ACODE Policy Research Series No.6, 2003

Transcription

1 ACODE Poicy Research Series No.6, 2003

2 ACODE Poicy Research Series No.6, 2003 UGANDA S ACCESS TO THE EUROPEAN UNION AGRICULTURAL MARKET: CHALLENGES AND OPPORTUNITIES. Onesmus Mugyenyi 1 and Ronad Nauwairo 2. ACODE Poicy Research Series No. 6, Onesmus Mugyenyi is a Research Feow with ACODE and an Advocate. He is the Head of the Trade Poicy Governance Programme at ACODE and teaches Commercia and Internationa Business Law at Makerere University Business Schoo, Kampaa. 2. Ronad Nauwairo is an Advocate of Courts of Judicature of the Repubic of Uganda and a Research Feow with ACODE. He hods a Master of Laws Degree from Cambridge University, a Bacheor of Laws Degree from Makerere University and a Post-Graduate Dipoma in Lega Practice from Law Deveopment Centre.

3 TABLE OF CONTENTS. ACODE Poicy Research Series No.6, 2003 LIST OF ACRONYMS... iii ACKNOWLEDGEMENTS... iv EXECUTIVE SUMMARY... v 1. INTRODUCTION EU-UGANDA TRADE RELATIONSHIP Brief overview of the Lome Trading arrangements Shortcomings of the Lome Trading arrangements: The Cotonou Partnership Agreement Chaenges for Uganda in impementing the Cotonou Partnership Agreement EBA initiative UGANDA S CURRENT AGRICULTURAL EXPORTS TO THE EU AND IMPORTANCE TO THE ECONOMY Coffee Tobacco Tea: Cotton: Horticuture (fruits, fowers and vegetabes) Livestock Fish: DIRECTION OF TRADE EU AGRICULTURAL EXPORTS TO THE EAST AFRICAN MARKET: PREFERENTIAL TRADE AND EROSION OF PREFERENCES Expected benefits and osses from the erosion of preferences CAUSES OF POOR TRADE PERFORMANCE BY UGANDA Endogenous factors Structura probems Exogenous causes: Non tariff barriers constitute a new set of probems to market access The EU Common Agricutura Poicy Impact of CAP reforms on Uganda i

4 ACODE Poicy Research Series No.6, ACCESSING THE EU MARKET Issues for private sector Devising and adopting suitabe market strategy Competitiveness of the market: Packaging waste: Sanitary and phyto-sanitary reguations Export promotiona too mix POLICY CONCERNS FOR GOVERNMENT Government response to CAP reforms Estabish a framework for anaysis of issues in future trade reations Institutionaise the IITC and strengthen the Negotiating team Deveoping defensive and offensive strategies Defensive strategy Criteria for designating products as defensive, sensitive or strategic Offensive Strategy Access to information Tariff Peaks and Tariff Escaation Eimination of Tariffs Export Subsidies Preferentia Treatment Phased out iberaization Sanitary and Phyto-sanitary Measures on manufactured foods Strengthen south-to-south trade cooperation Addressing suppy side constraints CONCLUSION REFERENCES ii

5 ACODE Poicy Research Series No.6, 2003 LIST OF ACRONYMS ACODE IITC EU ACP EBA CPA UNCTAD EAC CAP Advocates Coaition for Deveopment and Environment. Inter-Institutiona Trade Committee European Union African Carribean and Pacific Everything But Arms Cotonou Partnership Agreement United Nations Conference on Trade and Deveopment East African Community Common Agricutura Poicy iii

6 ACODE Poicy Research Series No.6, 2003 ACKNOWLEDGEMENTS. This paper gives an overview of the trade inks between Uganda, an ACP country and the EU. It identifies trade opportunities and chaenges in accessing the European agricutura market. It summarizes the key issues and is handy for poicy anaysts, researchers and poicy makers. In writing this paper we consuted a number of reports, seminar and workshop papers and works of various academicians, which we have tried to acknowedge. We owe them a debt of gratitude. We woud ike especiay to thank Dr. Otieno Odek of Facuty of Law, University of Nairobi and Godber Tumushabe (The Executive Director, ACODE), who read the draft of this research paper and made very hepfu comments. We are aso very gratefu to Friedrich Ebert Stiftung for the financia support extended to ACODE under its Trade Poicy Governance Programme without which this research paper woud not have been pubished. iv

7 ACODE Poicy Research Series No.6, 2003 EXECUTIVE SUMMARY The ast three decades of trade between Uganda and European Union have not benefited Uganda. Generay the annua trade baance has been negative raising the eve of Uganda s externa debt to US$ 3.68 biion as of June,2000. The Lome Trading arrangment ( ) has not been abe to change the trend due to a number of chaenges. The Cotonou Partnership Agreement and the EBA initiative may not be abe to change the trend uness these chaenges have been addressed. The major constraints have been interna, externa and structura. The interna factors range from poor trade poicies, inadequate support to private sector, narrow export base, reiance on export of raw materias and high eve corruption. The externa factors incude non-tariff barriers, protectionist poicies, subsidies, tariff peaks and escaation. The structura chaenges mainy reate to poor infrastructure, poor product quaity, poor and obsoete technoogy, poor marketing techniques and insufficient market knowedge which can be summarized as suppy side constraints. It is argued that uness these factors are addressed, the trade initiatives between Uganda ike any other ACP country and the EU, wi remain on paper without any tangibe benefit to the poor as envisaged. Therefore, there is need for government to address these constraints. Government must take a bod decision to address suppy side constraints. Estabishment of a framework for anaysis of issues in future trade reations that wi address issues that reate to tariffs and tariff escaation, subsidies, non- tariff barriers through strategic negotiations is essentia. There is need to strengthen south to south cooperation, deveop offensive and defensive strategies, improve information dissemination and packaging to suit the cientie. It has apparenty become crucia to move away from neo-ibera trade poicies and extend reasonabe support to farmers, adopt phased out iberazation strategy as opposed to the hitherto rapid iberaization that has devastated oca production systems in order to address poverty concerns. v

