Report from the Commission to the Council on the operation of the agreements concluded in the framework of the GATT Article XXVIII procedure in the rice sector
Date: 2009-06-30
Institutions: European Commission
Subjects: agreement (EU), international cooperation, rice, trading operation

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 30.6.2009 
COM(2009) 314 final 

REPORT FROM THE COMMISSION TO THE COUNCIL 

on the operation of the agreements concluded in the framework of the GATT Article 
XXVIII procedure in the rice sector 

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REPORT FROM THE COMMISSION TO THE COUNCIL 

on the operation of the agreements concluded in the framework of the GATT Article 
XXVIII procedure in the rice sector 

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Basmati 

Broken 

Husked 

Indica 

Japonica 

Paddy 

GLOSSARY 

High quality indica rice grown only in India and Pakistan 

White rice damaged in the milling process 

Rice with only the husk removed; brown rice  

Subspecies of rice, long grain  

Subspecies of rice, usually round or medium grain 

Rice in the husk (unhusked) 

Semi- or wholly-milled 

Rice from which the husk, layers and germ have been partly or 
wholly removed; white rice 

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REPORT FROM THE COMMISSION TO THE COUNCIL 

on the operation of the agreements concluded in the framework of the GATT Article 
XXVIII procedure in the rice sector 

1. 

INTRODUCTION 

Following  the  reform  of  the  rice  Common  Market  Organisation  in  2003,  the  Commission 
notified  the  WTO  that  the  European  Community  intended  to  modify  import  concessions  on 
husked rice (HS code 1006 20) and semi-milled and milled rice (HS code 1006 30) included 
in Schedule CXL of the European Community annexed to the 1994 GATT. 

The  50%  reduction  of  the  intervention  price  introduced  by  the  reform  meant  that  the 
continuation of the import regime in force at that time1 would have resulted in widely varying 
border protection, which might even reach zero duty. As this implied too much uncertainty for 
the  rice  sector,  the  Community  decided  to  deconsolidate  the  regime  and  negotiate  its 
replacement by a more appropriate one, applicable to all EU trade partners.2. 

To  this  end,  under  GATT  Article  XXVIII,  negotiations  were  carried  out  with  the  four 
countries from which most EU rice imports originated: 

–  India and Pakistan, each with a substantial supplier interest in husked Basmati rice, 

–  the United States of America, which had a principal supplying interest in husked rice and a 

substantial supplier interest in milled rice, and 

–  Thailand, which had a principal supplying interest in milled rice and a substantial supplier 

interest in husked rice. 

When  the  agreement  with  Thailand  was  signed,  the  Commission  undertook  to  send  the 
Council  a  report  on  the  operation  of  the  agreements  concluded,  once  data  for  the  first 
marketing years were available. The purpose would be to enable the impact of import flows of 
different types of rice onto the Community market to be assessed, as regards both Community 
production and quantities processed.3  

In addition, the report reviews imports of milled rice in small packages. Some Member States 
expressed concern at the consequences for the EU rice sector of a possibly large increase in 
this  type  of  imports  following  the  entry  into  force  of  the  Agreements.  The  Commission 
undertook to enter into consultations with any given exporting country for which imports into 
the EU increased by more than 25% in a given a marketing year. 

1 
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Headnote 7 of the EC's Schedule 
Except imports covered by preferential arrangements e.g. EBA, or import quotas e.g. Egypt. 
For 
http://ec.europa.eu/agriculture/markets/rice/index_en.htm 

information 

detailed 

more 

rice 

EU 

the 

on 

sector 

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see: 

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2. 

THE AGREEMENTS 

2.1. 

Overview 

Agreements  with  India  and  Pakistan  were  approved  by  the  Council  on  11  August  20044. 
These  established  that  husked  basmati  rice  could  be  imported  into  the  EU  at  zero  duty  as 
from 1 September 2004. 

The  agreement  with  the  USA  was  approved  by  the  Council  on  21  June  20055  and  applied 
retroactively,  with  effect  from  1  March  2005,  i.e.  mid-way  through  the  marketing  year.  It 
establishes a calculation method for the Most Favoured Nation (MFN) import duties applied 
to husked rice. 

Finally,  the  agreement  with  Thailand,  approved  by  the  Council  on  20  December  20056, 
mainly concerns the calculation mechanism for MFN import duties applicable to milled and 
semi-milled rice. It was also applied retroactively, as from 1 September 2005.  

Although the agreement with the USA did not finalise negotiations on Article XXVIII, it will 
also  be  examined  in  this  report  as  it  was  concluded  in  the  same  framework  as  the  other 
agreements. 

