The entry price system for fresh fruit and vegetable exports from China to

the EU Breaking a y on the wheel?

Linde GOETZ
a,
, Harald GRETHE
b
a
Leibniz-Institute of Agricultural Development in Central and Eastern Europe (IAMO), Theodor-Lieser-Strasse 2, 06120 Halle/Saale, Germany
b
University of Hohenheim, Agricultural and Food Policy Group, 70593 Stuttgart, Germany
a r t i c l e i n f o a b s t r a c t
Article history:
Received 23 October 2008
Received in revised form 28 January 2010
Accepted 10 February 2010
China's exports of apples and pears to the EU have increased substantially, although the EU
production of apples and pears is protected by the EU entry price system (EPS), aiming to
protect EU producers against international competition by restricting imports below a
minimum import price. This study investigates the relevance of the EPS for Chinese exports of
apples and pears to the EU accounting for changes over time and seasonal variation. Our results
suggest that the high relevance of the EPS for apples originating in China was of temporary
nature, whereas the relevance of the EPS for pears originating in China is of a more general
nature. In addition, the relevance of the EPS varies seasonally. Finally, we nd that the
production of pears in China is more competitive than the production of apples vis--vis the EU.
Therefore, China's fresh fruit and vegetable (FFV) producers would benet more from an
improved EU market access for pears than for apples. Thus, China should put more effort in
negotiating improved EU market access conditions for pears rather than for apples.
2010 Elsevier Inc. All rights reserved.
JEL classication:
F13 (Trade policy)
Q17 (Agricultural policy)
Keywords:
Fresh fruit and vegetables trade
Exports from China to the EU
EU import policy
EU entry price system
1. Introduction
China is the largest producer of fresh fruit and vegetables in the world, accounting for 36% of world production in 2005 (FAO,
2009). Also, China has become a major exporter of fresh fruit and vegetables in recent years. Between 2002 and 2006, China's fresh
fruit and vegetable exports rose continuously, more than doubling in value to nearly 5 billion US$ in 2006 (FAO, 2009). The net
trade position for fresh fruits and vegetables has also come close to doubling during this period, reaching 3.5 billion US$. Although
the European Union (EU) is not a major destination market for fresh fruit and vegetable exports from China, some products, such
as apples and pears, are exported to the EU at an increasing rate.
In particular, China's apple exports to the EU increased from 1 million tons to 20 million tons from 2000 to 2004, equivalent to
an annual increase by over 110%. This strong growth in China's apple exports to the EU in conjunction with problems of their
monitoring by the EU raised serious concerns by EU producers, which were tackled by the European Commission by introducing a
new license system for EU apple imports in 2005.
This development has to be seen against the background of apples and pears being treated as sensitive products in the EUand
thus their production is protected by the EU entry price system (EPS), aiming to restrict fresh fruit and vegetable exports below a
minimum import price by means of a product-specic, seasonally varying entry price (EP). In addition to the EPS, apple and pear
markets in the EU are protected by ad valorem tariffs of up to 20%. Since China does not enjoy preferential access to these markets,
it has to comply with the most-favoured-nation (MFN) market access conditions of the EPS.
China Economic Review 21 (2010) 377393
The authors are grateful to the European Commission, DG Agriculture and DG Taxation and Customs Union for making data available, and appreciate nancial
support from the Volkswagen Foundation.
Corresponding author. Tel.: +49 345 29280; fax: +49 345 2928299.
E-mail addresses: goetz@iamo.de (L. Goetz), grethe@uni-hohenheim.de (H. Grethe).
1043-951X/$ see front matter 2010 Elsevier Inc. All rights reserved.
doi:10.1016/j.chieco.2010.02.001
Contents lists available at ScienceDirect
China Economic Review
In light of the increasing fruit and vegetable exports of China to the EU, our research question is to which extent the EPS is
relevant for Chinese apple and pear exports to the EU. We assume that if the EPS is relevant, it has some effect on the EU import
price, implying that import prices are higher than otherwise.
1
This means that the relevance of the EPS is not necessarily highest in
the season when the EP and the ad valorem tariff are highest. Instead, according to our denition, the relevance of the EPS is
considered high if the EP has an inuence on the EU import price, either by imposing an additional specic tariff on the EU border
price (if it is belowthe EP) such that the EU import price increases, or by inuencing the exporters' pricing behaviour such that the
EU border price itself is increased to a level which is at least as high as the EP.
The starting point of this paper is the result of a general analysis of the relevance of the EPS for fresh fruit and vegetables from
all major countries of origin (Goetz & Grethe, 2009). This analysis makes evident that the EPS is of lowrelevance for apple and pear
exporting countries which are distant to the EU market, with the exception of China. To shed light on this surprising result for
apples and pears from China, we extend the analysis by taking into account i) that the relevance of the EPS might have changed
over time and ii) that the relevance of the EPS might vary seasonally.
The EPS has been investigated within several studies (e.g. Goetz & Grethe, 2009; Emlinger, Jacquet, & Lozza, 2008; Ciof & dell'
Aquila, 2004; Grethe &Tangermann, 1999; Swinbank &Ritson, 1995; for a comprehensive overviewsee Goetz &Grethe, 2009), but
Ciof and dell' Aquila (2004) is the only study which presents results regarding apples, focusing on apple exports from the
southern hemisphere suppliers Argentina, Chile, New Zealand and South Africa. Their indicators suggest that the relevance of the
EPS is very low during the main marketing season in spring and summer, but more relevant in autumn, when the marketing
season has just terminated and only residual quantities are sold. These results, however, are not directly comparable to apple
exports from China, since China is a northern hemisphere supplier and its main marketing season is in autumn and winter, which
concurs with the main marketing season of EU apple producers.
We proceed as follows: Section 2 gives a short overview of the Chinese fresh fruit and vegetable trade and Section 3 explains
the functioning of the EPS. Section 4 presents and discusses two main indicators to assess the relevance of the EPS for apples and
pears. Section 5.1 presents the results of a general analysis on the relevance of the EPS regarding apples and pears for all major
countries of origin. Sections 5.2 and 5.3 provide a detailed analysis of the relevance of the EPS for Chinese exports of apples and
pears, respectively. Section 6 summarizes our results, discusses determinants of the empirical ndings and gives an outlook on the
future development of FFV exports from China to the EU.
2. Chinese fresh fruit and vegetable trade
Fig. 1 displays China's fresh fruit and vegetable trade from2002 to 2006. For vegetables as well as fruits, China is a net exporter
over this period, with net exports rising continuously and reaching $3.5 billion US in 2006.
China's exports of fresh apples and pears also increased signicantly in this period. China is a strong net exporter of apples and
pears with exports of apples amounting to over 1 million tons and pears to about 450 million tons in 2008 (Figs. 2 and 3).
China's major export destinations for apples and pears are countries of the former Soviet Union such as Russia and Kazakhstan,
and Asian countries such as Indonesia, Philippines, Thailand and Vietnam(Figs. 4 and 5). The EU is a major export destination and
ranks 9th in the world for apples and 8th for pears.
Althoughthe EUmarket is not a major destination, the share of China's apple exports to the EUinChina's total apple exports increased
frombelow2% before 2000 to over 10% in 2003, sharply decreasing afterwards and falling below2% in 2008 (Fig. 2). The share of China's
pear exports totheEUincreasedfrombelow2%of China's total pear exports in1999toabout 7%in2002, but it decreasedtoalesser degree
comparedtoappleexports afterwards, toasharevaryingfrom5to6%(Fig. 3). China is anorthernhemispheresupplier of apples andpears
to the EU, thus exports are highest in fall and winter and lowest in early summer directly before the new harvest (Fig. 8).
The Netherlands is the primary destination of Chinese apple and pear exports to the EU; its share in China's total EU exports
vary between 51 and 70% for apples and 65 to 73% for pears in recent years (Figs. 6 and 7).
1
The EPS might also inuence the import quantity, which might be lower than otherwise; however, our indicators do not allow for identifying this effect.
Fig. 1. China's fresh fruit and vegetable trade, 20022006 (in bill. US$).
Sources: FAO (2009), own calculations.
378 L. Goetz, H. Grethe / China Economic Review 21 (2010) 377393
