The Generalized System of Preferences (GSP) The special regime for the Less Developed Countries (LDC) Towards a responsible sugar regime Brussels, June 9, 2005

The Generalized System of Preferences (GSP) What is the GSP ? It is a system of preferential trade, thanks to which the EU allows an easier access to its market for developing countries. It benefits 178 countries Countries of which the GNP 1995 is above 8210 USD and the development index (*) is > -1 are excluded. (*) combination of income per inhabitant and the level of exportation of manufactured goods compared to the data of the EU. In 2003, the GSP has benefited to 52 billion importations in the EU. The present GSP is in pLDCe since 1995 It has been extended to 2004 in periods of 3 years and has been prolonged until 2005.

The Generalized System of Preferences (GSP) It covers the chapters 1 through 97 of the Common Customs Tariff (CCT) Of tariff lines, 2000 have already are already null duty through the MFN The GSP covers 7000 of the 9000 remaining lines. The system is characterized by a graduation mechanism and 5 regimes The graduation mechanism - Is the key of the system; - Gives handicaps according to the country and the product concerned; - Gives the lowest handicaps to the weakest countries, and thus favours their imports; - Periodically re-evaluates this handicap according to the evolution of the commercial exchanges between a favoured country and the EC; - Theoretically, it works in two ways. Experience shows that a degradation in the situation of a country easily leads to better access, but that there are always good reasons not to apply a reduction of facilities automatically (it´s an inversed bo nus- malus !!!).

The Generalized System of Preferences (GSP) The 4 regimes 1.The general regime At the beginning, agricultural and industrial products were classified in 4 groups : 1)very sensitive: - 15 % 2) sensitive : - 30% 3) hardly sensitive : - 65% 4) not sensitive at all : - 100% to reduction of the Common Customs Tariff (CCT) Since the GSP reform in 2001, only 2 groups remain: 1) Not sensitive: no entry right = 3300 tariff lines 2) Sensitive : - 3,5% reduction on the MFN = 3600 tariff lines of which many agricultural products.

The Generalized System of Preferences (GSP) 2-3. The special encouragement regimes Give supplementary preferences for respect of labour rights and environmental standards Preference :- 8,5 % points on the MFN taxes (- 40 % on textiles and clothing) 4. The special drug regime Benefits the Andes countries, Central America and Pakistan (panel lost  adjustment) Preference : Access to 0 duty for 7200 tariff lines

The Generalized System of Preferences (GSP) 5. The special regime for the LDCs. For the 50 LDCs, unlimited access to null duty for all products except weapons. Hence entitled: EBA “Everything but arms” or, TSA “Tout sauf les armes” Transition measures for rice, bananas and sugar until See 2nd part.

The Generalized System of Preferences (GSP) New GSP July 1, 2005  regimes instead of 5 1.The general regime products (mostly agricultural products) Preferences : idem (PS – 3,5% : S – 100%) 2. Encouragement regime = GSP + (Regroups work, environment, drugs) 2 conditions : - feebly diversified and vulnerable economy - ratification and application of 16 conventions on human rights and labour rights, and of 7 (of 11) conventions on good governance and protection of the environment Preferences : null duty on the lines of the GSP.

The Generalized System of Preferences (GSP) 3. The special regime for the LDCs. No changes, transition regime for the development countries that lose LDC status. Graduation system Goal: to offer more advantages to the least competitive countries. applied to product groups per country, with regard to sections of the combined nomenclature. Criterion: starts from a country in the EU market, partly expressed in the preferential community imports (threshold fixed at 15%). Protection in case of exceptional situations (unfair commercial practices) Temporary retreat clause AND protection clause.

The Generalized System of Preferences (GSP) Problems to be solved (that concern us) EBA : adoption of a declaration of the Presidency, requesting the analysis of the EBA on the reformed sugar OCM, particularly on the triangular trade. Saveguard clause : detail the procedures (calendar) and the trigger thresholds ( +25% import) We are very much on our own …

The “Everything but arms” initiative - EBA Special GSP regime for the 50 LDCs. Unlimited access to 0 duty. BUT : - no guaranteed volume - No guaranteed price Transitional protective measures until 2009 : - Fixed quotas but, - Guaranteed volumes and prices Price guaranteed at 85% price intervention In reality = price below > PI The favoured LDCs Equivalent T of white sugar Soudan Ethiopia Malawi (ACP) Tanzania (ACP) Zambia (ACP) Nepal Mozambique Burkina Faso Total Evolution of the system 0 duty beyond quotas T of WS 2001/ unchanged 2002/ unchanged 2003/ unchanged 2004/ unchanged 2005/ unchanged 2006/ % 2007/ % 2008/ % 2009/10unlimited- 100%

The “Everything but arms” initiative - EBA What is the capacity of these LDCs ? Production2,4 Mio T Consumption 3,7 Mio T Import2,1 Mio T Export0,6 Mio T They import more than they export, so …

The “Everything but arms” initiative - EBA The triangular trade – the transfer of the market 1 LDC exports its entire production to the EU and provisions itself on the international markets to cover its internal needs. Is this legal ? Yes, the starting condition has been respected. So, export potential of 2,4 Mio T (4 Mio T) Where is the problem ?

