Examining the impact of future FTAs on the EU agricultural sector

Legislation | | MIC Customs Solutions |

A new report has indicated that incoming free trade agreements are likely to have a broadly positive impact on the EU agricultural sector.

The role of free trade agreements (FTAs) on worldwide trade and commerce has become an increasingly divisive topic in the last few years, due in part to a populist erosion of the international consensus on globalization.

As such, more attention than ever before is being paid to the full implications any FTA may hold for organizations in various sectors, with stakeholders scrutinizing not only the potential benefits of tariff-free trade, but also the possible downsides.

It is against this backdrop that the European Commission recently published a study analyzing the cumulative effects of 12 incoming FTAs on the EU's agricultural industry, in order to assuage fears about the impact they may have on sensitive sectors. The results indicate that, while there are a number of challenges that need to be navigated, free trade remains a positive force for agri-food producers on balance.

The report

This study was conducted to analyze the cumulative effects of the 12 FTAs on agri-food, including specific results for producer prices and production volumes for a range of products that account for 30 per cent of the value of the EU exports in the sector between them.

The scope of the research was limited exclusively to the effects of reciprocal liberalization of import tariffs between the EU and the relevant trade partners, meaning other provisions with a possible economic impact - including the reduction of non-tariff barriers such as sanitary and phytosanitary measures, or the steps taken to protect vulnerable sectors in trade deals through means such as the systematic use of limited tariff rate quotas - were not accounted for.

As such, the European Commission was keen to point out that this report was a theoretical exercise rather than a firm prediction.

The results

Nevertheless, the findings of the study offered cause for encouragement. In particular, the new wave of FTAs is likely to reap significant dividends for the European dairy and pig meat sectors, both of which have struggled in recent years and are now showing signs of recovery.

It was also indicated that the EU's current approach of limiting the liberalization of imports of certain sensitive agricultural products will have a positive impact, including the limited tariff rate quota for beef products included in the Comprehensive Economic and Trade Agreement with Canada, or similar restrictions on the trade of rice incorporated into the EU's new FTA with Vietnam.

Beef and rice were both highlighted as sectors that could still experience vulnerabilities, both in terms of trade effects and a decline in producer prices, but this remains subject to how extensively ministers in Europe and its partner countries decide to liberalize trade in these commodities.

The implications

Although the report's coverage was not all-encompassing - for example, it was not able to quantify the possible gains for products such as fruit and vegetables, wine, olive oil and processed foods - it nevertheless offers an indication of the positive outcomes that internationally-focused agriculture businesses and operators could expect to see as a result of the incoming wave of FTAs.

Indeed, there is already evidence that such calculations are more than theoretical, partly with regard to the considerable benefits in trade the EU economy as a whole has seen since the implementation of its new FTA with South Korea.

The European Commission is hopeful that data such as this will help to assuage concerns that the agriculture sector - the exports of which support 1.4 million jobs, with another 650,000 generated by the processed foods industry - will not be adversely affected by the move towards greater trade liberalization.

Phil Hogan, EU commissioner for agriculture and rural development, said: "Some member states and stakeholders have expressed concern on the accumulated effect of the bilateral trade agreements which the EU has been and continues to pursue. This study responds to those concerns and, based on the assumptions made, shows that the effect of international trade agreements on agriculture and the European agri-food sector is broadly positive."

Meanwhile, vice-president for jobs, growth, investment and competitiveness Jyrki Katainen said: "The overall picture is positive for high-value European agricultural exports. This study shows that there are sensitivities; however, it focuses on only one part of agricultural sector and does not measure a number of agri-food products which have significant export growth potential."