The protection system for fruit - vegetables and olive oil in the EU EUMED annual meeting Istanbul 9-12 May 2005 Task 3 of the EU-MED AGPOL project Team : - Emmanuelle CHEVASSUS-LOZZA (INRA Nantes-coordinator) - Jacques GALLEZOT (INRA Paris) - Sophie DROGUE (INRA Paris) - Monique HAREL (INRA Nantes) - Vanessa PERSILLET (INRA Nantes) For this task : 15 man months Delivery Date : June 2005 : nature of the deliverables ; a report and a database (with a software : MEDITAR)

Objectives To have a comprehensive picture of the protection in force between the EU and Mediterranean partners This is fundamental : To measure the impact of protection on trade To define different scenarios of trade liberalization between the EU and Mediterranean countries To estimate the likely impacts of these scenarios on trade

The data used : TARIC (Integrated Tariff of the European Communities) – DG Fiscality (ex TAXUD) It gives all the trade measures regulating the access to the European Market. The main measures are : ·   tariff MFN (WTO), ·  tariff quotas MFN, ·   tariff preferences, ·   tariff preferential quotas These measures are identified at the 10-digit level of the Combined Nomenclature. All these elements of the European legislation are published in the Official Journal of the European Communities

The regulation of trade with third countries in the F&V sector A key element of the common organization of the market in fruit and vegetables : For the protection of the EU producers in a sensitive sector For the protection of the running of this common organization Three main EU regulations : 2200/96 : the common organization of the market in F&V 2201/96 : the common organization of the market in processed F&V products 3223/94 : detailed rules for the application of the import arrangements for fruit and vegetables Other measures are intended to protect the EU consumers, or to preserve the EU productions. Health measures : Phyto-sanitary measures : Mediterranean countries and EU have signed preferential agreements. I will focus my presentation on the first and the third point and more precisely for the tomatoes. Before entering in the details, we must notice the specificity of this sector in comparison with the other – specificity which explains the complexity of the system chosen

The specificity of the fruit and vegetables sector The perishability of the products : Most of them are supplied on consignment This creates special difficulties for determining their value; The seasonality of productions For some products, protection depends on the season And thus changes within the year For example, for tomatoes : 8 different periods may be defined

Art 31 : Import licenses for some products What are the main points of the import regulation from third countries in the F&V sector? Art 31 : Import licenses for some products Validity period of the transaction / Guaranty deposit Art 3 & Art 8 : quality standards This rule is applied to imports (EU standards or standards at least equivalent) Art 32 & Art 33 : the conditions of application of the Common Custom Tariffs (CCT) The rules for the application of this article are detailed in the EU regulation 3223/94 Art 34 : the administration of the quotas

The conditions of application of the Common Customs Tariffs : the case of products with entry prices system tomatoes, cucumbers, artichokes, courgettes, lemons, grapes, apples, apricots, cherries, peaches, plums, fruit juices

An example : the cherry tomatoes in 2003 (CN 0702000007) Protection based on two duties and one “key” price : the ad-valorem duty the specific duty: for entry prices < trigger price the lower the entry price, the higher the specific duty and the higher the level of the ad-valorem equivalent. [1] Ad-valorem Equivalent = ad-valorem duty %+ ((Specific Duty /unit value)*100)

The significance of the trigger price (prix de déclenchement) The result of the AAUR (1994). It replaces the old « reference price » : high level of price inside the EU countervailing charges to compensate the difference between the import price and the internal price AAUR => « tariffication » obligation in order to maintain the principle of the reference price => sort of minimum entry price : “trigger price” This MTE compensates the gap between the entry price and the trigger price and garanties a price thresehold a tariff is applied (here = 8.8%) BUT Special Safeguard Provisions : if this minimum import price is not respected => specific duty and, for prices < 92% of the trigger price (46,1€) => max duty (MTE=29.8€)

Which “entry” price to take into account for imposing the duties? The consignment supply creates difficulties for determining the product values. Three ways for determining the product value used to calculate the duties applied. The standard import value (SIV- valeur forfaitaire) Weighted average, by product and origin, of the prices on the Member States representative import markets - 5€/100kg - % ad valorem Average calculated daily by the EC and daily published in the OJEC The fob price + the costs of insurance and freight = Customs clearance by invoice If this value doesn’t exceed the SIV by more than 10% The deductive method : The import charge is based on the effective price of the shipment concerned. In these two cases, the lodging of a security equal to the import duty determined on the basis of the SIV is required

The choice by the importer of its entry price: cherry tomatoes (CN 0702000007) – period : 4-14 January 2003 The SIV The SIV acts as a safeguard mechanism of the EU market. It is a “bottom price” The FOB value + the costs = CIF value If we are on 14/01/03 with a CIF value = 83.2€/100kg It is more advantageous to use this value spec duty= 1.7 €/100kg (instead of 29.8 €/1OOkg) the “delivered price” = 92.17 €/100kg ( instead of 112.1€/100kg with the SIV) If the SIV is below the trigger price, the importer can avoid paying an additional duty by opting to the CIF value.