The “Everything but arms” initiative - EBA WM LDC EU World price 200 €/t 600 €/t 524 €/t (raw sugar) Loss: 524-(450+80)= - 6,0 €/t Net profit: 280 – 6 = 274 €/t Transport, loading, customs duties: +120 €/t Fobbing, transport : +80 €/t Profit : 600-( )=280 €/t Raw sugar (for export.): 450 €/t WHAT INTEREST ?

The “Everything but arms” initiative - EBA Encourage the export cultures at the expense of the food crops (the coffee and cocoa experiences have already been forgotten!!) Expose producers and consumers to the exchange risks : the producer is being paid in national currency – often weak – and the consumer has to pay the equivalent in strong currency. Increases the insecurity for the farmers, who depend 100% on the exports: whether there will be more export, local market already occupied by imports at prices they can’t compete with,... Encourage an exacerbated competition between LDCs and with the non-LDC ACPs. Encourage fraud as it is impossible to determine the origin by analyzing the product. THE DISAVANTAGES OF SWAPS FOR THE LDCs (I)

The “Everything but arms” initiative - EBA Favour multiplication of transport of products, and multiplication of intermediaries at the expense of the environment, of producers and consumers. Moreover, much legal insecurity for potential investors, because: - if too much sugar on the EU market ---> prices go down ---> question again the profitability of their investment - if the variation is too important, risk of: suspension of the protection by the regime However, the new GSP intends to limit itself to exceptional circumstances such as disloyal practices. THE DISAVANTAGES OF SWAPS FOR THE LDCs (II)

The “Everything but arms” initiative - EBA THE DISADVANTAGES OF SWAPS FOR THE EU Impossible to foresee the offer Pressure of falling prices Weak visibility in the LT

The “Everything but arms” initiative - EBA THE ADVANTAGES OF SWAPS Creation of commercial flows Encouraging the efficiency of the sugar sector Prevents the situation annuities (quotas) Integration in the world market Better prices for the consumers More exits for the producers

The “Everything but arms” initiative - EBA What do the LDCs demand ? Proposition of March 3, To delay the progressive elimination of tariffs from 01/07/2OO6 to 01/07/ To conserve the quota of T (reached in 2008/09) until 2016 (called « first stream » ) 3.An additional quota from 2004/05 on (valid for all sugars), initially based upon their foreseeable net export capacity and increased by 15% cumulated per year, until (called « second stream »), limited to T after To maintain the prices close to their present level. 1.An unlimited access, at zero duties, for sugar coming from the LDCs that are the surplus of the internal production with regard to domestic consumption of these products. 2.A clear protection mechanism with a calendar, a procedure and pre- defined trigger thresholds. What do we demand ?

The “Everything but arms” initiative - EBA What does the Commission seem to propose? A regulation by a decrease of prices that suppresses all interest, and thus all the dangers of SWAP BUT -ALSO suppresses all interest from EBA for the LDCs (low prices – preference cancelled). - the majority of LDCs that produce at a price too high are excluded.

The “Everything but arms” initiative - EBA WM LDC EU World price 200 €/t 550 €/t 310 €/t (raw sugar) Loss: 310-(450+80)= €/t Net profit: 230 – 220 = 10 €/t … if there is no fraud !!! Transport, loading, customs duties: +120 €/t Fobbing, transport : +80 €/t Profit : 550-( )=230 €/t Raw sugar (for export): 450 €/t HYPOTHESIS Reference price : 310 €/T

The Balkan experience In 2000, the EU offers unlimited access at 0 duties for sugar coming from Albania, Bosnia-Herzegovina, Croatia, Fyrom and Serbia-Montenegro Explosion of imports: Through - boost production (1MioT in ex-Yougoslavia) - triangular trade and fraud ExportsImportsDifference (of which Serbia and Croatia)

The Balkan experience Consequences : - equivalent decrease of community quotas (B ---> C) - sugar carrousel between the EU and the Balkans - internal market unbalanced ---> suspension of facilities to Serb-Mont in June in the long term: increase of imports from third countries to the Balkans ----> increase of WTO references according to art XXIV.6 In 2005 fixation of delivery quotas Serbia-Montenegro-Kosovo T Bosnia-Herzegovina T Albania T Croatia (future EM) being negotiated FYROMbeing negotiated

CONCLUSION So, EBA …. is EVERYTHING BUT an “AFFAIRE” (good business) Or, EVERYTHING BUT ARMS Thank you for your attention.