Fig. 2. China's apple trade, 19962008 (in 1000 t).
Sources: Global Trade Information Services (GITS) (2009), own calculations.
Fig. 3. China's pear trade, 19962008 (in 1000 t).
Sources: GTIS (2009), own calculations.
Fig. 4. Development of China's apple exports to its 10 major destinations, 19962008.
Sources: GTIS (2009), own calculations.
379 L. Goetz, H. Grethe / China Economic Review 21 (2010) 377393
Fig. 5. Development of China's pear exports to its top ten major destinations, 19962008.
Sources: GTIS (2009), own calculations.
Fig. 6. Development of China's apple exports to the top three major EU destination countries, 19972009.
Sources: GTIS (2009), own illustration.
Fig. 7. Development of China's pear exports to the top three major EU destination countries, 19962009.
Sources: GTIS (2009), own illustration.
380 L. Goetz, H. Grethe / China Economic Review 21 (2010) 377393
3. The EU entry price system for apples and pears
The EU production of 15 types of fresh fruit and vegetables, including apples and pears, are protected against international
competition by the EPS. The EPS aims to restrict imports below a minimum import price, which is the product-specic, politically
designated EP. Also, ad valorem tariffs of up to 20% apply. Furthermore, there are preferential agreements with zero tariff rate
quotas and entry price quotas
2
to warrant preferential access to the EU market for some products.
The EPS for apples is relevant year-round (Table 1). It comprises a MFN EP level varying between 45.7 /100 kg (1.7.31.12.)
and 56.8 /100 kg (1.1.30.6). In addition, ad valorem tariffs of up to 11.2% apply. If the import price is lower than the EP, an
additional specic tariff is levied, which compensates in 2% steps the difference between the actual import price and the EP. Thus,
the specic tariff ensures that the actual import price does not fall below the EP. If the EP is undercut by the import price by 8% or
more, the maximum specic tariff, referred to as the maximum tariff equivalent (MTE), of 23.8 /100 kg or in other words 42%
(1.1.30.6.) to 52% (1.7.31.12.) of the MFNEP is charged. According to information collected fromEUimporters, the MTE makes it
unprotable to export apples from China to the EU.
The EPS implies that the ad valoremtariff and the specic tariff of EU imports of apples and pears vary depending on the size of
the c.i.f. price, i.e. the price of the produce when it arrives at the EU border. This is depicted in Fig. 8 for apples in the time period of
January 1March 31.
Suppose apples originating in China arrive at the EU border at a c.i.f. price of 56.8 /100 kg, which is equal to the MFN EP (A in
Fig. 9). In this case, an ad valorem tariff of 4% applies, implying an import price of 59.1 /100 kg, which is the minimum import
price. Thus, if the EPS is effective, the minimum price of apples on the EU market is 59.1 /100 kg. Now, if the c.i.f. price is 54.0 /
100 kg (B in Fig. 9), the MFN EP is undercut. In this case, an ad valoremtariff of 6.4% (which is equal to 3.46 /100 kg) applies and a
specic tariff of 3.4 /100 kg is levied resulting in an EU import price of 60.86 /100 kg. If the c.i.f. price amounts to 51.0 /100 kg,
(C in Fig. 9) and thus is smaller than 92% of the MFN EP (D in Fig. 9), an ad valorem tariff of 6.4% (which is equal to 3.26 /100 kg)
applies and the specic tariff of the size of the MTE (23.8 /100 kg) has to be paid which sums up to 78.06 /100 kg.
2
An entry price quota includes a preferential entry price which is lower than the MFN entry price.
Table 1
The EPS for apples and pears.
Sources: TARIC (2009), own calculations.
MFN ad valorem tariff (%) MFN EP (/100 kg) Specic tariff
MTE (/100 kg) MTE (% of MFN EP)
Apples
(Year-round) 4.0
a
/6.4
b
(1.1.31.3.) 56.8 23.8 41.9
0.0
a
/3.0
b
(1.4.30.6.)
0.0
a
/4.8
b
(1.7.31.7.) 45.7 52.1
9.0
a
/11.2
b
(1.8.31.12.)
Pears
(1.7.30.4) 0.0
a
/4.0
b
or 4.0
a
/8.0
b
(1.7.31.7.) 45.6 23.8 46.7
10.4 (1.8.31.10.) 38.8
10.4 (1.11.31.12.) 51.0 61.3
8.0 (1.1.30.4.)
a
If the import price is at least as high as the MFN EP.
b
If the import price is lower than the MFN EP.
Fig. 8. Seasonality of China's apple and pear exports to the EU, 19992008.
Sources: GTIS (2009), own illustration.
381 L. Goetz, H. Grethe / China Economic Review 21 (2010) 377393
The EPS for pears is effective from July 1 to April 30. Depending on the season, three MFN entry prices and four different levels of a
MFN tariff are distinguished. The level of the MTE for pears is equal to that for apples.
No preferential EP exists for apples and pears; thus, trade preferences regarding apples and pears may involve the application
of MFN EP, but with the reduction of the ad valorem tariff, or that the MFN EP is completely removed within special trade
agreements, as e.g. the Everything-But-Arms-Initiative.
One difculty of monitoring compliance with the EPS is that a large share of fruit and vegetable imports in the EU is paid on
commission, meaning that the import price is not determined until the product is sold in the EU import market. Therefore, the EC
calculates a synthetic import price, the standard import value (SIV). To calculate the SIVs for fruit and vegetable prices surveyed
for each product and export country individually are collected from representative fruit and vegetable wholesale markets in all
EU member countries. The daily SIVs are calculated as the weighted average of the collected wholesale market prices, less a
marketing and transportation margin and custom duties.
3
During customs clearance, exporters have three options to declare fruit and vegetables which are subject to the EPS. According
to the SIV method, the produce is declared based on the product-specic SIV as surveyed by the EC on the respective import date.
This method is easy to apply for the importer and does not result in specic tariff charges if the actual SIV at the date of customs
clearance is higher than the EP. Two reasons, however, may establish an incentive for the importer to apply an alternative method.
If the SIV is below the EP at the date of customs clearance, additional specic tariffs have to be paid. Also, if the SIV is much higher
than the EP, high ad valorem tariffs have to be paid. In these two cases, it could be more favourable for the exporter to declare the
products at the value indicated by an invoice (invoice method). If the invoice method is used, the import charges are based on the f.
o.b. invoice price adjusted for insurance and freight costs and thus is equal to the actual c.i.f. price. A third option is customs
clearance by the deductive method, which is based on the nal selling price of the shipment proven by an invoice.
The EPS offers opportunities to legally and illegally circumvent paying specic tariffs, although the produce is nally sold at
prices below the EP (Garca-lvarez-Coque, 2002). According to information from importers, illegal circumvention is more
prevalent in small-scale trading, particularly between related trading partners. Legal circumvention involves storing produce in
the EU since stored products can be imported at any time but is declared for customs clearance at the time when the SIV is above
the EP, so that no specic tariff has to be paid. Once cleared at a favourable SIV, the product can be sold in EU markets at any price.
Due to serious difculties with monitoring apple exports to the EU, particularly from Southern Hemisphere countries, in
combination with large EUapple stocks in 2005, the EUapple market crashed and prices fell to an extremely lowlevel. Therefore, the
EUintroduced a licensing systemfor apple imports whichbecame effective in2006. Regulation179/2006 (OJ 2006, L29/26) lays down
the details of this licensing system. Importers have to apply for an import license for apples of a particular country of origin, which is
validfor 3 months. Toensure that thelicense is utilized, theimporter has topaya securityof 15/t. The securityis forfeitedif the import
is not carried out or carried out only partly. In the meanwhile, the EU has introduced a new system which gives traders real-time
information on apples exported to the EU. Therefore, it is planned to abolish the licensing system within 2010.
4. Indicators for analyzing the relevance of the system
We apply two indicators to measure the relevance of the EPS based on import price data for apples and pears and for the
respective countries of origin which were developed by Goetz and Grethe (2009). This allows us to distinguish the relevance of the
3
Details of the calculation of the SIV are specied in Regulation 3223/94 (OJ 1994, L337/66).
Fig. 9. Relationship between C.I.F. (Border) price, EU import price and the ad valorem tariff for apples originating in China, January 1March 31.
Sources: European Commission (2009), own illustration adapted from Lpez and Muniz (2007).
382 L. Goetz, H. Grethe / China Economic Review 21 (2010) 377393
EPS for e.g. apples originating in China fromapples originating in South Africa. In this study, we utilize SIV data as a measure for the
EU import price.
The two indicators are based on the relative difference between the SIV and the respective EP, which are dened as GAP, as
follows:
GAP
ijt
=
SIV
ijt
EP
ijt