Protection varies during the year 8 different periods of protection for cherry tomatoes : from 01/01 to 31/03 from 01/04 to 30/04 from 01/05 to 14/05 from 15/05 to 31/05 from 01/06 to 30/09 from 01/10 to 31/10 from 01/11 to 20/12 from 21/12 to 31/12 the level of the entry price varies according to the season Huge entry price to protect hot-house producers in Northern Europe

The EU protection : A « spaghetti bowl » of different agreements

The EU protection : a « spaghetti bowl » of different agreements In the fruit and vegetable sector, with the Mediterranean countries : MFN regime (negotiated at the WTO) Preferential agreements : Euro-Med bilateral association agreements Multilateral agreement : GSP “General System of Preferences” negotiated with less developed countries Within these agreements, preferences may be defined as : Preferential tariffs or measures Preferential tariffs or measures within quotas

But… all the Mediterranean countries and all the products do not benefit from these preferential EU-MED agreements… Number of tariff lines (nc10), by country and tariff regime – fresh fruit and vegetable sector – year 2003 No preference EU-MED GSP total CY 77 59 268 404 DZ 74 70 260 EG 67 270 IL 318 86 JO 68 65 271 LB 397 7 LY 93 311 MA 54 206 144 MT 358 46 PS 366 38 SY 85 18 301 TN 69 84 251 TR 15 389

For example, in the case of Cherry Tomatoes (0702000007) And … for some countries and some products, the preferences may be applied during certain periods only. For example, in the case of Cherry Tomatoes (0702000007) For Turkey, Morocco and Israel : preferences all over the year For Syria and Libya : no preferences For Lebanon : no preference in January and February For Egypt – Palestine and Jordan : no pref between April to December For Cyprus - Malta and Algeria : no pref between May to October For Tunisia : no pref between June to September During these periods where no preference are defined, the MFN tariff measures are applied.

The degree of preferences allowed to Med Countries : fresh fruit and vegetable sector - arithmetic average – 2003 Source : own computations based on TARIC database (EU Commission)

More precisely, what are the preferences for tomatoes ? The preferences are defined at different levels : the level of the taxes and the specific duties inside or outside a quota (only MA) But the entry price system remains unchanged whatever the origin of the product Whereas, the SIVs may vary from one origin to another

The evolution of SIVs in comparison with the trigger price The evolution of SIVs in comparison with the trigger price. Cherry tomatoes - 2003 SIVs may be higher than the trigger price => no specific duties to pay Morocco SIVs’ are always equal or lower than the others, especially from januray to May

A methodological issue : Which AVE to choose to compare the level of preferences allowed to the Med Countries, throughout the year?

Three different solutions : good solutions? The problem : for a product, several tariff lines depending the entry price. Three different solutions : good solutions? To calculate, by period and origin, the arithmetic average of the AVE of the different tariff lines: We give the same “weight” to each tariff line as if each tariff line corresponded to a product A good solution to compare the structure of protection applied to each country, period by period But not a good solution to make an inter-temporal comparison (the number of tariff lines differ from one period to another) 47.9%

AVE calculated by month and by origin : arithmetic average of all the tariff lines (CN 0702000007)

To calculate, by period and origin, the AVE on the basis of the SIVs The problem : for a product, several tariff lines depending the entry price. To calculate, by period and origin, the AVE on the basis of the SIVs These values indicate the AVE paid by the importers when they choose the SIVs However, the SIVs are endogenous to the protection system : The lower the protection, the higher the quantity exported and the lower the SIVs………. And the higher the specific duty and thus the AVE.

AVE calculated by month and by origin, on the basis of the SIVs (CN 0702000007)

The problem : for a product, several tariff lines depending the entry price. To calculate, by period and origin, the AVE on the basis of the trigger price At this price, only the ad valorem part is applied It gives another picture of the protection system…. But without taking into account the Safeguard Provisions….

AVE calculated by month and by origin on the basis of the trigger price (CN 0702000007)

Which scenarios of liberalization may we consider? A first proposal : a simplification of the system for products with entry price The reduction of the number of entry prices The abolition of the duty specific part and the transformation of these amounts in ad valorem duties The limitation of the transaction costs (due to the certificate of origin, the lodging of a security…) Bilateral trade agreements are different from one country to another A proposal : To consider a single agreement between EU and the Mediterranean countries => A Euro-Mediterranean Agreement based on the principal of the Most Favoured Nation : i.e an alignment by products and for all the MED countries on the most advantageous tariff among MED countries

Which scenarios of liberalization may we consider? [2] Another proposal of simplification in a context of liberalization An enlargement of the preferential quotas and the elimination of the preferential “out-quota” tariffs on the example of the new EU-Morocco Agreement (2004) when the quota is filled, the MFN tariff is applied But moreover… Only one quota by period, each “quota” period corresponding to the tariff period ! All the quotas managed by the same directorate…. What is the potential of export increase of Mediterranean countries ? What is the likely impact of the EU commercialisation standards fulfilment for the local production?