The commodities sector is the principle source of revenue and economic stimulus for developing countries. Among developing nations, 38 are estimated to be dependent upon a single commodity for more than 50 percent of their economy and 48 developing countries depend on only 2 commodities. And these products represent not just capital, but livelihoods, employment, foreign exchange and public services.

For developing countries, tropical products are undeniably the most important of these commodities. The 20 main products classified as tropical account for 36 percent of developing countries’ incoming foreign current from agricultural goods. For low income developing nations, tropical products account for 46 of their main foreign currency from agriculture. And the majority of these products are not grown by massive manufacturers but rather small farmers. These farmers are responsible for growing goods such as coffee, cocoa, tobacco and cotton. When it comes to commodities like sugar and rice, these products are the most important rural employers. Clearly, along with economic implications, there are social ones as well.

The built-in agenda of the World Trade Organization’s (WTO) Agreement on Agriculture reflects the longstanding priority attached to tropical and diversification products: “having agreed that in implementing their commitments on market access, developed country Members would take fully into account the particular needs and conditions of developing country Members by providing for a greater improvement of opportunities and terms of access for agricultural products of particular interest to these Members, including the fullest liberalisation of trade in tropical agricultural products […].” The 2004 Framework Agreement reached during the Doha Round notes that the full implementation of the liberalisation of trade in tropical agricultural products is “overdue and will be addressed effectively in the market access negotiations.” However, the way in which the commitment is to be implemented and even the identification of such products remains ambiguous.

Over the past several years, the commodity issue has become central to development initiatives and poverty alleviation strategies. But it has also become a significant topic of debate within governments and multilateral institutions and it is a key problem for developing country producers. The restructuring of production and commodity changes is occurring in the context of new developments in trade regulations, which has provoked heated debates and potentially devastating consequences for developing country producers.

In response, ICTSD commissioned Charles Mather from the University of Witwatersrand in South Africa to compose a paper that addresses the issue of commodity trade and its impact on developing country produces. In his work, entitled “Value Chains and Tropical Products in a Changing Global Trade Regime,” Mather provides insights on the different ways that the significantly changing global environment affects the structure and governance of commodity chains, which ultimately impacts producers’ income and production sustainability. The author then provides recommendations to improve the income and production sustainability variables.

Through the report, Mather analyzes the value chains of the four main tropical products: bananas, sugar, cut flowers and palm oil. The studies of each commodity focus on four themes including changes in the geography of production; changes in governance; any new developments in trade agreements that may impact primary producers in developing countries; and initiatives towards sustainable production, ethical trade and worker welfare. In several of the products concerned, an important development has been the rise of new low cost producers who will play a role in shaping the global market for these commodities.

Mather conducts his study using the global value chain (GVC) approach: that is, an examination of production, processing, distributing, and market of specific globally-trade commodities. At each stage, the key stakeholders are defined.

The GVC approach allows the author to look at governance patterns (how different stages of policy making and negotiation are coordinated); the role of leading firms in determining market access; and products and values across the chain. Because the GVC enables an examination of more than just broad patterns of global exchange, it is increasingly used by trade analysts and researchers. It goes further than a simple assessment of consequences for producers and consumers exclusively through market mechanisms and equilibrium price changes, thereby revealing changes in structure, geography and governance.

The application of this holistic approach is part of what renders Mather’s paper so unique and valuable. So too are the recommendations and conclusions that emerge from this in-depth analysis. In the final chapter, Mather brings together some of the key themes that have materialised from the four-commodity study, which include new patterns of investment linked to trade reform, the role of multi-stakeholder groups, support for producers affected trade preference erosion, and chain governance.

ICTSD commissioned this paper under a dialogue and research project that seeks to address the opportunities and challenges of the full liberalisation of trade in tropical and diversification products and explore possible areas of convergence between different groupings and interests in WTO. The project—and this work by Mather—aims to generate solutions-oriented analyses and possible policy responses from a sustainable development perspective. It is hoped that readers will gain not only from this work, but from the vast research that the Centre has commissioned and produced in line with these objectives.

The value chain approach has become an increasingly important framework for examining changes in the global trade of commodities and their implications for primary producers. Rather than describing the broad patterns of global exchange and assessing their consequences for producers and consumers exclusively through market mechanisms and equilibrium price changes, the global value chain (GVC) framework encompasses the production, processing, distribution and marketing of specific globally-traded commodities, and identifies the main stakeholders involved at each stage. It also highlights governance patterns (how these different stages are coordinated) and specifies the role of lead firms in determining market access, defining products and value across the chain (Schmitz, 2005).