EP
ijt
1
where i =kind of produce, j =country of origin, and t =time. If GAP
ijt
0, the import price is equal to or higher than the EP. If
GAP
ijt
b0, the import price is lower than the EP and a specic tariff (if 0.08bGAP
ijt
b0) or the MTE (if GAP
ijt
0.08) is levied.
As an example, Fig. 10 shows the distribution of GAP for apples originating in China (19972005). Several characteristics of the
distribution of GAP
ijt
can be identied which are related to the relevance of the EPS. Observations of the import price with GAP
ijt
b0
indicate that there exists a wholesale market supply belowthe EP. Therefore, we assume if GAP
ijt
b0, an export supply belowthe EP
also exists. In addition, the higher the share of observations of the SIV with GAP
ijt
b0, the higher the export supply at prices below
the EP. We assume that the EPS is relevant in this case.
Nonetheless, the export supply quantity below the EP may be smaller than the wholesale market supply quantity due to
circumvention of the EPS. Supposing that legal or illegal circumvention of the EPS is only possible to some degree, and/or that
circumvention involves additional costs (e.g. for storage), a high share of observations with GAP
ijt
b0 indicates that abolishing the
EP would result in an increase of the export supply at prices below the EP. The stronger the degree of circumvention and/or the
lower the cost of circumvention, the less does the EPS restrict the existing export supply below the EP, and thus the lower is the
effect of abolishing the EP. Therefore, we dene the share of observations with GAP
ijt
b0 of all observations of GAP
ijt
as one indicator
of our analysis as:
neg:GAP
ij
= number of observation GAP
ijt
with GAP
ijt
b0

