Implications of European Sustainability Standards for Developing Countries in the Context of Geopolitical Tension

It is the first session of the year 2022 and, for the time being, the final session of our series on the external perspectives of the EU's Farm to Fork (F2F) strategy – a major component of the EU's larger Green Deal transition to combat climate change. Professor Alan Matthews of European Agricultural Policy in the Department of Economics, School of Social Sciences and Philosophy at Trinity College Dublin, Ireland is the speaker for this virtual Vijverberg Policy Dialogue. He has authored numerous publications on agricultural policy, international trade, and food security.

Our first session discussed the impact study of the US Department of Agriculture, which analysed the economic consequences of several proposed targets in the F2F strategy based on three strategy adoption scenarios, finding a reduction in global agriculture production, higher food prices, less trade, and increased global food insecurity by 2030, particularly in Africa. The second session with Ken Giller (WUR) and Koen Dekeyser (ECDPM) zoomed in on the implications of greening Europe for Africa’s food systems, its food security and its smallholder farmers. Please read our report of our first session here and of our second session here.

During this third session with prof. Matthews, we discussed the implications of European Sustainability Standards for developing countries in the context of geopolitical tension. The F2F strategy will have a global impact on food and agricultural supply chains and trade policy should be coherent with and supportive of these objectives. Implementing these requirements and changes will have a significant impact on the competitiveness of EU producers as well as international trade in food. The Green Deal and other trade policy changes will have implications for vulnerable developing countries as well. How can their interests and needs be reflected in the design of trade policy measures so that the EU does not inadvertently make it more difficult for them to meet their population's food and dietary needs, as well as their right to food, while also attaining their SDG2 goals? These perplexing issues have been compounded by the aftermath of the Ukraine war; should the EU review its main sustainable food policies, the Farm to Fork and the Biodiversity strategy, to ensure Europe’s and developing countries’ food security?

Prof. Matthews’s presentation of the afternoon draws on a paper that he is preparing, which is  commissioned by the European Landowners’ Organization. Certain points raised during the discussion may also be taken aboard for the finalization of  the paper. 

Prof. Matthews began his presentation by setting the stage for his talk, which included the increased focus and attention on food sustainability requirements; we are becoming increasingly aware of the footprint on food production, not only in Europe but globally, which was made clear during the UN Food Systems Summit in September 2021. The Green Deal and the F2F strategy both outline the critical nature of transitioning to a more sustainable and healthy food system, and thus demand adherence to higher sustainability standards regarding production practices (rather than product characteristics), as well as dietary changes. Implementing these sustainability requirements and changes will have significant impact on the competitiveness of EU producers as well as international trade in food. The question that is being discussed during this Vijverberg Policy Dialogue is how these changes impact on the ability of vulnerable developing countries to achieve the UN SDGs, given EU’s commitment to Policy Coherence for Development?

Prof. Matthews kicked off his presentation with outlining that the Green Deal and the F2F strategy sparked a burst of new activities from the European Commission, including the EU Trade Policy Review in February 2021, the CAP Political Agreement in July 2021 (which includes a report on the legality and feasibility of applying import standards to third countries), a review of pesticide import tolerances, a Carbon Border Adjustment Mechanism (which includes a levy on imported fertilizers), and also mirror clauses such as those on antibiotics in January 2022 (not yet enforced) and the European Commission is also considering a mirror clause as part of its review of animal welfare legislation (due in 2023), due diligence directives, a review of trade and sustainable development  (TSD) chapters in free trade agreements, and a proposal for a Regulation on Sustainable Food Systems Framework due in end 2023. There are four key commodities that the EU is importing from vulnerable developing countries, namely cocoa, fish, fruits and nuts, and coffee. Since meat is not a primary concern, Prof. Matthews focused on pesticides rather than antibiotics and animal welfare standards.

Prof. Matthews then reiterated studies conducted by the US Department of Agriculture and Wageningen University and Research, both of which concluded that implementing the F2F strategy's sustainable standards and objectives would result in decreased production but increased prices. According to some studies, this could result in higher farm income. The ‘first-round effects’ will then be to increase demand for exports from third countries. When dietary shifts as proposed toward increased fruit, vegetable, and nut consumption, positive production effects for developing countries are expected, as they are major suppliers of these commodities. Furthermore, lower EU production will contribute to higher global food prices, with potential negative impacts on food-importing developing countries. Additionally, EU imports may result in environmental degradation or pollution or exacerbate social concerns in exporting countries. Prof. Matthews also highlighted the indirect or  ‘second-round impacts’, that will arise from accompanying trade policy measures which may act as a form of non-tariff barrier.

Prof. Matthews distinguished three objectives of Green Deal trade policy measures; namely

• To safeguard EU production capacity by ensuring that EU producers compete with imports on a level playing field;
• To avoid off-shoring the negative environmental consequences of EU consumption through existing or increased imports; and
• To raise global sustainability standards by leveraging access to the EU market to give a stimulus to exporting countries to raise their standards.