The commodity studies in this paper focus on four themes: changes in the geography of production, changes in chain governance, new developments in trade agreements and their impacts on primary producers in different developing countries, and initiatives towards sustainable production, ethical trade and worker welfare. With regard to changes in production, the paper provides insights into new developments in the production of bananas, sugar, palm oil and cut flowers, which have been driven by changes in trade agreements and new investment patterns. In several of the commodities concerned, an important development has been the rise of new low cost producers who will play a role in shaping the global market for these commodities.

This paper was produced under an ICTSD dialogue and research project which seeks to address the opportunities and challenges of the full liberalisation of trade in tropical and diversification products, and explores possible areas of convergence between different groupings and interests in WTO negotiations. The project seeks to generate solutions-oriented analyses and possible policy responses from a sustainable development perspective.

Multilateral discussions on the full liberalization of trade in tropical and diversification products have focused almost exclusively on the reduction of tariffs, and tariff escalation for those products and the overlap with the mandate on preference erosion. There has been no debate and analysis on NTBs and more specifically on SPS measures and technical barriers to trade (TBTs). This is surprising, since as the following paper reveals, imports of tropical and diversification products from African, Caribbean and Pacific (ACP) countries and some Latin American countries are particularly affected by SPS and TBT measures.

The following work, entitled “Trade Effects of SPS and TBT Measures on Tropical and Diversification Products,” also reveals that ACP countries are the exporters for which the most sectors are influenced negatively and significantly by SPS measures and TBTs. As such, this paper represents a contribution to a knowledge-based discussion in this area.

This study analyzes the trade effects of SPS measures and TBTs on tropical and diversification products. The authors examine to what extent and for what products SPS and technical requirements under public law represent barriers for exports of tropical and diversification products to enter developed countries’ markets, namely the European Union (EU), the United States (US), Japan, Canada, Australia and Switzerland. The objective of the study is also to generate solution-oriented analyzes and to identify possible policy responses.

By way of introduction, the paper provides information on the SPS and TBT agreements, the private sector requirements and NTBs to trade. The paper presents case studies documenting the effects of SPS and TBT measures on producers and exporters. These cases studies are based on surveys and interviews. They focus on production and export of bananas and pineapples in Ecuador, bananas, melons and pineapples in Costa Rica, coffee in Ethiopia and cut flowers in Kenya.

The paper provides a statistical analysis of SPS and TBT measures applied by main developed countries on their imports of tropical and diversification products. Results of the surveys and case studies are not easily generalized. The main advantage of the statistical analysis is to be more exhaustive. This analysis reveals information on the types of measure used (authorizations, technical measures), the motives to impose SPS and TBT measures on tropical and diversification products, the number of notifications by country, the stringency of SPS and TBT measures, and the affected exports. Furthermore, the paper presents econometrical estimations of the trade impacts of public standards through the gravity equation.

Finally, the paper describes the existing technical assistance programmes to help farmers and exporters of developing countries to conform with SPS and TBT requirements adopted by main developed markets. It assesses their strengths and weaknesses, and it provides recommendations to improve their efficiency. The paper analyses how the Aid for Trade initiative can help developing countries to meet these standards. Additional policy responses resulting from the study are also suggested.

There are no studies estimating the importance of tropical and other commodities using economic, social and foreign trade indicators. Nonetheless, the participation of such products in exports from developing countries is significant: the twenty main tropical products account for 36 percent of developing countries’ incoming foreign currency from agricultural exports. This proportion reaches 46 percent for low income developing countries (Perry, 2008). Many of these products are grown primarily by small farmers in developing countries – as in the case of coffee, cocoa, tobacco and cotton. Others (i.e. sugar, rubber and rice) are vital in the generation of rural employment. Therefore, besides their considerable contribution to foreign currency generation, they also play an important role from a social point of view.

The built-in agenda of the World Trade Organization’s (WTO) Agreement on Agriculture reflects the longstanding priority attached to tropical and diversification products, that “having agreed that in implementing their commitments on market access, developed country Members would take fully into account the particular needs and conditions of developing country Members by providing for a greater improvement of opportunities and terms of access for agricultural products of particular interest to these Members, including the fullest liberalisation of trade in tropical agricultural products […].” The 2004 Framework Agreement reached during the Doha Round notes that the full implementation of the liberalisation of trade in tropical agricultural products is “overdue and will be addressed effectively in the market access negotiations.” However, the way in which the commitment is to be implemented and even the identification of such products remain far from clear.