= number of observation GAP
ijt

2
where i =kind of produce, j =country of origin, and t =time (correlated with the importance of the EPS). The smaller neg.GAP
ij
,
the less relevant is the EP for the import price for produce i exported by country j. Conversely, the larger neg.GAP
ij
, the higher the
inuence of the EPS on the EU import price. A similar variable was used in previous studies on the relevance of the EPS and RPS by
Ciof and dell' Aquila (2004) and Swinbank and Ritson (1995), respectively.
One drawback of this indicator is that it is conned to the effects of the EPS on observations with GAP
ijt
b0 and does not cover
the inuence of the EPS on observations with GAP
ijt
N0.
Therefore, we use a second indicator which is based on the assumption, supported by anecdotal evidence, that exporters may
supply their produce at the lowest possible price while complying with the EP, thereby utilizing their competitive cost advantage
and avoiding additional specic tariffs. This implies an accumulation of observations with GAP
ijt
N0 closely above the EP. Here, the
EP is relevant for exporters and has a signicant inuence on the price of the export supply. If the EP were abolished, export supply
at prices below the EP would increase. Conversely, the EPS has no inuence on observations with GAP
ijt
N0 with the SIV being
Fig. 10. Histogram for apples from China, 19972005.
Sources: European Commission (2006), own calculations.
383 L. Goetz, H. Grethe / China Economic Review 21 (2010) 377393
signicantly higher than the EP. The degree of accumulation of observations with GAP
ijt
N0 slightly above the EP can be measured
by the quantile with p=0.05 of the distribution of GAP
ijt
with GAP
ijt
N0. The quantile with p=0.05 measures the highest GAP
ijt
value in the set of observations that belong to the bottom5% of the distribution of observations with GAP
ijt
N0. The lower the value
of the 0.05-quantile, the more observations slightly above the EP accumulate. Since the variance of GAP
ijt
may change by type of
produce and country of origin and due to the fact that the 0.05-quantile of distributions with a differing variance are not exactly
comparable the 0.05-quantile is standardized by the standard deviation. In addition, large values are given less weight by
creating a logarithm of the 0.05-quantile because the efciency of the EPS is proportional to the 0.05-quantile within a certain
interval only:
Q

0:05ij
= ln
Q
0:05ij
sd GAP
ij

0
@
1
A
: 3
The less GAP
ijt
accumulates closely above the EP, the larger Q
0.05ij

and the lower the inuence of the EPS on the EU import price.
This indicator explicitly addresses the inuence of the EPS on import price observations exceeding the EP (GAP
ijt
N0).
5. The relevance of the EPS
5.1. Analysis for apple and pear exports to the EU in general
The two above derived indicators neg.GAP
ij
and Q
0.05ij

for the relevance of the EPS are calculated for 81 countries and product-
specic distributions of the SIV data, each distribution comprising between 65 and 2678 observations (e.g. pears originating in
China, see the histogramof the distribution in Fig. 9). We utilize about 57,000 observations of the SIV data from1995 to 2005. Both
indicators are used as variables in a cluster analysis, which attributes the 81 objects, among which are 13 objects with regards to
apples and 7 objects with regards to pears, into 4 clusters differing in the relevance of the EPS. The results of the cluster analysis are
graphically represented in the cluster plot in Fig. 11. Each of the 81 objects are represented by a dot and the objects regarding
Fig. 11. Cluster plot (all observations, 19952005).
Sources: Own calculations.
384 L. Goetz, H. Grethe / China Economic Review 21 (2010) 377393
apples by a square and pears by a triangle, indicating the corresponding values of the two indicators. The results with regard to
apples and pears are also presented in Table 2.
Cluster 1 is comprised of cases with extremely high shares of negative observations between 65% and 92% and a high degree of
accumulation of positive SIVs close to the EP. For this cluster, the EP system has a signicant effect on EU import prices. Cluster 3
and particularly cluster 4 display a lowshare of negative observations of less than 12% and little or no accumulation of positive SIVs
close to the EP. Thus, the EPS has minimal relevance for cases attributed to clusters 3 and 4.
Cluster 2 is a relatively heterogeneous cluster. Nevertheless, for most elements, the share of negative observations is
considerable and is up to 44%. Also, positive SIVs accumulate closely above the EP. For these cases as well, the EP systemclearly has
an effect on the EU import price, although to a lower extent than the cases contained in cluster 1.
With regard to apples, 9 out of the 13 cases are attributed to clusters 3 and 4. Apples from China, Turkey and Uruguay are
attributed to cluster 2. One exception is apples fromPoland which are attributed to cluster 1 due to an extremely high share of SIVs
below the EP (91%) and a strong accumulation of the SIVs slightly above the EP. Thus, the results suggest that the relevance of the
EPS for apple imports is rather low with the exception of Poland, which entered the EU in May 2004, and China, Turkey and
Uruguay, though the share of apples from Turkey and Uruguay in total EU imports from countries outside the EU (i.e. extra-EU) is
very low.
Concerning pears, six out of the seven cases are attributed to clusters 3 and 4 and only apples from China are attributed to
cluster 2. Thus, the EPS is of low relevance for pears with the exception of pears from China.
The surprising result that the EPS is of high relevance for apple and pear imports fromChina, although China is a country which
is far away fromthe EU and thus faces substantial transport costs, motivates us to analyze the cases of apples and pears fromChina
in more detail, focusing on how the relevance of the EPS has developed over time.
5.2. Development and seasonal variation of the relevance of the EPS for apple exports from China
Fig. 12 displays the level of SIVs and the EP for apples originating in China from 1997 to 2008, and Table 3 shows the
corresponding distribution measures annually from 1999 to 2008. The EU import prices for apples from China (measured by SIV)
are on average well above the EP from 1999 to 2003, but begin declining in 2002 from a level of 129% above the EP to about 20%
above the EP in 2005, on average. Though, import prices of apples rise to 62% in 2006 and remain at this level in 2007 (65%) and
2008 (60%), on average. Accordingly, the share of negative observations (neg.GAP
ij
) rose from 0% in 1999 to 27% in 2005. In the
consequent years, 2006 to 2008, almost no negative observations exist.
The accumulation of price observations slightly above the EP increased from 1999 to 2005, particularly in the years 2003, 2004
and 2005, but decreased thereafter, and is signicantly lower in the years 2006, 2007 and 2008. This is reected in the relatively
higher values of the indicator Q
0.05ij

from 1999 to 2002 (with the exception of 2000) and again from 2006 to 2008.
Table 2
Cluster analysis results for apples and pears.
Sources: European Commission (2009), own calculations.
neg.GAP
ij
Q
0.05ij