The  following  table  shows  the  duties  now  applied  to  rice  imports,  following  the  entry  into 
force of the respective agreements. 

Table 1: Bound and applied duties for rice 

Type of rice 

Bound duty (€/t) 

Applied duty (€/t) 

Paddy  (not  concerned  by  the 
agreements) 

Husked 

of which basmati 

Wholly-milled and semi-milled 

Broken 

211 

65 

-- 

175 

128 

211 

30 – 42.5 - 65 

0 

145 - 175 

65 

2.2. 

Basmati husked rice - agreements with India and Pakistan  

The agreements with India and Pakistan established the following conditions for the duty free, 
quota-free import of husked Basmati rice: 

–  9 specific varieties are eligible (4 Pakistani and 8 Indian, 3 of which are common to both 

countries) 

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6 

Council Decisions 2004/617/EC and 2004/618/EC (OJ L 279, 28.8.2004, p. 17 and 23). 
Council Decision 2005/476/EC (OJ L 170 of 1.7.2005, p.67). 
Council Decision 2005/953/EC (OJ L 346 of 29.12.2005, p.24). 

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–  imported  Basmati  must  be  accompanied  by  an  authenticity  certificate  issued  by  the 

relevant Indian or Pakistani authorities.  

2.3. 

Husked rice - agreement with the United States of America  

The agreement with the USA established an annual reference level of 431 678 t for imports of 
non-Basmati husked rice. This was the result of the following calculation, based on average 
data for 1999-2002: 

–  husked rice imports into EU-25 from all origins 

–  less husked Basmati imports into EU-25 

–  increased by 10% 

–  plus  milled  rice  exports  under  Inward  Processing  from  EU-15  to  the  10  Member  States 

which joined the EU in 2004.  

Annual increases to this reference level were fixed at 6 000 t for each of the 2005/06, 2006/07 
and  2007/08  marketing  years.  For  subsequent  years,  the  agreement  provides  that  the  parties 
would seek agreement by 31 August 2008. However, consultations are still underway between 
the Community and the USA.  

Under  the  terms  of  the  agreement,  if  husked  rice  imports  are  more  than  15%  below  the 
reference  level  in  a  given  marketing  year,  the  EC  will  apply  a  tariff  rate  of  30  €/t  for  the 
following 6 month period. If imports are more than 15% above the reference level, the duty 
for the subsequent period is fixed at 65 €/t.  If imports are in the -15% and +15% range, the 
duty for the subsequent period will be 42.5 €/t. 

The  Commission  twice  a  year  examines  whether  a  change  in  the  import  duty  applicable  to 
husked rice is needed and, if appropriate, fixes a new duty as from September and March. The 
calculation made mid-way through the marketing year is based on quantities imported during 
the first 6 months of the marketing year and half the annual reference level.  

The  rationale  behind  the  agreement  is  to  provide  for  an  increase  in  the  import  duty  when 
imports increase and vice versa, so as to give adequate protection to the European rice sector 
while, at the same time, opening the market to third countries. 

Imports into the EU of all non-Basmati husked rice from all origins, whether preferential or 
not,  are  taken  into  account  for  the  purpose  of  calculating  the  imported  quantities.  Data  is 
based on import licences issued during the period concerned.  

2.4. 

Semi-milled and milled rice - agreement with Thailand 

The semi-milled and milled rice agreement concluded with Thailand provides a similar, but 
simpler,  mechanism  as  that  for  husked  rice.  The  annual  reference  import  level  is  set  at 
337 168 t, which represents average imports of milled and semi-milled rice into EU-25 from 
all  origins  in  2001/2002  to  2003/2004,  increased  by  10%.  No  annual  increases  to  this 
reference level were provided for. 

Under the terms of the agreement, a duty of 145 €/t is normally applied. However, if milled 
and semi-milled rice imports are more than 15% above the annual reference level in a given 

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marketing year, the EC applies a tariff rate of 175 €/t during the subsequent 6 month period. 
Otherwise, the duty for the subsequent period remains at 145 €/t. 

As  for  husked  rice,  this  exercise  is  repeated  half-way  through  the  marketing  year,  based  on 
quantities  imported  during  the  first  6  months  of  the  marketing  year  and  47%  of  the  annual 
reference level (158 469 t). Imports into the EU from all origins, whether preferential or not, 
are taken into  account for  the purposes of calculating the  imported quantities. The resulting 
duty  is  MFN,  and  is  applicable  to  all  milled  and  semi-milled  rice  imports  from  all  origins 
except those made under preferential arrangements or import quotas. 

