No. 2314 - SATURDAY, FEBRUARY 10, 1990.


GENEVA, FEBRUARY 8 (BY CHAKRAVARTHI RAGHAVAN)— The boost to the GDP growth of the European Community, due to the planned single unified market after 1992 could have some trade-creating effects by increased demand, and hence imports of some raw materials and agricultural products and some manufactured exports from the Third World, but there could also be some trade-diversionary effects, according to UNCTAD.

The EC has also a complex of preferential arrangements based on historical trading patterns - the Lome agreement with ACP countries, the EFTA countries, the duty-free access to its beneficiaries of the generalised system of preferences, and the network of special arrangements with the Mediterranean countries.

In addition, the EC trade is either closely managed with a host of restraints in respect of specific countries/territories or is largely agricultural and subject to the Common Agricultural Policy (CAP) and its variable levies, or in some areas minimal and subject to no restraints.

While this complex system of preferences would outlive 1992, it will continue to have implications on the impact of 1992 on Third World countries.

In the case of mineral and agricultural raw materials imported by the EEC from the Third World, and for which there are no internal substitutes, trade creation effects would be dominant after 1992.

On the basis of estimations (in the Cecchini report) about the five percent rise in EEC GDP through the single market, and on normal assumptions of elasticities of import demand, the EC imports from the Third World could rise by just over five billion dollars annually.

About 80 percent of this gain would be in fuel imports, which come from a geographically limited number of countries. Hence the impact on other exporters would be minimal.

The EC commission itself has estimated that the direct effect of removal of barriers to internal trade and opening up of public procurement would result in a reduction by some ten percent of manufactured imports from the rest of the world.

This estimate does not take account of dynamic effects of trade diversion due to economies of scale and efficiencies of technical restructuring.

UNCTAD suggests that this import replacement effect would be felt most acutely by other ICs, since economies of scale are largely limited in respect of Third World exports which are largely in clothing, footwear, leather goods, electronic components and toys.

However there could be significant replacements in steel and steel products, other metal products, chemicals and fertilisers.

But the trade-creation effect on the manufactured exports of the Third World, on account of boost to the EC's GDP of about five percent would be about 15 percent.

As regards quantitative restrictions (QRS), the creation of a single market would mean member-states would no longer be able to maintain restrictions, under Art. 115 of the Rome Treaty, on free circulation of goods from non-EC exporters.

The EC quotas under the MFA are particularly complex, with quotas subdivided into EC member-state shares. These quotas under MFA and non-MFA bilateral accords cover imports of some 93 products from 17 Third World countries and territories and five socialist countries.

If these sub-quotas are abolished and EEC quotas retained without adjustments, then there would be some liberalisation since each exporting country could utilise its EEC quotas more intensively. Countries most likely to gain would be those where current utilisation of EC quotas is low but utilisation of sub-quotas is high.

Much would depend in textiles on the future of the MFA, which is at present under consideration in the Uruguay Round.

As regards elimination of other QRS, due to an end to Art. 115 restrictions, there would be gains. But the export gains would be offset by losses in quota-rents, and to this extent net effects would be smaller.

However an area of concern relates to the extent to which industrial lobbies in the EC would succeed in arguing for replacing individual member-state quotas by EC-wide export restraint arrangements covering all members.

Replacing bilateral quotas by EC quotas would mean extension of Protection. The products most likely to be affected would be footwear, consumer electronics and ceramic tableware.

Banana exports of the Third World countries pose a special problem, UNCTAD notes.

About half of the EC's consumption now come from associated ACP states and the Community itself (French overseas departments of Guadeloupe and Martinique) - supplied under special arrangements to preserve traditional markets - while the other half are "dollar bananas", mostly from Central and South America.

ACP producers now enjoy a 20 percent tariff preference over "dollar" bananas except in the FRG where there is duty-freeentry. Most of the protected producers are small-scale and relatively inefficient. Given their topographical disadvantages, even with major restructuring of industry, these costs would remain considerably higher than of large plantations of Central America, Colombia and Ecuador.

While EC officials have repeated commitments to maintain preferential access, "the current preference margin is unlikely to be adequate to sustain their exports", UNCTAD comments.

In respect of harmonisation of technical standards, for most products the 1992 requirements would involve mutual recognition among member states. Domestic producers would not be subject to testing or certification procedures, and exporters from outside would only have to satisfy requirements of one member-state.

However, to the extent that outsiders would be required to obtain tests and certificates, they could come against delays imposed by customs officials.

In respect of agricultural goods, the elimination of customs posts would mean that all inspections relating to plant health, animal diseases and "human health relating to animal products" would be at the first EC port of entry.

But there would be pressures to tighten inspections in lax member-states and the higher standards likely to be instituted would most likely impinge on exporters of planting material and cut flowers.

As regards harmonisation of tax regimes, the proposals are for excise and VAT being within agreed bands.

Excise taxes are to be limited to alcoholic drinks, tobacco and mineral oils.

Excise taxes on coffee in some members are substantial - 41 percent in the FRG and 15 percent in Denmark. Abolishing them would lead to a three percent rise in imports, a five percent increase in world prices and an additional $500 million in earnings on coffee exports to the EC - benefiting all coffee exporters, and with Brazil, Colombia and the Cote D’Ivoire as main gainers.

Eliminating excise taxes and setting average VAT of five percent on cocoa would generate additional imports of $78 million, while elimination of excise on bananas in Italy would benefit Somalia.

In case of tobacco, duties range from 0.12 ECU in Spain to 76 in Denmark. The EC commission has withdrawn its original proposal for aligning duties with the EC average. Instead excise rates would be gradually harmonised upwards.

This would have negative consequences for tobacco exporters from the Third World.

If rates are aligned an the average of the highest rates in the four states, the EC average tax would double, implying a 40 percent rise in prices and could mean a reduction in imports of between 10 to 15 percent and a loss in Third World export earnings of 55 to 85 million dollars.

The damage to exporters, UNCTAD suggests, could be alleviated through a liberalisation of the CAP tobacco regime and thus an end to the EEC sales of low-quality tobacco on the world market.