8 ACODE Poicy Research Series No.6, INTRODUCTION Since 1975, European Union has been Uganda s argest trading partner with more than one third of Uganda s exports consumed in the EU markets 3. This trade reationship has been based on successive Lome Conventions which were repaced by the Cotonou Partnership Agreement concuded between the ACP states and the EU in June, The year 2003, the European Union took yet another unprecedented step through the initiative Everything But Arms (EBA) when it decided to open the markets, incuding agricutura ones, uniateray and totay to exports from poorest countries except arms and amunition. For Uganda, the EBA initiative buids upon the existing preferentia treatment aready granted since 1975 that was saved by the Cotonou Agreement up to the year Despite a these trade initiatives, Uganda s trade performance has not been good. The average annua trade baance for the ast two decades has been negative raising the eve of Uganda s externa debt to US$3.68 biion as of June, This paper therefore, examines the trade inks between Uganda and the EU. It identifies trade opportunities and the dynamics invoved, anayses the chaenges and constraints that have to be addressed if Uganda ike any other ACP country is to benefit from the trade inks with the EU. 2. EU-UGANDA TRADE RELATIONSHIP. The trading reationship between Uganda and Europe dates far back to the time of cooniaism. After the Berin conference of , Uganda became a British coony and it is this historic ink that marked the beginning of major changes in Uganda s economic and socio- cutura deveopment process. Since the 1970s, Uganda had reated with Europe through the Lome Conventions. 7 The first Lome Convention was signed in February The agreement focused on co-operation on trade, financia and industria deveopment. There were four successive Lome Conventions between The second and third Lome Conventions were signed in 1979 and 1985 respectivey. In June 2000, a new cooperation agreement, the Cotonou Partnership Agreement (CPA) was signed, vaid for 20 years. Looking at the trade statistics of Uganda for the period between s the conventions seem not to have had sustainabe impact in strengthening trade between Uganda and European Union. Deterioration in the externa terms of trade over the ast few years contributed to a decine in export earnings from 11.2% of GDP in 1994/95 to 7.9% in 1999/ Looking at Africa generay, its exports to the European Union has decined by amost 50% from 1976 to EU-Uganda, A Sustainabe Trade Reationship. Deegation of the European Commission in Uganda, at htpp. 4. The ACP/EU Partnership Agreement is a comprehensive aid and trade agreement concuded between 77 ACP ( African,Caribbean and Pacific) countries and the European Union, signed on June 23, 2000 in Cotonou (Bennin) and as such is commony caed the Cotonou Agreement. 5. Under A.36.3 of the Agreement it is provided that the non-reciproca trade preferences appied under the fourth ACP-EC convention sha be maintained during the preparatory period for a ACP countries. 6. Word Trade Organisation. Uganda Trade Poicy Review Report, 2001:5 7. Akiara G. K. (1996) The European Union ACP Reationship. The Case of E.Africa.(Working Papers on EU Deveopment Poicy No. 4) 8. Word Trade Organisation. Trade Poicy Review Report (Supra note 4) 9. EU-Uganda A Sustainabe Reationship (Supra note 1) 1

9 ACODE Poicy Research Series No.6, Brief overview of the Lome Trading arrangements. The Lome trading arrangements between the EU and the ACP countries which incudes Uganda, was based on non-reciproca and preferentia access of the ACP countries products to the EU market. Most agricutura and a industria ACP products had duty free access to European market. Most products from the E. Africa region and in particuar Uganda were mainy agricutura raw-materias ; coffee, cotton tea and tobacco which constituted the buk of the exports. Under the Lome IV the ACP products which can be exported to the EU market duty free incude beverages such as cocoa, tea, spices, raw tropica wood, fresh fish, jute products sisa, copper, tin, phosphates and petro chemica. Others under GSP are vegetabe ois, coffee and meat products, rice tropica fruit juice and oi seed products. Further, under the Lome trade regimes, the ACP and European Union had commodity protocos to reguate the quaity, quantity and price offered. These were basicay the sugar protoco, banana protoco, meat and Vea protoco the mutifibre agreement, texties and Rhum and spirits agreements. Under the successive Lome agreements, there were aso compensatory mechanisms. (i) STABEX: This is the stabiization fund for ACP agricutura exports to cater for unforeseen decine in export stocks revenue in the face of bad harvest caused by natura caamities. It aso catered for drastic fa in prices of the commodities. Under STABEX, Uganda benefited EURO 194 miion from Lome IV covering stock and revenue osses in coffee, tea, hides and skins and about US$500miion between 1992 and 1994 as grants to buffer its agricutura exports against internationa fuctuations. ii) SYSMIN: This was a stabiization fund for mineras. This basicay benefited the minera ACP exporters incuding Democratic Repubic of Congo, Zambia etc Shortcomings of the Lome Trading arrangements: There has been criticisms from European Union as we as from ACP countries that the Lome convention deveopment mode and trading arrangements have not been quite beneficia to ACP countries. Statistica figures show that in 1975, the ACP group represented between 4% - 5% of the European market share. However, by 2000 the ACP share of European Communities Market had decined to 2%. 10 Uganda in particuar appears not to have benefited from these trading arrangements. Over the ast decade the economy has persistenty suffered trade deficits 11. This has been party due to a narrow exports product base, ow productivity, poor infrastructure and imited access to markets. Besides, the exported products are mainy unprocessed agricutura products that are subject to the vagaries of weather and fetch itte on the market. Efforts towards processing the raw materias to add vaue so as to fetch high prices have been frustrated by tariff escaation. Despite the generaized system of preference, access to European market has been and is sti imited. The products that compete with temperate products have not been so 10. Nnam A (2002). EPAs Status of Negotiations. A paper Presented at the PSF Trade Poicy Capacity Buiding Workshop, Kampaa (unpubished) June Since eary 90s to-date the economy of Uganda has suffered trade deficit. The worst stood at US$ 557.0miion in 2000 whie the east of US$ miion was recorded in See UBOS Externa Trade Statistics Buetin, voume :7 2