In addition, the Thailand agreement provided for a Tariff Rate Quota (TRQ) of 13 500 tonnes 
of milled and semi-milled rice at zero duty.  

2.5. 

Broken rice - agreement with Thailand  

The agreement with Thailand also settled the applied import duty for broken rice, which has 
been fixed at 65 €/t since September 2005 (down fr om 128 €/t the previous  year). In addition, 
the former 80 000 tonnes TRQ was increased to 100 000 tonnes. 

3. 

IMPACT ON THE EU MARKET 

3.1. 

The data 

In  order  to  assess  the  impact  of  the  agreements,  this  report  examines  their  implementation 
from 2004/05 to 2007/08, the last complete marketing year for which data is available. 

Concerning import volumes, the report draws on two complementary sources: 

•  import  licence  database,  which  allows  a  distinction  to  be  made  between  preferential  and 

non-preferential imports.  

•  Comext  database,  which  gives  the  quantities  actually  imported,  as  notified  by  Member 
States  to  Eurostat.  While  Comext  differentiates  imports  by  their  origin  it  does  not 
distinguish between preferential and non-preferential imports. 

For  balance  sheet  data  and  to  analyse  market  trends,  Eurostat  data  and  other  Member  State 
notifications are used. 

Data  concerning  imports  of  milled  rice  in  small  packages  is  drawn  from  the  Commission's 
TAXUD surveillance system, which was put in place in February 2006. Data is therefore only 
available  for  two  complete  marketing  years,  2006/07  and  2007/08,  and  refers  to  quantities 
actually imported. 

3.2. 

Import flows based on licences issued 

3.2.1.  Basmati husked rice  

Between  2004/05  and  2005/06  Basmati  imports  remained  stable  at  270 000  t,  increasing  to 
324 000 t in 2006/07 and to 368 000 t one year later.  

By the fourth marketing year of application of the Basmati agreement, imports had therefore 
increased by some 100 000 t (+36%). 

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Table 2: Imports of husked Basmati rice - licences issued (in tonnes) 

Marketing year 
2004/05 
2005/06 
2006/07 
2007/08 

India 
203 896 
217 630 
285 037 
269 087 

Pakistan 
66 933 
53 196 
38 567 
99 073 

Total 
270 829 
270 826 
323 604 
368 160 

3.2.2.  Husked rice  

Since  the  agreement  has  been  in  force,  the  quantity  of  husked  rice  other  than  Basmati  for 
which import licences have been issued increased from 398 121 t in 2004/05 to 550 741 t in 
2007/08. A substantial part of this 37% increase (148 778 t) resulted from the enlargement to 
Bulgaria  and  Romania,  which  together  imported  78 985  t  of  husked  rice  in  2004/05,  before 
joining the EU.  

The net increase in EU imports between 2004/05 and 2007/08 was, therefore, no more than 
70 000 t. 

The half-yearly adjustment to the import duty (in September and March) affected the rate at 
which  traders  applied  for  import  licences  at  different  periods  of  the  year.  For  example,  if  a 
duty  increase  was  anticipated  after  March,  applications  increased  in  February,  to  take 
advantage of the lower duty rate, and vice versa. 

As a result, in the first half of the 2005/06 and 2006/07 marketing years, when the duty was 
low, licences were issued for 67% of the annual quantities, on average. Although they were 
close  to  or  above  the  half-yearly  reference  level  during  the  1st  half  of  each  marketing  year, 
imports  for  the  complete  marketing  year  were  below  the  reference  level  in  2004/05  and 
2005/067. 

Since the end of 2007 the imposition of export restrictions by some of the world's main rice 
exporters has also influenced the timing of imports, as European traders sought to avoid any 
possible disruption of stocks. 

In  2004/05  and  2005/06,  around  a  quarter  of  the  EU's  husked  rice  imports  came  from  the 
USA.  Imports  fell  abruptly  after  LL  Rice  601,  a  genetically  modified  (GM)  variety  not 
approved in the EU8, was discovered in consignments of US rice in August 2006. 

EU  importers  have  subsequently  switched  to  other  origins,  such  as  Thailand  and  Uruguay 
(respectively 22% and 13% of the total in 2007/08). 

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The situation is different in 2008/09: imports in the first half-year (September 2008 – February 2009) 
were so much lower than in the preceding period that the duty was reduced to 42.5€/MT from March 
2009. Higher EU ending stocks for the 2007/08 marketing year slowed import flows, which may also 
have been affected by the financial crisis. 
Commission Decisions 2006/578/EC and 2006/601/EC instructed Member States to take the necessary 
measures  to  ensure  that  products  found  to  contain  genetically  modified  rice  LL  RICE  601  were  not 
placed on the EU market. 