(z-standard) Number of observations Share in total extra-EU import Cluster

Apples EPS of lowest relevance (a: N0.98; b: cluster 1: b0.01, cluster 2: b0.04, cluster 3: b0.59, cluster 4: 0.38)
Argentina 0.09 0.04 1275 0.10 3
Australia 0.00 0.98 714 0.01 4
Brazil 0.05 0.37 1179 0.07 3
Canada 0.00 1.05 1543 0.01 4
Chile 0.05 0.22 1412 0.20 3
China 0.10 0.65 1493 0.02 2
New Zealand 0.04 1.20 1315 0.30 4
Poland 0.91 1.62 813 b0.01c 1
South Africa 0.04 0.47 1648 0.21 3
South Korea 0.02 0.28 340 b0.01 3
Turkey 0.20 1.73 337 b0.01 2
Uruguay 0.13 0.67 788 b0.01 2
USA 0.01 0.67 2212 0.06 4
Pears EPS of low relevance (a: b0.94; b: cluster 2: 0.02, cluster 3: b0.88, cluster 4: b0.04)
Argentina 0.07 0.17 923 0.43 3
Chile 0.07 0.33 796 0.17 3
China 0.33 1.65 799 0.02 2
Hungary 0.02 0.36 559 b0.01 3
New Zealand 0.00 0.81 136 b0.01 4
South Africa 0.02 0.28 1243 0.27 3
Turkey 0.00 1.03 1124 0.03 4
a: The sum of import shares of all countries of origin in total extra-EU imports for the respective product in the time period for which the EPS applies.
b: The sum of import shares of all countries of a specic cluster in total extra-EU imports of one product in the time period for which the EPS applies; observation
period: 19972005.
c: The share of Poland's EU apple exports in the EU's total apple imports from extra-EU countries is most likely understated.
385 L. Goetz, H. Grethe / China Economic Review 21 (2010) 377393
The decreasing average SIV level, linked with the increasing share of negative observations, as well as the declining size of the
0.05-quantile, indicate that the EPS has become more relevant for Chinese apple exports to the EU from 2003 to 2005. This
conclusion is supported by interviews with EU importers, who have reported that it has become more difcult to escape tariffs for
Chinese apple exports under the EPS during these years.
Table 3 also reports the share of observations for which the SIV is less than 92% of the EP fromall observations for which the SIV
is belowthe EP (negative observations), which varies between 50% and 89%. In these cases, importers have to pay a specic tariff
of about 40.250.2 /100 kg (see Table 1), which is almost double the price of Chinese apples on the EU market, if importers clear
their products according to the SIV method. Nevertheless, importers report that they typically wait for customs clearance until a
favourable SIV applies, thus the full specic tariff (MTE) is rarely charged.
To investigate whether the relevance of the EP varies seasonally, we estimate the distribution measures as given in Table 3 for
each month separately. We conne this analysis to the time period 20032005 when the relevance of the EPS for apples from
China was the highest. Thus, the distribution characteristics for January, shown in Table 4, are calculated based on SIV observations
Fig. 12. Standard import values of EU apple imports from China, 19972008 (in /100 kg).
Sources: European Commission (2009), own illustration.
Table 3
Distribution measures for SIVs of apples from China, 19992008.
Sources: Own calculations.
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Average
Mean of GAP
ijt
0.53 0.48 1.17 1.29 0.67 0.35 0.2 0.62 0.65 0.6 0.66
neg.GAP
ij
(in %) 0.00 0.10 0.00 0.00 0.07 0.12 0.27 0.00 0.01 0.00 0.06
Q
0.05ij

2.90 0.70 2.36 2.31 0.60 1.03 0.66 1.75 2.25 2.81 1.74
Number of obsv. 87 159 178 212 247 231 237 201 195 198 195
Share neg. obsv. b92% of EP 0.00 0.50 0.00 0.00 0.65 0.89 0.76 0.00 0.50 0.00 0.33
Table 4
Distribution measures for SIVs of apples from China 20032005, by month.
Sources: Own calculations.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Mean of GAP
ijt
0.48 0.39 0.5 0.57 0.52 0.48 0.8 0.23 0.01 0.11 0.15 0.62
neg.GAP
ij
(in %) 0.07 0.15 0.02 0 0.02 0.11 0.02 0.17 0.5 0.46 0.32 0.02
Q
0.05ij

1.17 1.03 2.37 7.67 4 2.19 4.74 1.27 4.51 1.35 2.55 12.7
Number of obsv. 60 60 63 62 55 62 65 63 50 63 56 56
Share neg. obsv. b92% of EP 0.5 0.56 0 0 1 0.57 1 0.73 0.96 0.83 0.78 0
386 L. Goetz, H. Grethe / China Economic Review 21 (2010) 377393
of January, 2003, January, 2004 and January, 2005. Table 4 makes evident that the mean of GAP
ijt
is particularly lowfrom August to
November, ranging between slightly below the EP and 23% above the EP, whereas in other months it ranges between 39% and 80%
of the EP. Furthermore, neg.GAP
ij
is rather high from August to November, ranging between 17% and 50%, whereas it varies
between 0% and 15% in other months. In addition, Q
0.05ij