And the range of these trade policy measures can be classified as multilateral (e.g. international standards and multilaterally environmental agreements), bilateral (e.g. TSD chapters in free trade agreements, support for higher sustainability practices through financial aid), and unilateral measures (e.g. voluntary sustainability standards implemented by private supply chains, sustainability eligibility criteria for EU incentive arrangements, due diligence requirements, sustainability labelling, and  requirements that imports should meet similar requirements as domestic production ‘mirror clauses’). According to Prof. Matthews, the golden measure would be an effective multilateral agreement to which all countries sign voluntarily and which includes an enforcement mechanism. The issue with multilateral agreements is that the slowest carriage sets the pace, and that there is a lack of an effective enforcement mechanism. As a result, the EU frequently goes beyond the minimum standards agreed upon in a multilateral context, raising the question of how the EU can persuade other countries to raise their standards to match the EU standard. The EU pursues this objective through bilateral and unilateral measures.

Prof. Matthews discusses several of the issues surrounding these unilateral measures in particular, such as the trade-offs between unilateral vs. multilateral action, is there a case for levelling the playing field (differences in the usage of pesticides), which sustainability requirements are relevant, how effective will unilateral action be in raising standards in third countries (exports can be diverted to another market), who bears the costs (most of the cost will be borne by EU consumers, this can be desirable for certain commodities), what is the risk of retaliation (legal issues around WTO), how to account for differences is risk and risk preferences, and how to avoid potential adverse effects on vulnerable developing countries.  

Prof. Matthews zooms into the pesticide issues as that was also highlighted by the French presidency of the Council. There are three issues around pesticide maximum residue limits (MRL) to sustainability:

• The European Commission promised a review of import tolerances for active substances banned in EU because of the hazard-based criteria in the MRL Regulation (now it is only related to health not environment).
• Include assessment of global environmental impacts when setting MRLs for active substances banned in the EU.
• Implement a true ‘mirror clause’ which would eliminate the use of import tolerances for active substances that are banned in the EU.

The European Commission and the French Presidency are currently falling short of supporting a true mirror clause, but changes are likely to occur in that direction.

Raising sustainability standards also in countries that export to the EU is an urgent objective but in the absence of cost-effective alternatives EU policy measures can have adverse impacts on some SDGs in vulnerable developing countries. To ensure policy coherence for development, (EU) measures must meet four criteria:

• A sufficient transition period to allow alternatives (e.g. alternative pesticides) to be developed, applying the principle of special and differential treatment where health and safety of EU consumers is not the issue;
• The commitment of significant EU resources to help farmers in vulnerable developing countries to adapt their production practices where justified;
• Just transition principles in Europe emphasise that those affected by change should be consulted and have a say in managing that change. Prof. Matthews advocates that this principle should also apply to the external dimension of the Green Deal; and calls for the development of the concept Green Alliances as a framework of consultation with EU’s trading partners;
• EU decision-making must have mechanisms where the interests and needs of these countries are explicitly considered and built in in legislative proposals. For example, when setting import tolerances, a specialised committee makes the determination but does not consider environmental risks in third countries.

In sum, Prof. Matthews' key messages included emphasizing the importance of raising global sustainability standards, both in and of itself, as well as to avoid leakage effects from raising EU sustainability standards. In addition, a portfolio of multilateral, bilateral, and unilateral actions should be established; in this effective multilateral agreements are the gold standard, but they reflect the lowest common denominator and lack effective enforcement provisions. Labelling, financial assistance, due diligence requirements, and mirror clauses are examples of unilateral actions that vary in their effectiveness and trade implications. Of these unilateral action, mirror clauses are the most restrictive in terms of trade and the most likely to provoke retaliation (that is why the EU is hesitant to fully implement this measure). Additionally, mirror clauses are also a 'one size fits all' approach that makes it difficult to make allowance for developing countries. The critical question for discussion is whether this is the moment to risk greater trade tensions in the global trading system, particularly in light of geopolitical tensions due to the Ukraine war.

The discussion centred on a few crucial topics, including the importance of due diligence, a regulatory environment and the enforcement; as well as the African Union's role in the EU policymaking process, particularly in trade negotiations, which was discussed to some extent during the EU-Africa summit. In a previous Vijverberg discussion with the President of Ghana, it became evident that the EU has its own point of view, policies, and objectives, and that it frequently fails to consult African partners. Any person has the right to participate in policy that affects them. The European Commission launched a call for public evidence to feed into this report in June 2022, looking at the legal and feasibility of imposing these kind of mirror clauses. African contributions have already been made; they stress the necessity of being consulted as well as hearing directly from the Commission about the implications of any proposed trade policy changes. Perhaps these green alliances could provide the framework to carry out these consultations. In addition, Africa is increasingly uniting in (sub-)regional blocs such as ECOWAS or EAC, which is also a development that the EU should be on top of moving forward. Prof. Matthews' research will delve deeper into this topic, as well as the medium-term effects of the Ukraine crisis on agricultural supply chains and for the future of EU food policies.

Another important topic was how to find inspirational cases to demonstrate that the impact on environmental issues, as well as income, is positive during the transition period; the government imposes general regulations, but these regulations receive more support through innovations and inspirational cases. This is required in order to bring people together and allow for the possibility of discussion.