In the last decade, the commodity issues have re-emerged as central to development initiatives and poverty alleviation strategies. The objective of this Issue Paper by Charles Mather is to contribute to this debate by providing an analysis of the value chains of four tropical commodities (bananas, sugar, cut flowers and palm oil) in a rapidly changing global trade environment. The author seeks to provide insights on the different ways the significant changes occurring in the structure and governance of commodity chains ultimately affect producers’ income and production sustainability. He also suggests recommendations to improve these two variables.

The value chain approach has become an increasingly important framework for examining changes in the global trade of commodities and their implications for primary producers. Rather than describing the broad patterns of global exchange and assessing their consequences for producers and consumers exclusively through market mechanisms and equilibrium price changes, the global value chain (GVC) framework encompasses the production, processing, distribution and marketing of specific globally-traded commodities, and identifies the main stakeholders involved at each stage. It also highlights governance patterns (how these different stages are coordinated) and specifies the role of lead firms in determining market access, defining products and value across the chain (Schmitz, 2005).

The commodity studies in this paper focus on four themes: changes in the geography of production, changes in chain governance, new developments in trade agreements and their impacts on primary producers in different developing countries, and initiatives towards sustainable production, ethical trade and worker welfare. With regard to changes in production, the paper provides insights into new developments in the production of bananas, sugar, palm oil and cut flowers, which have been driven by changes in trade agreements and new investment patterns. In several of the commodities concerned, an important development has been the rise of new low cost producers who will play a role in shaping the global market for these commodities.

This paper was produced under an ICTSD dialogue and research project which seeks to address the opportunities and challenges of the full liberalisation of trade in tropical and diversification products, and explores possible areas of convergence between different groupings and interests in WTO negotiations. The project seeks to generate solutions-oriented analyses and possible policy responses from a sustainable development perspective.

This paper was produced under an ICTSD dialogue and research project that seeks to address the opportunities and challenges of the full liberalisation of trade in tropical and diversification products, and to explore possible areas of convergence between different groupings and interests in WTO negotiations. The project aims to generate solutions-oriented analyses and possible policy responses from a sustainable development perspective. This paper is reflective of this objective.

As a contribution to this discussion, the present Information Note provides facts and figures on the reality of trade in tropical and diversification products. It also explores the extent to which there is differential access to key import markets and the implications of this for different groups of countries.

The reform of the global agriculture trading system currently being negotiated in the context of the Doha Round - with the objective of establishing a “fair and market-oriented trading system” - will play a major role in this process. Over the last fifteen years, world agriculture trade has grown almost twice as fast as production. However, highly subsidised agricultural production and exports from Organisation for Economic Cooperation and Development (OECD) countries as well as the anti-competitive behaviour of trading firms are depressing world prices, thereby affecting development prospects in the South. Exports from developing countries, of tropical products in particular, continue to face a variety of specific challenges, ranging from non-tariff barriers, and technical barriers to trade (such as sanitary and phytosanitary requirements), tariff escalation, preference erosion, and price volatility.

The importance of tropical products for developing countries is undeniable. Their significance has been recognised in an array of studies, fora and organisations. As indicated in a document by the Common Fund for Commodities (2004): “The livelihoods of hundreds of millions of the world’s poorest people in developing countries, and in particularly in the least developed countries, are heavily dependent on commodities. Commodities form the backbone of the economies and account for the bulk of the export earnings of these countries. The development of commodities is thus vitally important in the global struggle to alleviate poverty.” However, there are no studies estimating the importance of tropical and other commodities using economic, social and foreign trade indicators. Nonetheless, the participation of such products in exports from developing countries is significant: the fifteen main tropical products account for 37 percent of developing countries’ incoming foreign currency from agricultural exports. This proportion reaches 62 percent for low income developing countries.

Many of these products are grown primarily by small farmers in developing countries - as in the case of coffee, cocoa, tobacco and cotton. Others are vital in the generation of rural employment (i.e. sugar, rubber and rice). Therefore, besides their considerable contribution to foreign currency generation, they also play an important role from a social point of view.

There is still no agreed definition as to which agricultural commodities should be considered as tropical and diversification products in the agricultural negotiations at the World Trade Organization (WTO). In addition, WTO Members still have to agree on the way in which the long-standing commitment to achieve the fullest liberalisation of trade in tropical agricultural products contained in the July 31, 2004 Framework Agreement will be worked out.

