ rules. She also welcomed the planned phase-out of tariffs on sugar, rice and bananas, as these were “sensitive products” for the LDCs.

The key question was “who can really make use of EBA?” Ms Osterhaus argued that the small farmers who are the key to sustainable development in poorer countries were not gaining any benefit. The real beneficiaries were the large companies which could establish a business in an LDC and make use of its preferential access to EU.

Ms Osterhaus stressed the need to combine trade and development policies, since tariff escalation would hinder the LDCs’ development, and she insisted that EBA must be continued and fully implemented.

An LDC view on EBA

H.E. Brian B. Bowler, Malawian Ambassador to the Benelux countries, the EU, Switzerland, the World Trade Organization, the African Caribbean and Pacific countries (ACP), and the Africa Union, said the EBA, combined with the 'Cotonou Agreement' (between the EU and the ACP countries), would bolster LDC trade.

His government agreed that the EBA provided an environment which would help countries trade their way out of debt and support private business. However, he concurred that it was the big companies which would benefit most. Although the national taxes paid by private companies contribute to the ‘host’ countries’ finances, international firms can repatriate millions of euros from their profits in a very poor country like Malawi.

The Ambassador suggested that to avoid this, measures should be drawn up to ensure that the poorest countries get real benefits. However, he acknowledged that countries with a well-planned approach to EBA could help to ensure that the benefits “cascade down to the people”. He pointed to measures taken by Mauritius, another LDC, which imposes a national tax on all export products, which is then ploughed back into the country.

Ambassador Bowler said Malawi benefited from its relationship with the EU as the developing world’s largest trading partner, and it was ultimately up to the LDCs themselves to ensure that EBA helps the world’s poorest people.