is rather low from August to November with the exception of

September; however, Q
0.05ij

is rather low from January to March, and in June, as well. From these results, we conclude that the
relevance of the EPS was stronger from August to November, and lower during the rest of the year during the period 2003
2005.
From Fig. 13, it is evident that China's apple exports to the EU are almost zero from August to October, and there are some
exports in November. Thus overall, when the relevance of the EPS is rather high, China's apple exports to the EUare low. This may
be explained by lowEUimport demand in the main harvest season, as well as by traders' storage behaviour. In interviews, traders
report that if the SIVis belowthe EP, it is common to store apples until the SIVappears to be favourable for declaring. It seems that
this strategy of delaying customs clearance by product storage is followed especially fromAugust to October when the relevance
of the EPS is higher.
Furthermore, we investigate the seasonality of the relevance of the EPS for apples by analysing for how long the SIV remains
below the EP (Table 5). We nd that for apples a lot of neighbouring SIVs which are below the EP are observed from August to
November. This is exactly the time period for which we determined the relevance of the EPS to be highest. Thus, the additional
indicator number of neighbouring SIVs below the EP seems to support our results for apples.
Fig. 13. Monthly distribution of China's apple exports to the EU and the frequency of SIVbEP, 20032005.
Sources: European Commission (2009), EUROSTAT (2009), own calculations.
Table 5
Neighbouring SIVs below the EP for apples, 20032005.
Sources: EUROSTAT (2009), own calculations.
Month (2003, 2004 and 2005) Number of cases in which SIVs below the EP are neighboured Number of SIVs below EP
Jan 0 4
Feb 1 case with 2 neighbouring SIVs below EP 9
Mar 0 1
Apr 0 0
May 0 1
Jun 2 cases with 2 neighbouring SIVs below EP 7
Jul 0 1
Aug 3 cases with 2 neighbouring SIVs below EP 11
1 case with 4 neighbouring SIVs below EP
Sept 1 case with 3 neighbouring SIVs below EP 25
1 case with 7 neighbouring SIVs below EP
1 case with 15 neighbouring SIVs below EP
Oct 2 cases with 3 neighbouring SIVs below EP 28
1 case with 6 neighbouring SIVs below EP
1 case with 12 neighbouring SIVs below EP
Nov 1 case with 2 neighbouring SIVs below EP 18
1 case with 3 neighbouring SIVs below EP
1 case with 10 neighbouring SIVs below EP
Dec 0 1
387 L. Goetz, H. Grethe / China Economic Review 21 (2010) 377393
To explore reasons for the declining SIV level, Fig. 14 compares the development of the SIV to the average export unit value for
apples from China to the EU and to the general price level for apples in the EU, represented by Dutch producer prices.
4
We choose
the producer price in the Netherlands to represent the EU domestic price level for apples since it is the main destination of EU
apple imports from China (see Fig. 4).
Fig. 14 clearly shows that the drop of the SIV was not due to an equivalent fall in domestic EU prices, which were not
substantially lower from 2003 to 2005 compared to other periods. The Dutch producer price level is in most months belowthe EU
entry price (EP) as well as belowthe export unit value of apples in China exported to the EU. Moreover, the difference between the
Dutch producer price and the export unit value of apples in China has decreased since 2003. It is striking that the export unit value
has decreased since 2003 and remains on a lower level even in 2006, 2007 and 2008, whereas the SIV of apples originating in China
is higher in these years compared to 2004 and 2005. Fig. 14 also makes evident that the quantity of EU imports of apples from
China was particularly high in 2003, 2004 and 2005 when the SIV of apples from China was particularly low on average.
In conclusion, the results suggest that the strong decline of the SIV for apples originating in China on the EU market in 2003,
2004 and 2005 is not interrelated with the development of the EU apple price.
5.3. Development and seasonal variation of the relevance of the EPS for pear exports from China
Fig. 15 displays the SIVs and the EP for pears originating in China from 1998 to 2008, and Table 6 displays the corresponding
distribution measures for each of the years individually.
The mean of the SIV distribution (GAP
ijt
) for pears from China increased from the time period of 1998 to 2000, but begins
declining from a level of 104% above the EP in 2000 to 21% above the EP in 2003. The mean of the SIV distribution remains at this
low level until 2006 and increases again subsequently to 43% in 2008. Accordingly, the share of negative observations (neg.GAP
ij
)
decreased from 30% in 1998 to 0% in 2000 and increased subsequently to 53% in 2004. In the consequent years, the share of
negative observations decreased again to 18% in 2008. Overall, the share of negative observations for pears is higher than for
apples over the whole time period underlying this analysis (19982008). The share of observations for which the SIV is lower than
92% of the EP in the total number of observations for which the SIV is below the EP varies between 38% and 100% in this time
period.
The indicator Q
0.05ij

is relatively low throughout the whole time period (19982008) when compared to apples from China,
though it was particularly low in the years 1998, 2001, 2003 and 2006.
Fig. 14. Dutch apple producer price, export unit value of Chinese apples exported to the EU (lagged by 1 period), EP, SIV of apples from China and quantity of
China's apple exports to the EU, 19972008 (in /100 kg).
Sources: European Commission (2009), GTIS (2009), IMA (2009) and EUROSTAT (2009), own illustration.
4
The method of collecting SIVs differs substantially from the calculation of trade unit values. Nonetheless, EU SIVs reect the EU import unit value as
calculated from Eurostat (2009) quite well: for the years 2007 and 2008, monthly import unit values and average SIVs differ by only 10% for apples and 17% for
pears. Still, import unit values and export unit values calculated from the trade statistics of the respective countries can differ substantially for the same bilateral
trade ow and must therefore be interpreted with caution.
388 L. Goetz, H. Grethe / China Economic Review 21 (2010) 377393
In conclusion, the relatively low value of the indicator Q
0.05ij

during the whole time period underlying this analysis (with

exceptions in single years) makes evident that the EPS is of higher relevance for pears than for apples. In addition, the relatively
low SIV level and the relatively high share of negative observations from 2003 to 2006, suggest that the relevance of the EPS for
pears from China was highest from 2003 to 2006.
Table 7 shows seasonal measures of the distribution of SIVs of pears from China by month for the time period of 1998 to 2008.
No measures are available for May and June since the EP does not apply in this time period. It becomes evident that the mean of the
distribution of the SIV (GAP
ijt
) is highest in August and September, ranging between 149% and 91% above the EP, respectively, and
ranges between 13% and 69% in other months. Also, in August and September, neg.GAP
ij
is rather low, 0% and 18% respectively, and
Q
0.05ij

is rather high, 32 and 7, respectively.