There have been persistent differences between WTO Members, more specifically a group of Latin American (LA) countries and the African, Caribbean and Pacific (ACP) countries, on how to liberalise trade in tropical products while also addressing the effects of trade preference erosion. The two mandates have neatly placed them in opposing camps: while some want developed countries to remove all tariffs and quotas on ‘tropical products’ such as sugar and bananas, others have long benefited from trade preferences for these very commodities, and thus stand to lose from across-the-board liberalisation. While the preference beneficiaries would like rich countries to be able to separate these products for lower tariff cuts, thus preserving more of their margin of preference, the others would like to prohibit the same products from being designated as ’sensitive.’

In this context, the objective of the dialogue was to determine a better sense of how the WTO agricultural negotiations on tropical products can increase benefits for developing country exporters of these products and identify elements of a pro-poor, pro-sustainable development agenda for tropical commodities. It addressed issues of interest to all developing country exporters of tropical products, in Latin America, Asia and Africa.

More particularly, the dialogue addressed challenges ranging from tariffs, tariff escalation, preference erosion and possible trade adjustments, non-tariff barriers, sanitary and phytosanitary requirements, sensitive products and domestic support. The dialogue will also address other imperatives of a global strategy for sustainable development in agricultural trade. This included supply chain, value chain, bio-fuels and the environment.

The present Issue Paper (No.9) on “A Comparison of the Barriers faced by Latin American and ACP Countries’ Exports of Tropical Products”, by Jean-Christophe Bureau, Anne-Célia Disdier and Priscila Ramos, is intended as a contribution to a knowledge-based discussion in this area. The purpose of the study is to shed a light on the reality of market access conditions for tropical products in the main import markets, namely the EU, the US, Japan and Canada, for both the ACP and the group of LA countries. To do so, the paper focuses not only on most favoured nation (MFN) tariffs but also analyses trade under different preferential schemes as well as bilateral free trade agreements. The paper, however, does not enter in a discussion on the pros and cons of multilateral liberalisation versus a more selective liberalisation under preferential schemes. Nor does it address prospects for the possible evolution of such schemes in the near future.

With those limitations in mind, the paper indicates that a detailed analysis of the tariffs faced by tropical products in major developed countries shows that the situation looks very different depending on whether one focuses on bound tariffs or on applied tariffs. LA countries, as well as most Asian countries, are often seen as being discriminated against by the EU and US preferential schemes that ACP countries benefit from. However, the study indicates that a thorough analysis of applied tariffs shows that the LA group benefit from tariff concessions in the EU, US, Canadian and Japanese markets that are quite similar to the ones granted to ACP countries.

This study establishes a list of products for which both groups face high tariffs, and where they might have common interest in pursuing further trade liberalisation. With a complete liberalisation, LA and ACP countries would gain more access to the Japanese market, and eliminate the remaining tariffs barriers in EU and US markets. They would also benefit from a more predictable environment thanks to the binding of low tariffs under the WTO. Full multilateral liberalisation would nevertheless reduce the benefits LA countries currently draw from their preferential access to OECD markets relative to third countries.

Furthermore, because of the various preferential regimes, tariff escalation does not appear to be a serious issue for the ACP and the LA, with the exception of the Japanese market. Both the ACP and the LA groups would probably benefit from more relaxed rules of origin so as to allow sourcing of material in other developing countries. Because of the complexity of the overlapping preferential agreements, these possibilities of sourcing materials in other countries eligible to similar preferential agreements are presently limited. In several cases, non tariff barriers, including the sanitary, phytosanitary and technical barriers seem to be the main obstacles preventing their exports to enter developed countries markets.

This paper was produced under an ICTSD dialogue and research project which seeks to address the opportunities and challenges of the full liberalisation of trade in tropical and diversification products, and explores possible areas of convergence between different groupings and interests in WTO negotiations. In doing so the project seeks to address legitimate concerns associated with particularly controversial products such as sugar or bananas, and generate solution oriented analysis and possible policy responses from a sustainable development perspective.

As tariff protection is progressively dismantled (for whatever reason), this automatically leads to an erosion of the margin of tariff-preferences from which ACP countries benefit. Currently, the ACP agricultural trade preferences are being eroded by five distinct processes: the EU’s Common Agricultural Policy (CAP) reform, the ‘Everything but Arms’ (EBA) scheme for Least Developed Countries (LDCs) and revisions of the Generalised System of Preferences (GSP), EU bilateral trade agreements, multilateral agreements on tariff reductions, and World Trade Organization dispute settlement rulings.

