Cambodia, GSP, GSP Plus, EBA, Latest news, Trade defence

TDI series: Rice – The EU’s first ‘poorest country’ import safeguard

This article is the first in a series of pieces Borderlex is planning to publish over the autumn 2019 to take stock of the European Union’s trade defence instrument policy at a critical turning point both in the multilateral trading system and in the EU’s trade defence practices.

Since 2014, the EU has helped 1900 rice growers in Cambodia increase agriculture production. About 20% of the working population in Cambodia lives off rice production. Is all that EU development aid coming to naught?

In January the EU introduced the first import safeguard targeting two  beneficiaries of its Everything-But-Arms scheme, Cambodia and Myanmar. The EBA arrangement – which is part of the EU’s General System of Preferences for developing countries – offers countries classified as ‘least-developed’ in the United Nations duty-free and quota-free access to the EU’s market. The the aim is to helping them trade, grow, develop and improve living conditions for their populations.

The EU EBA preferences offer is largely unconditional, although beneficiary countries are expected to comply with a series of international human rights conventions. The European Commission is also in the process of considering removing other preferences due to human rights violations of different nature in both Cambodia and Myanmar.

The EU’s GSP regulation foresees safeguards if products “imported in volumes and/or […] prices [….] cause, or threaten to cause, serious difficulties to Union producers of like or directly competing products”. The rice safeguard means that imports of ‘milled’ and ‘semi-milled’ rice originating from these South East Asian countries are now charged at €175 per tonne at EU customs. That brings them in line with prices charged against imports of rice from other countries rich and poor alike, such as India or the United States. The measure is in force for three years.

The surge in imports of Indica rice from these two countries is impressive. Imports from Cambodia grew by 53% between 2012 and 2017, export prices went down 6%, and Cambodian rice gained market share in Europe by 10% – so the Commission. Imports from Myanmar grew 89% in same period and the country’s market share in the European rice sector soared to 6.3%, up from 0.2% in the same period.

The rice safeguard is notable for many reasons.

A ‘first’ for the EU

The EU rarely uses import safeguards – it generally prefers to deter ‘unfair’ imports via its much more surgical, effective and long-lasting anti-dumping measures. But after fifteen years doing without any safeguards, last year, DG Trade initiated two of them – one on imports of steel, and one targeting the two South East Asian countries’ rice. The rice safeguard is the first case of a safeguard triggered under the general system of preferences.

The politics around the measure and the method used by the Commission to introduce that measure are worth pondering on. The Italian request was brought by the now-defunct coalition between the Five Star Movement and the far-right Lega, two ‘populist’ and rather trade-sceptic parties. Salvini’s Lega has a lot of following in Italy’s rural constituencies in Northern Italy.

Despite long-standing Italian misgivings about import competition for its rice sector, no government before the short-lived Salvini-Di Maio coalition actually dared to bring a request for protection of this sort to Brussels. The Italian government came to Brussels using dramatic words: “This urgent request stems from the irreversible deterioration of the economy and financial situation of Italian and European rice producers. Any delay in this regard might cause irreparable damage to the Italian rice sector,” reads the letter by to the Commission’s Director-General for Trade Jean-Luc Demarty by his Italian counterpart Amedeo Teti.

“Indica rice produced in Myanmar and Cambodia arrives on the European Union market in volumes and at such prices so as to create difficulties for the European operators in the sector,” wrote Coldiretti the leading Italian agrifood association, in a press release supporting the EU move last January.

Millers, not farmers

The safeguard has had its desired effect: since September last year, exports of milled and semi-milled Indica rice from Cambodia fell by 27.7%. Imports from Myanmar fell by 17.4%.

Note that the safeguard does not target paddy rice – the ‘unprocessed’ rice used by millers as raw material or basic commodity. Although the Italian government’s submission to the EU talks of ‘growers’ – i.e. farmers – its protection request to the EU only focused on milled and semi-milled rice – indicating it won’t countenance rice imports that compete with industry, not farming.

The measures applied to Cambodia are now up for examination by the European Court of Justice. Last April, the Cambodian government and a group of Cambodian rice growers filed a case for annulment in Luxembourg. The case is still pending and won’t be settled before late 2020. Their lawyers found six types of flaws in the measure for the court to examine – the questions of legality raised revolve around the Commission’s procedures, transparency, and sampling methods.

“Taking into account the exceptional nature of a GSP safeguard action, especially when it leads to the withdrawal of the benefits granted to a least developed country, the Applicants consider that the legal standard under the relevant provisions and the burden of proof on the European Commission should be very high,” argue the claimants in their submission to the Court of Justice.

Italian bias?

One of the issues EU judges will have to dwell on is whether the Commission has sufficiently taken into consideration the broader state of the EU’s rice industry, or whether it focused too narrowly on a set of specifically Italian producers.

Clearly, the sector has problems. Profitability levels are low. They stood at 1.4% in 2012/2103, at the beginning of the period taken into consideration by the EU. They were at 1.2% in 2016/2017, the final period examined by the Commission. Production levels plummeted. Note that profitability went up in 2015/2016, at the peak of the import ‘boom’ from Cambodia. Cambodian rice imports slowed down after that.

On the face of it, the measure is about European rice production. The Italian government was supported by Portugal, Spain, France, Greece, Bulgaria and Romania. But the samples used by the EU in its safeguard investigation include four Italian organisations – of which three millers – and one Spanish rice miller. “Together, the sampled millers represented 26 % of total Union production”, reads the safeguard regulation. In contrast, EU safeguard regulations on citrus fruit and salmon introduced in 2002-2003 covered 47% and 85% of the EU’s production.

The text of the EU regulation also notes that “the situation of the Union industry is worse in Italy than in Spain. That is partially due to the fact that the Spanish rice market is organised differently and is therefore more resilient in terms of supply and demand and also in terms of pricing.”

Whether there is an Italian bias in the Commission’s decision to go ahead with the safeguard will ultimately be determined by the ECJ – but it is hard to argue the decision is based on an overall Europe-wide analysis of the situation for millers or rice farmers.

Myanmar is switching exports to Japonica rice, a ‘European’ rice variety not covered by the safeguards.

Will the safeguard help rice millers? Myanmar – which did not join the Cambodians in suing the EU at the ECJ – is adapting. The Burmese appear to have switched to exporting another rice variety to the EU – Japonica rice. Imports of this variety of rice increased by 49.7% since September last year, notes DG Taxud, the EU’s customs department. Japonica is the traditional European grain. The EU did not introduce safeguards on Japonica rice because there has been few imports of this variety of rice so far. Will the Indica safeguard have backfired?

Italy has a lot going for it. It is, in fact, the seventh-largest exporter of rice in the world – much larger than Cambodia. Its global exports grew 2.5% in 2018. ‘Brand Italy’ is strong..

“Contrary to anti-dumping and anti-subsidy measures, safeguards target fair trade and therefore amount to an admission by domestic industries that they cannot compete with fairly traded imports,” write Brussels-based lawyers Edwin Vermult and Folkert Graafsma in a recent analysis of EU safeguards. Amedeo Teti’s letter to Jean-Luc Demarty cited above amounts to exactly that: an admission of failure.


One Comment

  1. Thank you for explaining these safeguards, I had been wondering about them!

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