10 ACODE Poicy Research Series No.6, 2003 ucky. They have overtime faced various types of tariffs and non tariff barriers incuding quotas, evies, marketing caendars and reference prices which compe exporters to the market to fix prices beow a given reference price, etc. It is party out of this critic that the Lome convention trading arrangement has not assisted ACP countries to overcome their economic probems that stimuated the concusion of the Cotonou Partnership Agreement The Cotonou Partnership Agreement. The Cotonou Partnership Agreement (CPA) was concuded between the ACP states and the European Union to repace the Lome Conventions. The Agreement was signed in Cotonou in June 2000 after 18months of protracted negotiations. The Agreement represents a significant shift away from the 25 years of the ACP / EU trade regime based on preferentia and non reciproca access. Various reasons have been advanced for this fundamenta shift in the ACP /EU trade poicy. These reasons incude: (i) Faiure of the ACP countries to take advantage of 25 years of Lome trade preferences to significanty transform their economies 12. In fact the ACP Countries share of the European market decined over the period from 5% - 2%. (ii) Increased difficuty by the EU and the ACP countries to jointy seek and obtain WTO waiver for preferentia trade regimes to continue due to chaenges by other deveoping countries abeing the arrangement as discriminatory 13. (iii) Internationa trade deveopments particuary the signing of the Marrakesh Agreement that estabished the Word Trade Organization (WTO) on the 1 st Jan The WTO was estabished to define and administer rues and reguations that make internationa trade free and fair for a payers. The WTO Agreement supercedes a biatera, regiona and mutiatera trade arrangements entered into prior to its enactment and requires a such trading regimes to be made WTO compiant 14. The Cotonou Partnership Agreement is not a trade agreement in itsef but it enshrines a commitment provision for ACP and the EU to negotiate economic and trading arrangements (EPAs) that are WTO compiant. The CPA is different from its predecessor trade arrangement in a number of ways; It provides for participation of non state actors and oca authorities in consutations and deveopment of nationa strategy (Artice 19.3). The Agreement aso has a strong poitica dimension and it covers areas of peace and security, trade in arms, and migration among others. The important principe of the CPA is the reduction and eventua eradication of poverty consistent with the objective of sustainabe deveopment and gradua integration of the ACP states into the Goba economy 15 The signatories to the agreement inter aia agreed to; Liberaise trade in services 16 Introduce and impement competition poicy 17 Protect inteectua property rights 18 Appropriatey set and appy sanitary and phytosanitary standards Most countries incuding Uganda were not abe to satisfy their quotas due to structura probems. 13. Paragraph 3 of the Marrakesh Agreement 14. Artice XVI (3) provides in part that in the event of a confict between the provision of WTO and any Mutiatera Trade Agreement, its provisions wi prevai. 15. Artice I, 9 and 34.3 of the Cotonou Partnership Agreement 16. Artice Artice Artice Artice 47. 3

11 ACODE Poicy Research Series No.6, Chaenges for Uganda in impementing the Cotonou Partnership Agreement. Regiona integration and co-operation. Geographica configuration sti poses a big chaenge because of different poitica agendas and difference in eves of economic deveopment. Estabishment of appropriate structures for negotiations which take into account the capacity constraints facing the country to manage compex trade negotiations at regiona, inter-regiona and mutiatera eves. The impact of introduction of free trade on the fisca revenues is ikey to be enormous yet, impact assessment studies have not been done to arrest the fears. Protection of non- reciproca trade preferences offered to Uganda as a east deveoped country after regiona integration since after regiona grouping, it wi carry the same obigations as negotiated regionay by the region as a whoe. Addressing the suppy side constraints to enabe the producers to expoit any new opportunities emerging as a resut of introduction of free trade with the EU. Integrating Non state actors. Having recognised that non-state actors as partners in the cooperation, one of the chaenges is how to integrate these actors and make partnership resources avaiabe to them. The biggest chaenge is how to channe resources to non state actors and how to ensure transparency, comprehensive and reaistic creteria for choosing participating civi society organizations. Commodity stabiization mechanism. One of the immediate changes introduced by the Cotonou Partnership Agreement is the aboition of Stabex and Sysmin scheme. Given the high eve dependence on particuar commodities couped with the worsening conditions of commodity markets, there is need to examine the partnership provisions on stabiization of exports EBA initiative. Other than the CPA which sets the base for EPA negotiations, Uganda can benefit from the Everything But Arms initiative [EBA] which came into effect in March, It grants duty-free access to imports of a products from the LDCs with the exception of arms, ammunition and without quota restrictions. The initiative preserves most of the preferences for LDCs and is vaid for unimited period of time. Athough it is embedded in the EU s Genera System of Preferences, it is not subject to periodic reviews. It is to this time considered the most reaistic trade aternative that can ead to the participation of LDCs in EPA negotiations. It shoud be noted however that, it is not yet time for LDCs ike Uganda to ceebrate. Reasons; EBA does not address the tariff issues of market access and does not consider the more crucia barriers to market access such as Sanitary and Phyto sanitary measures and environmenta reguations that have hitherto denied LDCs market access. EBA does not create a ink between trade, deveopment and poverty eradication as stressed in the ACP negotiating guideines. 4

