Everything but arms (EBA) - how import swaps hinder development
General update
The current White Paper on sugar reform removes much of the value of the original EBA and incentive for investment in LDCs for access to the EU market. This is because of the radical price cuts proposed by the Commission under the proposals of 14 July 2004. This means that LDCS would increasingly look at ways of deriving any sort of value from EBA, as amended by the latest proposed changes to the sugar policy. Import swapping or triangular trade is one such approach actively being debated by LDCs. This is the process by which LDCs import sugar from the world market for their own consumption, and export their domestic production to the European Union to take advantage of the EBA initiative. The development dimension of this practice is increasingly being questioned. You will be aware that LDCs continue to lobby for volume limits on sugar in return for remunerative prices.
Artificial trade flows
Swaps represent entirely artificial trade flows. Without the EBA initiative they would not exist.
There is a widely held view that the EU's development strategy should not be to encourage the creation of artificial activities.
No employment creation
Artificial developments do not aid employment in the LDC concerned, as genuine manufacturing activity is not created. As a result, swaps are directly contrary to the aims of the EBA initiative (to help development by encouraging the creation of economic activity in the LDC beneficiaries, based on the use of their own labour and natural resources)
Revenue gains remain offshore
The financial benefits from the swaps are likely to remain offshore with the international commodity traders and financial intermediaries involved, rather than staying in (or even entering) the LDC where the swap is taking place.
Fraud and corruption
The swaps will represent an incentive to fraud and corruption as there will be significantly lower costs to be incurred (i.e. higher profits) if, instead of the imported sugar being unloaded for the LDC where the swap is occurring, the sugar stays on the ship in the LDC harbour while only the documents are swapped.
The EU should not accept the creation of arrangements that provide incentives to fraud and corruption. It is increasingly accepted that a key to LDC development is the creation of sound administration structures that are honest and efficient. Swaps will work against these objectives.
More 'Food Miles'
The result of the swaps will be that sugar is transported over much longer distances, as sugar will be imported into the LDCs so that domestic produced sugar can be exported to the EU. Consequently food miles will be increased, rather than required for sustainable development.
Source: CIBE