For July, neg.GAP
ij
is very high (0.53), but Q
0.05ij

is extremely high as well (19.54). This indicates that the relevance of the EPS
becomes visible in the high share of SIVs below the EP, but does not imply an accumulation of SIVs slightly above the EP. In
October, neg.GAP
ij
is zero and Q
0.05ij

is very low as well, suggesting that the EPS's relevance becomes visible only in the
accumulation of SIVs slightly above the EP. From November to April, neg.GAP
ij
is rather high and Q
0.05ij

is rather low, clearly

indicating that the relevance of the EPS is relatively high.
In summary, this analysis indicates that the relevance of the EPS is rather low in August and September and high in July and
from October to April.
It is striking that neg.GAP
ij
is particularly high in July (53%) and November (41%). The EP is equal to 45.6 /100 kg in July
whereas the EP does not apply in the previous month (also see Fig. 16). Similarly, the EP amounts 51.0 /100 kg in November,
Table 7
Distribution measures for SIVs of pears from China, monthly from 1999 to 2008.
Sources: Own calculations.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Mean of GAP
ijt
0.33 0.32 0.22 0.15 NA NA 0.60 1.49 0.91 0.69 0.13 0.42
neg.GAP
ij
(in %) 0.35 0.37 0.29 0.44 NA NA 0.53 0.18 0.00 0.00 0.41 0.36
Q
0.05ij

2.62 0.51 1.68 0.83 NA NA 19.54 31.47 7.00 0.80 0.53 0.17
Number of obsv. 141 119 111 86 NA NA 32 17 81 118 175 173
Share neg. obsv. b92% of EP 0.73 0.84 0.81 0.74 NA NA 1.00 1.00 0.00 0.00 0.59 0.58
Table 6
Distribution measures for SIVs of pears from China, 19982008.
Sources: Own calculations.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Average
Mean GAP
ijt
0.34 0.50 1.04 0.70 0.52 0.21 0.16 0.20 0.16 0.38 0.43 0.42
neg.GAP
ij
(in %) 0.30 0.12 0.00 0.05 0.29 0.52 0.53 0.46 0.40 0.21 0.18 0.28
Q
0.05ij

0.78 1.39 0.16 0.87 0.49 1.61 0.05 0.43 1.27 0.72 0.36 0.38
Number of obsv. 53 64 95 65 99 120 108 116 99 80 142 1041 (total)
Share neg. obsv. b92% of EP 0.38 1.00 0.00 1 0.86 0.56 0.79 0.72 0.78 0.76 0.6 0.68
Fig. 15. Standard import values of EU pear imports from China, 19982008 (in /100 kg).
Sources: European Commission (2009), own illustration.
389 L. Goetz, H. Grethe / China Economic Review 21 (2010) 377393
which corresponds to an increase in the EP level by 30% compared to the previous month. This might indicate that when there is a
change in the EP level, some exporters are not aware of this increase and thus accidently end up at an export price below the EP
and therefore have to pay an additional specic tariff. Alternatively, traders may do customs clearance in a period with a lower EP,
but sell the commodity after a storage period on EU wholesale markets at a price below the current EP.
Fig. 16. Monthly distribution of China's pear exports to the EU, EP and the share of observations of SIV below the EP (neg. obsv.), 19982008.
Sources: European Commission (2009), EUROSTAT (2009), own illustration.
Table 8
Neighbouring SIVs below the EP for pears, 19992008.
Sources: EUROSTAT (2009), own calculations.
Month (19992008) Number of cases in which SIVs below the EP are neighbouring Number of SIVs below EP
Jan 4 case with 2 neighbouring SIVs below EP 49
2 case with 3 neighbouring SIVs below EP
2 case with 4 neighbouring SIVs below EP
2 case with 6 neighbouring SIVs below EP
1 case with 7 neighbouring SIVs below EP
Feb 2 case with 2 neighbouring SIVs below EP 44
1 case with 3 neighbouring SIVs below EP
2 case with 4 neighbouring SIVs below EP
1 case with 8 neighbouring SIVs below EP
1 case with 9 neighbouring SIVs below EP
Mar 1 case with 2 neighbouring SIVs below EP 32
2 case with 6 neighbouring SIVs below EP
1 case with 15 neighbouring SIVs below EP
Apr 2 case with 2 neighbouring SIVs below EP 38
2 case with 3 neighbouring SIVs below EP
1 case with 4 neighbouring SIVs below EP
1 case with 5 neighbouring SIVs below EP
1 case with 6 neighbouring SIVs below EP
1 case with 9 neighbouring SIVs below EP
May 0 0
Jun 0 0
Jul 1 case with 17 neighbouring SIVs below EP 17
Aug 1 case with 3 neighbouring SIVs below EP 3
Sept 0 0
Oct 0 0
Nov 3 case with 2 neighbouring SIVs below EP 72
4 case with 3 neighbouring SIVs below EP
2 case with 4 neighbouring SIVs below EP
1 case with 5 neighbouring SIVs below EP
1 case with 7 neighbouring SIVs below EP
1 case with 11 neighbouring SIVs below EP
1 case with 12 neighbouring SIVs below EP
Dec 5 case with 2 neighbouring SIVs below EP 62
5 case with 3 neighbouring SIVs below EP
1 case with 5 neighbouring SIVs below EP
3 case with 6 neighbouring SIVs below EP
1 case with 11 neighbouring SIVs below EP
390 L. Goetz, H. Grethe / China Economic Review 21 (2010) 377393
It should be indicated that the distribution measures are calculated based on the observations of SIV per month, which vary
between 17 (August) and 173 (December). The lower the number of observations, the higher the probability is that the estimates
are inuenced by single observations, which might represent an untypical market situation. Therefore, the distribution measures
should be interpreted with care in cases with a low number of observations.
From Fig. 16 it is evident that China's pear exports to the EU are highest from October to April, when the relevance of the EPS is
highest, and lowest fromMay to September. In May and June, the EPS does not apply and in August and September the relevance of
the EPS is lowest. China's pear exports are lowest in July, when neg.GAP
ij
is the highest, which might be explained by storage
behaviour of the traders to avoid the specic tariff.
In addition, we investigate the seasonality of the relevance of the EPS for pears by analyzing for howlong the SIV remains below
the EP (Table 8). We nd that there are a lot of neighboured.
SIVs below the EP for pears in the months JanuaryApril and November to December, which supports our results that the
relevance of the EPS is high in this period. For August and September the share of neighbouring SIVs below the EP is particularly
low or zero, which conrms our result, that in these 2 months the relevance of the EPS is low. For July, 17 SIVs below the EP are
observed and they are all neighbouring, thus indicating a high relevance of the EPS, as we did based on our 2 indicators neg.GAP
ij
and Q
0.05ij