12 ACODE Poicy Research Series No.6, 2003 EBA duty free access to EU market is granted to a LDCs so that the margins of preferences the ACP LDCs had over non ACP LDCs are imited.it can be said therefore, that the Initiative is an EU taiored trade arrangement that does not offer the opportunity to negotiate its provisions but rather accept the offer. It does not give the LDCs bargaining power UGANDA S CURRENT AGRICULTURAL EXPORTS TO THE EU AND IMPORTANCE TO THE ECONOMY. The EU is Uganda s argest trading bock with more than one third of Uganda s exports consumed in the UK Markets. The major trading partners are UK, Itay, Germany, France, Denmark, Begium and Netherands. The major agricutura exports are sti comprised of the traditiona cash crops which incude coffee, tobacco, tea, cotton and fish. Others considered potentia exports incude ivestock and horticutura products. Over the thirteen years, coffee, tea, fish and tobacco have taken a substantia part of the products exported from Uganda to the EU. Whereas the share of fish and tobacco has increased respectivey fromus$24,000 to US$61 miion for fish and fishery products and from $89,000 to $31 miion for tobacco, coffee has not been that ucky Coffee. Coffee is a very key agricutura export commodity. It contributed over 50% of the entire export receipts from The highest vaue of US$396.2 was reaized in However, after 1996 the crop registered perpetua decine and now accounts for 30% of the tota foreign export earnings due to the sump in word coffee prices. 23a It provides iveihoods to abroad cross section of the rura popuation estimated at 3.5 miion peope. Uganda has a comparative advantage because of its quaity, avaiabiity and ower costs of production. It attracts a high vaue if exported as finished products therefore it has poverty eradication potentia. It shoud be noted however, that within the EU, the eve of coffee consumption has decined in the ast severa years. This has been the case for instance in Germany, France, Luxembourg and Denmark. 23b This downward trend is party infuenced by change in consumption patterns. In Germany and Denmark, the young generation is now showing preference for beverages other than coffee for exampe cod drinks. Uganda is aso osing the comparative advantage of producing at a ow cost because of poor technoogica advancement and increased costs of transport. Exporing new markets and further crop diversification is therefore critica Tobacco. Tobacco is another traditiona export for Uganda. Athough earnings from tobacco have risen over the years, its marketabiity in the EU is ikey to be probematic over the next coupe of years. The EU, in 1989 imposed a ban on teevision advertisements invoving tobacco products. 24 Since then the proposa has been tota ban on tobacco advertising. Once the advertisements disappear from newspapers, magazines, radio and on the streets, market for 20.Hangen-Riad S. (2003) Managing Process of Trade Negotiations for Structura Transformation. A paper presented at ACP-EU consutants training workshop, Dar-es-saaam, Aug, Deegation of European Union in Uganda. EU-Uganda, a sustainabe trade reationship.can be found at htpp:// u_ganda/sustainabe_trade.htm. 22.UBOS. Externa Trade Buetin, Vo.1, a. Ibid 23b. Supra note JITAP report (2003).Mutiatera Trading System. Impact on the Nationa Economy and Externa Trade Poicy. Adaptation of the Repubic of Uganda. 25.Ibid 5

13 ACODE Poicy Research Series No.6, 2003 cigarettes and tobacco products in the EU market wi start dwinding 25. Therefore, Uganda shoud in addition to diversifying further its export base start exporing new market opportunities in Eastern Europe, Asia etc Tea: Tea crop is abour intensive and therefore provides income earnings to different categories of peope. Production of tea is even throughout the year and therefore it offers a arge degree of income security for those empoyed in the industry as we as generating foreign exchange. The country exports sighty over 32,000 metric tones of tea, which annuay fetches cose to US $14 miion. From 1996 to 1997, the vaue doubed to US$ 30.5 miion and it has since then continued to improve. There is need for more investment in this area 3.4. Cotton: Cotton is a key agricutura export commodity. Uganda produces premium cotton with a niche market. Cotton is a major source of income for sma hoder farmers in 32 districts of Uganda. It has strong forward inkages and is capabe of providing empoyment to a bigger popuation. The United Kingdom, Germany, Itay and France provide the biggest market share. However, the eve of subsidies continue to depress the prices which has discouraged cotton production in Uganda. The aternative market in USA stands no better chance. The US Farm Bi signed into aw in 2002 that extended US$ 200 biion in agricutura subsidies over six years, wi do more damage to Ugandan farmers who do not receive any government support Horticuture (fruits, fowers and vegetabes). Uganda has for a ong time been depending on traditiona exports to earn foreign exchange. However, Uganda has potentia for horticutura exports (fowers, fruits vegetabes and spices) and is one of the best in East and Centra Africa ranking second to Kenya. The highest market potentia is the EU. The vaue of horticutura exports in the year 2002 increased compared to those of 2001 by 38%. However, Uganda s potentia to expoit the market further is dependent on the quaity, eve of processing and the abiity to manipuate non tariff barriers in the EU market The tabe beow indicates the export earnings from horticutura products in the years 2001/ Tabe 1: Product/Commodity vaue in US $ %in Fowers 15,906,382 21,126, Fruits Matooke 421,942 4,882, Green Chiies 300, , Passion fruit 8,272 24, Source: ADC/IDEA project report,