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Table 3: Imports of husked rice - licences issued (in tonnes) 

Marketing year 
2004/05 
2005/06 
2006/07 
2007/08 

1st half-year 
212 335 
288 203 
352 615 
307 448 

2nd half-year 
185 787 
128 679 
171 533 
243 293 

Total 
398 121 
416 882 
524 149 
550 741 

3.2.3. 

Semi-milled and milled rice  

Imports of semi-milled and milled rice gradually increased until 2007/08, when there was an 
abrupt 50% increase (+150,000 t) on the previous year. As a result, in March 2008 the duty 
been its level since the agreement came into 
was increased to 175 €/t from 145 €/t, which had 
force in September 20059. 

Table 4: Imports of milled and semi-milled rice - licences issued (in tonnes) 

Marketing year 
2004/05 
2005/06 
2006/07 
2007/08 

1st half-year 
94 228 
123 923 
140 766 
203 597 

2nd half-year 
99 909 
122 081 
142 891 
227 842 

Total 
194 137 
246 005 
283 657 
431 438 

3.2.4.  Broken rice 

Imports of broken rice increased from 185 000 t in 2005/06 to a stable 240 000 t in 2006/07 
and 2007/0810. Due to the high quality of EU-produced rice, there is a large deficit in broken 
rice on the EU market. In addition, a substantial share of broken rice imports (more than 55% 
on average) is made at reduced or zero duty under preferential agreements and TRQs. 

Table 5: Imports of broken rice - licences issued (in tonnes) 

Marketing year 
2004/05 
2005/06 
2006/07 
2007/08 

Total 
123 191 
185 701 
240 365 
236 320 

3.2.5. 

Imports in small packages 

Imports  of  milled  and  semi-milled  rice  in  small  packages  fell  by  7%,  from  35 812 t  to 
33 275 t, between 2006/07 and 2007/08. 

If import quantities of less than 500 t a year are disregarded, only Pakistan's imports in small 
packages increased by more than 25%. From 2006/07 to 2007/08 they saw a  62% increase, 
from 3 915 t to 6 326 t. This is in line with the 58% increase of total imports of milled and 
semi-milled  rice  from  Pakistan  in  the  same  period:  from  26 235  t  in  2006/07  to  41 378  t  in 
2007/08.  

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10 

In 2008/09 rice imports generally slowed down and the duty for milled rice was again fixed at the lower 
level of 145 €/t as from March 2009. 
In 2008/09 the pace of imports has so far been 33% above the rate in previous years. 

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3.3. 

The EU rice market 

3.3.1.  Production 

From  2004/05  to  2007/08  EU  rice  areas  were  relatively  stable  at  between  413 000  ha  and 
428 000 ha. Some switch from indica to japonica was seen, due to a combination of structural 
and short-term considerations. Indica areas saw a temporary reduction when some were badly 
affected by adverse weather conditions11.  

In 2004/05 EU-25 production in milled equivalent reached a record 1.68 mio tonnes, dropping 
back to 1.54 mio t in 2005/06, 1.59 mio t in 2006/07. Already at EU-27, production reached 
1.68 mio t in 2007/08. 

Over  the  period  2004/05  to  2007/08  EU's  indica  rice  production  fell  by  178 000  t  in  milled 
equivalent.  This  shortfall  in  the  EU  supply  was  compensated  by  indica  imports.  During  the 
same  period,  japonica  production  increased  by  a  similar  amount,  partially  due  to  the 
contribution of the two new Member States. 

Intervention stocks of paddy rice, which stood at 600 000 tonnes at the beginning of 2004/05, 
had been totally disposed of by 2007/08.  

3.3.2.  Consumption 

Before the last enlargement, the EU-25 consumed between 2.3 and 2.4 mio tonnes of rice (in 
milled equivalent) each year. The accession of Bulgaria and Romania brought an increase of 
100-120 000 t. EU-27 consumption is now around 2.5 mio tonnes per year, on average. 

3.3.3.  Quantities processed 

Quantities processed by the European industry can be calculated as the sum of EU paddy rice 
production  and  net  trade  of  paddy  and  husked  rice,  adjusted  by  the  evolution  of  stocks,  all 
expressed in milled equivalent. 

The  quantities  processed  have  remained  within  a  range  of  2.22  to  2.34  million  tonnes  and 
depend mostly on rice produced in the EU.  

This suggests that the industry has maintained its level and has not been adversely affected by 
the different MFN and preferential trade agreements. In particular, the substantial increase in 
milled and semi-milled rice imports in 2007/08 appears to have had no negative impact on the 
industry.  