. For October, no SIVs belowthe EP are observed and thus nor neighbouring SIVs belowthe EP can be observed. However,
since the SIVs accumulate slightly above the EP, we conclude that the EPS is effective in this month, too.
To investigate the reasons for the declining SIV level, Fig. 17 compares the development of the SIVs to the Chinese export unit
values of exports to the EU and the Dutch grower prices for pears. In contrast to apples, data suggest that the drop in the Chinese
SIV in 2003 may be partially caused by the fall of the domestic EUprice. In addition, and also in contrast to the situation of apples, it
becomes evident that the export unit value is lower than the Dutch producer price as well as the EU entry price during the whole
time period underlying this analysis. Furthermore, the export unit value is particularly low from 2003 to 2006. This suggests that
the production of pears in China is highly competitive. Therefore, pears originating fromChina can be supplied to the EU market at
relatively low prices and thus the relevance of the EPS is high.
6. Conclusions and outlook
The results of our analysis suggest that the identied high relevance of the EPS for apples originating in China was of temporary
nature and limited to the years 2003, 2004 and 2005. For pears originating in China our results indicate that the EPS is relevant
throughout the whole period underlying this analysis (19982008), with a somewhat higher relevance prevailing from 2003 to
2006.
This contrasts with exports from all other important exporters of apples (New Zealand, South Africa, Chile, Brazil and
Argentina) and pears (Argentina, Chile and South Africa) to the EU, which are distant to the EU market. For these countries, our
results suggest that the EPS is of low relevance, conrming the ndings of Ciof and dell' Aquila (2004) regarding southern
hemisphere suppliers. Thus, China is the only country which is distant to the EUmarket and for which the EPS is highly relevant for
apples and even more so for pears.
Fig. 17. Pear producer price in the Netherlands, export unit value of pears fromChina to the EU (lagged by 1 period), EU EP, SIV of pears fromChina and quantity of
China's pear exports to the EU, 19982008 (in /100 kg).
Sources: European Commission (2009), GTIS (2009), IMA (2009), own illustration.
391 L. Goetz, H. Grethe / China Economic Review 21 (2010) 377393
Furthermore, this analysis provides evidence for a seasonal relevance of the EPS. We nd that the EPS is most relevant for
apples (20032005) in the four months from August to November, and for pears in the eight months from October to April and in
July. In the time period of high relevance for apples, the EP is lowest but the ad valorem tariff is highest compared to the other
months of the year. For pears, the relevance of the EPS is lowest when the EP is lowest but the ad valorem tariff is the highest
compared to the other months in the year.
In the period of high relevance of the EPS, China's apple exports to the EU are rather low (with the exception of November),
partially since customs clearance is delayed by storage until market access conditions are more favourable, whereas most pears are
exported to the EU even in the time period of higher relevance of the EPS.
Furthermore, we nd that the EU producer price for apples remained rather constant and could not have induced the decrease
in the price of apples originating in China, whereas the fall of prices for pears may have partially been caused by the fall of the
domestic EU price. Our results even suggest that the production of pears in China is more competitive than the production of
apples vis--vis the EU, since the export unit values for pears are signicantly lower than the EU producer price, whereas most of
the time the export unit value of apples from China is higher than the EU producer price.
Therefore, if the EPS were to be abolished in the near future, we expect minor effects on China's exports of apples to the EU,
partially because the EPS is already legally circumvented, but we would expect more pronounced effects of China's pear exports to
the EU. In particular, we expect that the EU import price of Chinese pears might decrease and that the import quantity might
increase. Thus, China's FFV producers would benet more from an improved EU market access for pears than for apples and thus
China could put particular effort in negotiating improved EU market access conditions for pears. Due to the seasonal relevance of
the EPS for pears fromChina, an improvement of EU market access could already be achieved by focusing negotiations on the time
period of high relevance of the EPS.
Howcan the relevance of the EPS for apples (20032005) and pear exports fromChina to the EUbe explained, compared to the
low relevance of the EPS for the other main exporters? First off, China is a northern hemisphere supplier and thus supplies to the
EUduring the EUharvest season, whereas the southern hemisphere suppliers, such as NewZealand, South Africa and Chile, supply
counter cyclically to the EU harvest season. Therefore, China directly competes with EU producers and thus supplying produce to
the EU market at low prices is essential for China's success in exporting to the EU. Also, transportation costs are relatively low.
According to traders, shipping a 20 t container of apples from China to the EU costs about 2500 . In contrast, shipping such a
container from Chile to the EU costs about 4500 . This results in a signicant price difference, equivalent to about 17% of the
average Chinese SIVs for apples and pears in 2005.
How can the declining SIV of Chinese apples on the EU market in 2003, 2004 and 2005 be explained? Traders do not report
a decline in transportation costs; however, market experts point out that Chinese exporters aimed at increasing their share in
the EU apple market by offering apples to the EU market at lower prices. In addition, EU consumers' demand for apples from
China, which are the Fuji variety of apples, taste different compared to apple varieties generally offered in the EU market,
was far below traders' expectations, which was another factor contributing to the decreasing price level. Traders report that
the low prices for apples from China in the EU market and the additional payment of specic tariffs have resulted in massive
losses for trading companies in the Netherlands and in China, some of which have even gone bankrupt. Following this low-
pricing marketing strategy was facilitated by the real devaluation of the Yuan by 50% vis--vis the Euro in the time period of
January, 2002 to March, 2005 (ECB, 2009; NBSC, 2009; EUROSTAT, 2009). This also explains the sharp decline of the export of
apples from China to the EU in the marketing year 2005/2006, and the relatively lower level of EU exports in China's total
apple exports in the aftermath.
The future development of Chinese apple and pear exports to the EUdepends strongly on domestic market conditions in China.
Though the shares of Chinese net exports of apples and pears in total domestic production have increased, they are still as low as
5.1% and 4.5% in the marketing year 2008/2009, respectively (USDA, 2009). Thus, small relative changes in the Chinese
consumption pattern could affect exports signicantly. In fact, Lardy (2007) shows that the strong GDP growth rates in China
about 10% over the last three decades have translated into household consumption only to a limited extent due to high
investment and private saving rates. If the share of disposable income in Chinese GDP increases, this may induce much higher
domestic consumption of fresh fruits and vegetables and thus reduce the export potential if production does not increase
signicantly. Such a development would make the EPS less relevant in protecting the EU market.
Finally, a potential conclusion of the Doha Round might result in a signicant reduction of tariff rates that would also apply to
the specic tariffs which are part of the EPS. In implementing the results of the Uruguay Round, the EU reduced entry prices by the
same monetary amount as specic tariffs an approach that could be repeated in the Doha Round and would thus diminish the
relevance of the EPS (Grethe, 2005: 2829).
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