14 ACODE Poicy Research Series No.6, Livestock Livestock account for 17% of the agricutura GDP and 9% of the nationa GDP. This sector is capabe of paying a eading roe in Uganda s economy but it is faced with sectora constraints ranging from production constraints, marketing, institutiona and financia Fish: Fish is among the highest foreign exchange earner for non traditiona cash crops. In the year 2001 fish came second to coffee. Its proportiona share export earnings rose from 5% to 17% from The year between experienced a fa in fish earnings due to fish ban in the EU markets due to fish poisoning (UBOS Trade Buetin, 2003). The sector empoys about 1,100,000 peope and this is ikey to grow by 5% - 10% with increased processing capacity and aquacuture deveopment (A African News Agency, 2000). This is a potentia export due to a big demand for fishery products in Europe. Serious investment in this area is required to improve on the quaity and standards. 4. DIRECTION OF TRADE: Generay the EU is the major fina destination of Uganda s exports. It accounts for the argest market export share. From , the EU dominated the market share consisting over 50% of foreign exchange earnings. The European Union is the ony trading bock where Uganda has had favourabe trade baance and margina trade deficits 26. from , the export revenues exceeded the expenditure on imports. The rest of the years recorded narrow trade deficits. The import vaue to exports from the EU was US$ miion recorded in 1995 and the owest US$ 100 miion in However, by 2001, the share had reduced substantiay to 28.4%. 27 The African continent ranks second as the fina destination of the Uganda s exports with a big proportion going to COMESA region. Most of the products exported to COMESA are food stuffs. The major trading partners in COMESA region are Sudan, DRC, Rwanda and Kenya comprising about 90 percent share. The vaue of imports from COMESA region decined from and thereafter, steadiy increased. The highest vaue of imports stood at US $ miion in 2000, whie the owest stood at US $ miion in Exports increased from and thereafter decined perpetuay. The export revenue remained stagnant from athough it sighty regained in The trade baance has not been favourabe. The third continent is Asia. The market share for Asia rose from a margina 4.2 percent in 1999 to 11.3 and 13.7 percent in 2000 and 2001 respectivey. Uganda continued to earn meager foreign exchange earnings from the Midde East region compared to import expenditure. Both revenue and expenditure stagnated between The region absorbs ess Uganda s products. 26.UBOS.Trade Statistics Buetin (Supra note 20) 27.Ibid 7

15 ACODE Poicy Research Series No.6, 2003 Tabe II: The tabe beow shows exports in US$ Miions Year Europe Africa Asia Source: UBOS, Tabe III: Uganda s main exports and market destinations. Products Markets Coffee European Union, Switzer Repubic, Singapore Jord Ageria, Hong Kong, Isra Sovenia, Canada Cotton European Union, Kenya, M Eastern Europe. Tea Kenya, Mombasa Auction, Eu East Eastern Europe Tobacco European Union, Eastern Euro Fish & Fish Products European Union, North A Singapore, Hong Kong, Austr Hides & Skin Pakistan, Hong Kong, Midd Spain, Itay Maize COMESA market, Rwanda, Ke Word food programme Beans COMESA, Rwanda, Sudan, Programme God Midde East, European Union Fowers Aismeer Auction in Hoand, E Fruits and European Union, Midde East, Source : Uganda Export Promotion Board. 8

16 5. EU AGRICULTURAL EXPORTS TO THE EAST AFRICAN MARKET: ACODE Poicy Research Series No.6, 2003 Uganda does not produce a the agricutura products it requires. Some of the vaue added products are imported and there is great potentia that the EU can easiy dominate the suppy of some of these products. In the year , a wide range of agricutura products were imported in Uganda. These incude; Dry mik and mik powder, cerea foods,maize, wheat four, rice, dried beans, eggs, honey, soya bean, back tea, fruit juices, anima and vegetabe fats and ois, peas, cheese, sugar confectionary, chocoate and cocoa products, cotton and cotton fabrics, acohoic beverages etc. (UBOS-Agricutura imports from the EU,2000). With the on going agricutura reforms in the EU and with increased competitiveness and efficiency in agricutura production, there is a great potentia that the EU can repace Uganda s suppies of these imported products. European Union is one of the argest trading bocks and through its interna and externa poicies, it is capabe of infuencing ives of miions of peope incuding Ugandans. Being our major trading partner, we need to cosey monitor changes in the EU agricuture sector and deveop negotiating strategies to respond to these changes There is need to deveop defensive and offensive strategies. 6. PREFERENTIAL TRADE AND EROSION OF PREFERENCES: Most of Uganda s exports enter the EU market duty free, under the Lome convention. By the end of 2007, a new arrangement under the Cotonou framework is expected to be in pace. Consequenty, Uganda woud be abe to export to EU market under this arrangement and under the EBA initiative. In addition, Uganda s exports quaify for Generaized System of Preferences (GSP) to US, Japanese and Canadian markets. The major export products are coffee, cotton, and texties in addition to fruits, vegetabes, fowers, spices, fish, honey, bee wax, hides, skins and handcrafts. Uganda, ike many other deveoping countries, fees that tariff reduction negotiated in the Uruguay round wi erode these preferentia benefits. 28 The impact wi be great if the preferentia duty rate that deveoped countries charge on imports is zero, and their reguar rates are high. The Uruguay round tariff negotiations have ed to reduction in reguar rates, narrowing the gap between reguar and preference rates. The impact of preference erosion are ikey to be fet immediatey because Uganda coffee exporters in particuar wi be facing competition from other ow cost investors from Asia and Latin America, e.g. Indonesia and Vietnam. The products that wi be particuary hit by the erosion are coffee, cotton, texties, tea, eather, hides and skins. It was hoped that the owering of tariffs, import duties and quantitative restrictions woud aeviate the impact of erosion. This per-se wi certainy not. Since Uganda is predominanty agricutura, the internationa terms of trade are deteriorating and wi continue to do so with the erosion of preferences. In addition, Uganda s competitors, especiay Asia, are ow cost producers, with the avaiabiity of reativey cheap abour. They are aso strategicay ocated. They have a bigger market, and quick easy access to ports. Consequenty, the remova of quantitative restrictions wi have a negative impact on Uganda because the market for our products, for 28. Trade Deveopment Center. Trade and Deveopment Case Studies, Uganda Htt:/ 9

