The ACP experience of preference erosion in the banana and sugar sectors: possible policy responses to assist in adjusting to trade changes

This paper aims to situate the process of preference erosion in the trade relations between the African, Caribbean and Pacific Group of States and the European Union (ACP-EU) in the context of internal EU policy adjustments. These adjustments are designed to prepare the EU agricultural and food products sector for trade liberalisation at the multilateral and bilateral levels. <br /><br />In formulating a response to the process of preference erosion, the author outlines seven areas for action. These include: the early removal of all remaining tariff and quota restrictions on ACP food and agricultural exports to the EU, so that advantage can be taken of the remaining margins of preference co-operation on administrative arrangements to reduce transaction costs on exports to Europe the establishment of time-bound procedures for the resolution of Special Preferential Sugar (SPS) disputes the establishment of &ldquo;aid for trade&rdquo; packages to assist in production adjustments to enhance efficiency and reduce costs, to meet &ldquo;quality&rdquo; standards, facilitate movement up the value chain and provide targeted support to improve marketing the establishment of aid instruments to support diversification out of the affected sectors support to social adjustments in affected sectors and communities to reduce the transition costs and support the maintenance of an investment-friendly environment support to public sector management, institutional reform and policy reform The author notes that measures to increase productivity and reduce costs are most effective where they are designed and implemented by the economic operators concerned. Based on past experience the author argues that this support can best take the form of: grant co-financing of measures to improve productivity and reduce costs a grant-financed subsidised loan facility, administered as appropriate by local financial intermediaries or industry associations swap arrangements for a restructuring fund involving budgetary support for tax breaks The author concludes that key considerations in determining the appropriate modalities would be the institutional management capacity available locally, the transparency and accountability of management procedures and the costs of aid delivery. <br />