3.4.  Market prices 

3.4.1.  World prices 

While the price of Thai 100% B, considered as the benchmark world price for indica rice, had 
evolved  within  a  range  of  250  $/t  to  350  $/t  since  2004,  in  November  2007  it  started  an 
upward trend that peaked at 1050 $/t in May 2008. 

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In 2008/09 indica areas increased by 20%.  

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It should be noted that only some 6% to 8% of world rice production is traded internationally. 
For this reason world prices over-react to even small changes in the market balance and policy 
decisions. Besides the influence of soaring prices for other commodities, an increased demand 
due to the determination of some Asian countries to keep larger stocks of rice, coupled with 
the restrictive export measures taken by some of the major exporters (Vietnam, India,…) in 
order to avoid food price inflation, was enough to provoke a price escalation. After peaking in 
May 2008, Thai 100% B prices gradually fell, but they have not yet fallen much below 500 
$/t. For other origins, like Vietnam, prices are back at their pre-increase levels.  

Japonica rice saw a similar increase in the same period. However, due to the recent absence 
from  the  market  of  some  important  players  (export  ban  in  Egypt,  drought  in  Australia) 
Californian japonica quotations have remained at very high levels, around 1 150 $/t. 

3.4.2.  EU prices 

Since  the  2003  reform,  EU  paddy  rice  prices  have  been  well  above  the  intervention  price 
(which  is  set  at  150  €/t)  and  have,  globally,  followed  an  upward  trend.  During  the  2004/05 
marketing year, prices were relatively stable within a range of 160 €/t to 240 €/t, depending 
on origin and type of rice. However, in subsequent years some dramatic increases were seen.  

In 2006, average Italian japonica prices jumped to 293 €/t, mainly due to the combination of 
lower japonica production and increased EU demand following the 2004 enlargement. Italian 
indica also rose to 235 €/t, whil e Spanish prices remained broadly the same as in the previous 
year. 

In 2007, while Italian prices saw substantial variations, Spanish prices increased throughout 
the  year,  especially  for  indica,  for  which  prices  increased  to  240  €/t,  mainly  due  to  adverse 
conditions in Andalusia, a major indica producer.  

The  biggest  jump  in  EU  paddy  prices  was,  however,  seen  in  2008,  in  a  context  of  sky-
rocketing world rice prices. In May 2008 Italian indica and japonica reached 480 €/t, i.e. more 
than 3 times the intervention price12.  

In other producing Member States (Greece, France and Portugal) although not reaching the 
same heights, paddy prices have consistently been well above the intervention price since 
2004/05. No quantities have been bought by the intervention agencies since 2004. 

3.5. 

The EU rice supply 

While,  overall,  EU  production  of  rice  has  remained  stable  since  2004/05,  in  relative  terms 
imports  have  gained  in  importance.  The  increase  in  milled  and  semi-milled  rice  imports  is 
higher (from 177 000 t in 2004/05 to 394 000 t in 2007/08) than for unprocessed rice (from 
537 000 t to 683 000 t in the same period). 

Total imports of rice, in milled equivalent, increased from 715 000 t in 2004/05 to 1 077 000 t 
in 2007/08. This was partly due to the enlargement of the EU to Bulgaria and Romania. 

12 

Since  the  start  of  the  2008/09  marketing  year,  all  paddy  prices  in  Italy  and  Spain  have  been  steadily 
above 300 €/t, and in  some cases have reached more than 500 €/t. 

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Table 6: Breakdown of EU-27 rice supply (in 000 tonnes of milled equivalent) 

(1)

(2)

(3)

(1)

(2)

(3)

(1)

(2)

(3)

(1)

(2)

(3)

s
e
n
n
o
t

0
0
0

3.000

2.500

2.000

1.500

1.000

500

0

2004/05

2005/06

2006/07

2007/08

(1) Milled and semi-milled rice imports  
(2) Paddy and husked rice imports  
(3) EU production 

4. 

CONCLUDING REMARKS 

In  general  terms,  the  agreements  concluded  have  fulfilled  their  purpose,  in  as  much  as  the 
protection of the EU market has increased when imports have grown and vice versa.  

Since  2004,  variations  in  EU  rice  production  have  been  related  to  climatic  conditions  and 
producer choices rather than to import flows. Imports have increased to respond to increased 
EU consumption. 

Quantities processed by the EU rice industry have remained stable. During the period under 
review, the agreements have had no adverse effect on the EU rice milling industry. 

However, in 2008 world rice prices – along with other grain prices - reached unprecedented 
peaks, which were reflected in prices on the EU internal market. 

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