17 ACODE Poicy Research Series No.6, 2003 instance texties wi no onger be assured. This wi affect the farmers incomes and purchasing power. Further, Uganda s suppy capacity for some products, and vaue addition is sti ow, and is ikey not to increase at the same pace with the opening up of the EU markets. This wi not be overcome uness there is increased use of technoogy, knowedge of market dynamics, infrastractura deveopment, e.g. roads, raiway system, heath and education. Another market avaiabe for Uganda is the US under the recent initiative, AGOA. The erosion of the preferences wi have simiar effects. After a, the major market is sti the EU Expected benefits and osses from the erosion of preference. The benefits expected from the erosion of preferences are basicay free trade, free mobiity of skied abour, increased efficiency due to stiff competition hence better quaity products on the domestic market and more products wi be avaiabe to consumers possiby at ower prices. However, the country wi aso be faced with far reaching negative consequences. These incude reduced export market share, especiay in the EU, increased risks in terms of price and reduced investment in agricutura sector because of ower returns on investment. It is important to note that the impacts of erosion of preferences vary from country to country and from product to product, depending on the type of competition that is ikey to evove and the countries abiity to make themseves more competitive. For Africa as a whoe, FAO predicts oss of US$ 0.2 biion per year. For Uganda, Uganda Coffee Deveopment Authority (UCDA) maintains that erosion of preferences on coffee products wi increase competition. However, ower tariffs on coffee from competing countries ike Brazi has began to reduce the share of Africa s exports to major markets ike the EU 29. One of the chaenges facing Uganda is therefore, whether it can adopt production of goods such as coffee in order to compete when the preferences are eroded. 7. CAUSES OF POOR TRADE PERFORMANCE BY UGANDA: As noted earier the performance of the ACP countries under the previous trade arrangements has been poor without tangibe benefits for ACP countries 30. Uganda in particuar has not been abe to reap the benefits of the trade reationship because of a number of factors both endogenous and exogenous Endogenous factors. Endogenous factors range from poor trade poicies, inadequate support to private sector, narrow export base, reiance on export of raw materias and high eve corruption Structura probems. These incude high cost of raw materias, poor infrastructure, poor product quaity, obsoete technoogy, poor marketing techniques (packaging and advertising etc), high costs of 29.Ibid 30. Ibid 31. JITAP report,2000 (Supra note 22) 10

18 transport and insurance and insufficient market knowedge. 32(a) ACODE Poicy Research Series No.6, 2003 Structua probems can be summarized as suppy side constraints. UNCTAD economist Samue Gayi has consistenty argued that suppy side constraints are the major probems to Ugandas agricuture export trade 32(b). Athough the road network has consideraby improved over the years, feeder roads have remained poor and hence a botteneck to movement of produce. Most Ugandan exports go overand to Mombasa or Dar-es-saaam. Deivery by trucks take three to seven days depending on the deays at the boarder or vehice breakdown. Rai services are unreiabe and the procedure is cumbersome. Storage faciities have inhibited the buking of sufficient cargo to justify pick up by charter air freight services As a resut of itte investment in agricutura reforms and new technoogy over the years, Uganda has ost the comperative advantage that arge scae pantation and high yieding varieties offer. A this affects Uganda s abiity to export Exogenous causes: These incude; non tariff barriers (Sanitary and phytosanitary conditions), protectionist poicies such as the Common Agricutura Poicy which guarantees subsidies to the EU farmers to the detriment of most ACP countries, poor terms of trade due to a sump in word market prices resuting from over suppy, tariff peaks and tariff escaation Non tariff barriers constitute a new set of probems to market access. These incude; i. Standards. The EU requires high standard of products if a country is to access its market. These standards are set without adequatey paying attention to the oca circumstances prevaiing in the country. The quaity standards have acted as trade barriers to poor countries. Satisfying the EU reguations based on Hazard Anaysis Critica Contro (HACC) is a nightmare. Hega observes that investments needed to bring a fish processing pant to up to the standards of HACP are substantia and many companies in the third word counties cannot afford them 32(c). This is in fact a serious non tariff barrier that affects processing and vaue addition. ii. Environmenta trade barriers Environmenta requirements of the EU are increasingy becoming a barrier to the EU market. Consumer demand in the EU is increasingy being infuenced by concerns and perceptions regarding environmenta and socia conditions in the producing countries. In the first pace, the pesticide residue eves permissibe are moving to zero impying that exports in the EU must be accompanied by a phytosanitary certificate on their pest free status. Directive 2000/ 29 EC protects foricuture in the EU from harmfu organisms present in cut fower imports and it must be taken into consideration. It shoud be noted that most of the banned pesticides eg DDT sti find their way into Uganda. This reduces her chances of accessing the market. 32(a). Nnam A. (Supra note 8] 32( b).trade and Deveopment center, Country studies, Uganda at 32 (c) Hega J (1997). Trade Opportunities For Processed Fish, UNCTAD,