Research suggests that erosion of all preferences would have a substantial impact on some countries, especially those with a high concentration of exports in heavily protected commodities. Relatively bigger impacts are concentrated in small island economies and a number of LDCs dependent on sugar, bananas and, to a lesser extent, garment exports. Reducing preferences for ACP exports will lead to losses for most of these suppliers, as higher production costs mean that these countries and regions can only sell profitably to a protected market. Caribbean ACP banana countries and main ACP sugar exporters (mainly Belize, Fiji, Guyana and Mauritius) worry that, as a result of preference erosion, they will loose their competitiveness against the largest Latin American banana producers (including Colombia, Costa Rica, Ecuador and Guatemala) and sugar exporters (Brazil).

WTO Members recognised the need to help developing countries take advantage of trade liberalisation and for complementary measures to address adjustment costs. The WTO Framework Agreement, adopted in the context of the Doha negotiations in July 2004, recognises the importance of long standing preferences and mandates that the issue of preference erosion be addressed. The Hong Kong Ministerial Declaration also states that «[WTO Members] reaffirm that nothing [they] have agreed here compromises the agreement already reflected in the Framework on other issues including…longstanding preferences and preference erosion.»

Assistance for preference erosion to help developing countries benefit from trade liberalization and improve their ability to use trade for development includes possible trade-related and non-traderelated measures. Trade-related measures that have been suggested in the WTO Agriculture negotiations consist of measures such as a longer implementation period for the tariff reductions, a deferral of the start of the implementation period, lower tariff reductions for affected products, and expanded market access for products, which are of vital export importance to preference-receiving Members. However, these measures might conflict with the current WTO mandate on the fullest liberalisation of trade in tropical agricultural products (such as sugar and bananas) that is also mandated in the market access negotiations.

Non-trade-based measures include targeted technical assistance programmes to assist long-standing preference-receiving countries to diversify their export base, and additional financial assistance and capacity building to address supply constraints, promote diversification and assist in adjustment and restructuring. These measures are targeted «Aid for Trade» (A4T) measures in support of the trade adjustments that will be required as a result of preference erosion.

The present Issue Paper (No. 7) on “The ACP experience of preference erosion in the banana and sugar sectors and possible policy responses to assist in adjusting to trade changes», by Paul Goodison, is intended as a contribution to the discussion on trade-related adjustment under A4T. The purpose of this paper is to situate the process of preference erosion in ACP-EU trade relations in the context of internal EU policy adjustments designed to prepare the EU agricultural and food products sector for trade liberalisation at the multilateral and bilateral levels.

The paper seeks to analyse the sources and impacts of preference erosion on ACP banana and sugar sectors and reviews the experience of the EU policy response to the impact of preference erosion in ACP economies and societies. It also seeks to draw lessons from the various experiences of the policy response to preference erosion in the different circumstances faced in ACP countries, with a view to identifying the elements which could form part of a more comprehensive A4T approach to assisting ACP economies and societies in meeting the challenges thrown up by the ongoing process of both trade liberalisation and preparations for trade liberalisation within the EU and the consequent process of preference erosion.

The July 2004 Framework commits Members to pursue the “full implementation of the long-standing commitment to achieve the fullest liberalisation of trade” in tropical farm products as well as ‘diversification products.’ Members still need to identify which products will qualify, and agree on their treatment.

In this context, discussions was initiated with the presentations of two ICTSD’s papers.

The ACP Experience of Preference Erosion in the Banana and Sugar Sectors and Possible Policy Responses to Assist in Adjusting to Trade Changes, by Paul Goodison of the European Research Office. The report seeks to review in broad terms the experience of preference erosion in the ACP banana and sugar sectors. It develops a typology of stages of preference erosion, reviews the experience of the policy response and seeks to outline the types of response measures which could be supported as part of a comprehensive response to the challenge of preference erosion emerging in ACP-EU trade.

A Comparison of the Barriers Faced by Latin American and ACP Countries’ Exports of Tropical Products, by Jean-Christophe Bureau of the Institute for International Integration Studies, Trinity College Dublin, Anne-Celia Disdier, INRA-AgroParisTech, Grignon, France, and Priscila Ramos, ADEPRINA and CEPII, Paris. The report seeks to shed light on the actual market access granted to both group of countries so as to identify the sectors where both groups would have a major interest in requesting fuller liberalisation in the WTO.