19 ACODE Poicy Research Series No.6, 2003 iii. Effects of the SPS measures The overa effect of SPS has been ess access to the EU market which transates into oss of foreign exchange, itte investment in production and impoverishment of the rura poor. For exampe when the EU imposed ban on fish imports, there were serious adverse effects on the economy. (i) Reduction of foreign exchange earnings. According to the export Buetin (Sept 1999) Uganda ost up to US$ 40 miion in fish export earnings in the year (ii) Loss of empoyment. According to A African News Agency, when the ban was enforced by the EU, it affected 75,000 Ugandans directy invoved in fishing and further 700,000 who were indirecty dependent on the fishing industry which accounts for an empoyment figure of 3.5% of the country. (iii) Depreciation of the currency. Drastic reduction in foreign exchange without an immediate aternative affected the stabiity of the currency The EU Common Agricutura Poicy. The EU Common Agricutura Poicy (CAP) has its origins in the Treaty of Rome signed in March The treaty estabished the European Economic Community. The Objectives of CAP are summarised under Artice 38 of the Rome Treaty Rome and basicay incude increasing agricutura productivity, increasing individua earnings from agricutura sector, stabiize markets and ensure avaiabiity of suppies at reasonabe prices. The poicy provided for intervention measures which among others guaranteed farmers minimum seing price for their agricutura products whatever the circumstances 33. The entry price introduced, protect the EU market from cheap imports and the export subsidy (the refund) paid to exporters of agricutura products enabed farmers to dispose of their farm products on the word market. The net effect of these interventions was over production and increased dumping of agricutura products in deveoping countries 34. With Agricutura trade iberaization and estabishment of WTO, the EU found it increasingy necessary to change their agricutura poicy to be WTO compatibe particuary with regard to the Agreement on Agricuture. The EU seeks to bring CAP within the WTO permitted domestic support system. The CAP reform target WTO AoA Green and Bue Box Poicies Impact of CAP reforms on Uganda. It is important to note that CAP reforms are merey changing the nature of assistance given by the EU to its farmers. From price support, CAP wi now be a direct support system and a and withdrawa mechanism. The action wi transate into the foowing effects Changes in the nature of the support given by the EU to its farmers (from price support system to direct support system) wi not have any substantia effect on agricutura production in European union. Over production is sti expected with its attendant consequences of dumping. 33 Dr. Otieno Odek (2002) The East African Response Towards the EU Common Agricutura Poicy Reforms. A paper presented at a regiona workshop on the impacts of CAP reforms on E.Africa, Nakuru,Kenya. 34 Ibid 35 Ibid 36 Ibid 12

20 ACODE Poicy Research Series No.6, The CAP reforms have the effect of owering prices of agricutura products in the EU and this means that earnings for countries ike Uganda wi reduce. The impications are that Uganda s exports to the EU wi attract ess earnings and thus income oss. 3. In terms of vaue added [agricutura product processing] the CAP reforms wi have a negative impact on Uganda s products. Withdrawa from price support aows EU prices to be brought down towards the word market price eves. Since the over a aim of the reform is to estabish a firm basis for deveopment of more price competitive export oriented European food and Beverages industry, where market is no onger the EU but the word, this is ikey to cose off the market opportunities for vaue added food processing range of products from poor countries. 4. The CAP reform are ikey to reduce the margin of preferences that ACP states get from the EU since CAP is reducing prices of the EU agricutura products. Aready prices in the EU have gone down affecting income gains to Switzerand and Namibia. The Kenya sugar quota prices are expected to be equay affected. The vaue Under Cotonou preferences wi thus be negigibe. 8. ACCESSING THE EU MARKET 8.1. Issues for private sector. Accessibiity of markets and marketing of products to different EU countries, satisfying their respective rues and reguations, overcoming technica barriers to trade, sanitary and physisanitary reguations, identifying right buyers and satisfying their terms has remained a difficut task for exporters. Some of the usefu insights into the market are given beow Devising and adopting suitabe market strategy. Inspite of a common market, exporters to the EU market must frame different strategies for different countries as they are cuturay quite diverse. There is need to understand oca market conditions that argey depend on domestic cuture. Therefore, no singe strategy wi work through the EU. For exampe if you consider price, quaity and design, technoogy and environment impact as the characteristics of a product that infuence a buyer in his purchase decision, the environmenta impact is that most important determinant factor in the Scandinavian countries. Quaity of the product is the important determinant factor in the Germany, UK, and Ireand whie design is important in France and Itay. In Netherands Begium and Portuga, price is the determinant factor. A these factors must be taken into consideration Competitiveness of the market: EU is the most competitive Market pace in the word and ony exporters with we thought and sustainabe marketing pan based on soid and competitive products shoud venture into this market. A kinds of products find themseves in the EU market and the buyers can be choosy and seective Packaging waste: In December, 1994, the European Union issued a directive (94/62/EC) in an effort to harmonize nationa measures concerning management of packaging and packing waste. The directive aows member countries to set higher percentage as ong as European Union 13

21 ACODE Poicy Research Series No.6, 2003 members are not affected. Exporters to the EU market must be aware and take appropriate measures. This impies that the sae packaging must be imited, re-usabe or capabe of being recyced. Care is required that any increased costs borne by an importer due to particuar packaging suppied with the product do not reduce the competitiveness of the exporter Sanitary and phyto-sanitary reguations. In EU market, there has been an increase in the reguations and market requirement on account of enhanced consumer awareness. The barriers are in the fieds of safety, heath, quaity, environment, socia and ethica issues. The EU has aid down the minimum standards. In addition, to (ISO series) environmenta standards ( ) ECO abeing, occupationa, heath and safety standards (OHSAS ) HACCP (Hazard Anaysis Critica Contro Point 37 ), the EU has adpoted mandatory hygiene for foods and Agricutura Practices for Horticuture. What is aso rapidy gaining ground is the socia accountabiity standards (SA 8000) in the EU market under consumer pressure. SA consists of issues ike chid abour, forced abour, heath and safety, working hours, compensation etc. These factors command minimum prices in the EU market. Organic food products are increasingy becoming popuar as the heath consciousness of the European peope peaks. They command a premium vaue over norma food products. There is another variety of food products caed bio-dynamic becoming popuar. However, it is expected that organic food is ikey to repace norma foods as a preferred choice of common Europeans. Private sector must therefore, infuence government to take a strategic position when it is deaing with issues of Biotechnoogy Poicy. Aowing GM crops in the country may have serious consequences on its market in the EU Export promotiona too mix It is important that an exporter desirous of entering EU market shoud choose the export promotiona too mix with care. Toos ike trade magazines, advertisements, web advertisements, persona visits and trade fairs have their respective advantage and disadvantage. The most preferred choice is the trade fairs and countries trying to export must invest in participation of trade fairs. 9. POLICY CONCERNS FOR GOVERNMENT: 9.1. Government response to CAP reforms. The response for Uganda must be guided by the potentia impacts as identified herein and her strategic interests. There is need to: a) Convince the EU to increase financia support to Uganda to support its agricutura sector and products where it has comparative advantage with the view of improving the efficiency and competitiveness of these sectors. b) Urge the EU to eiminate residua barriers to new and non-traditiona exports of Uganda and give support for promotion and marketing of these non-traditiona exports. c) The government shoud be bod and take a poitica decision to restructure the pattern of production, address the suppy side constraints and take measures to promote competitiveness. 37 The Hazard Anaysis Critica Contro Point System is a food safety management using the approach of controing critica points in food handing to prevent food safety probems. 14

22 ACODE Poicy Research Series No.6, 2003 d) Through strategic negotiations, urge the E.U to maintain preference for agricuture products where Uganda has comparative advantage and give market access to Uganda products covered by CAP Estabish a framework for anaysis of issues in future trade reations. The government must ceary define specific objectives to be pursued through any future trade arrangements with E.U. Objectives must be based on a detaied anaysis of the countries strength and weaknesses. The country must take into consideration current and emerging production structures in the country, trends in regiona market integration, current and future aternative trade reations with the E.U ike EBA. After identifying strategic objectives, a detaied anaysis shoud be made of the current nationa exports to the E.U, the opportunities offered by the Cotonou Partnership Agreement, trade trends ikey to affect exports to the E.U, options for future trade reations currenty avaiabe, effects of further regiona integration and the market opportunities in the E.U. This anaysis shoud form the basis of the Nationa Trade Poicy Institutionaise the IITC and strengthen the Negotiating capacity. The IITC housed by Ministry of Tourism Trade and Industry which is supposed to be the governments trade poicy think tank, for a coupe of years now has been operating in an adhoc manner. There is urgent need to institutionaise it by enacting the reevant aw that gives it mandate. In addition, the thin negotiating team at Brusses must be beefed up in order to perform effectivey its nobe roe. This team has hitherto done a fairy good job but it is now overstretched and cannot attend effectivey to a important issues of Uganda s interest at regiona, inter-regiona and mutiatera eves Deveoping defensive and offensive strategies Defensive strategy. A defensive strategy seeks to identify Uganda s products that must be defended or protected from the EU agricutura imports both actua and potentia. This strategy wi hep the country choose whether to adopt safeguard measures or put in pace specia arrangements to protect its products. Given the fact that the there has been a decine in both export vaues and voumes of the products hitherto considered strategic mainy due to the weak internationa markets and poor domestic agricutura and marketing poicies, there is need for deveopment and adoption of a defensive strategy. The strategy shoud incude; Adopting safeguard measures to protect the products from increased imports. Making specia arrangements for the production and marketing of products such as introducing permitted subsidies or tariff rate quotas. Excuding some of the products from the ist of preferentia trade. Backoading the tariff where by a high percentage of tariff reduction are done in the ater years of tariff reduction or front oading where by a higher percentage of tariff reduction is done in the eary or front years of tariff schedue Criteria for designating products as defensive, sensitive or strategic. Various factors must be considered as critica in identifying what shoud be protected. These incude; 15