Issue Number 10: 20th May 2016
- Slow but steady: EU-Japan FTA negotiations move forward
- A new legislative framework looks poised to include agricultural emissions in the EU’s reduction targets, but EU Member States still need to agree on how to do so
- MEPs renew call on the Commission for mandatory COOL of meat and milk in processed foods while some EU Member States already started to draft such measures
- Recently Adopted EU Legislation
Slow but steady: EU-Japan FTA negotiations move forward
The EU and Japan held their 16th negotiating round for a free trade agreement (hereinafter, EU-Japan FTA) on 11-20 April 2016 in Tokyo, Japan. On 12 May 2016, the European Commission (hereinafter, Commission) published its report on this latest round. Although negotiations are proceeding more slowly than expected, the EU-Japan FTA serves as an opportunity for both parties to address ongoing barriers to trade in an effective and efficient manner.
On 25 March 2013, the EU and Japan officially launched negotiations for an FTA (or an Economic Partnership Agreement, as Japan refers to its preferential trade agreements). A general impact assessment of the future EU-Japan FTA had been conducted by the EU and published in July 2012, ahead of the preparations for the actual negotiations (see Trade Perspectives, Issue No. 18 of 5 October 2012). Generally, negotiations are proceeding slowly, and appear to have reached a stumbling block due to various issues, including, in particular, agriculture. An EU-Japan summit, which was originally scheduled for the first week of May, has been rescheduled for the second half of the year. Instead, the most recent meeting was downscaled to a technical meeting. Reportedly, Japan is placing stronger emphasis on the ratification of the Trans-Pacific Partnership (hereinafter, TPP) and may not engage as strongly with respect to the EU-Japan FTA until after its Upper House parliamentary elections have been held in July 2016. The EU report of the latest negotiating round highlights the slow progress of the negotiations. Several contentious issues were discussed, but good progress was apparently achieved only in a few areas (e.g., regulatory cooperation, services, rules of origin as well as customs and trade facilitation).
Although tariffs on goods are already generally low, some higher tariff rates persist in economically important sectors. Japan still subjects certain goods to high tariffs that are important for EU exporters, namely in the agricultural and processed foods sectors. At the same time, the EU is expected to lower its tariffs in certain manufacturing sectors (i.e., motor vehicles, electronics and machinery) that are central to the interests of Japanese exporters. Accordingly, high interest in the agreement exists in the EU food industry, while EU automobile manufacturers are wary of the offensive interests of their Japanese competitors. Non-tariff measures (hereinafter, NTMs) are the central issue of the EU-Japan FTA negotiations. At the beginning of the negotiations, the EU requested that Japan remove 30 specific NTMs within one year as a prerequisite to continue the negotiations. Japan complied and negotiations continued. Still, NTMs remain key to the success of the negotiations, and Japanese NTMs reportedly continue to burden EU exports in the chemical, automotive, medical services, processed foods, transport equipment, telecommunication and financial services sectors. In December 2015, the EU’s chief negotiator noted that the moment had come to make the necessary compromises. This pertains, in particular, to a few key sectors of interest, namely the food and beverages and automotive sectors.
The future EU-Japan FTA looks poised to bring the most advantages to the EU’s Agro-Food producers. This is due to Japanese dependence on external food supply, as well as high Japanese consumer demand for specialty products form the EU, such as wine, ham, cheese and beer. Therefore, the EU aims at facilitating markets access of these kinds of products. The EU is reportedly also interested in removing tariffs on chocolate, pasta, tomato paste and cheese, but is open to accommodate Japanese interests concerning ‘sensitive’ products such as rice, beef and pork. A further key aspect is the reconsideration by Japan of its regulations on food additives, which are currently much stricter than existing guidelines of the United Nations Food and Agriculture Organisation. One notable example pertains to the issue of beers exported from the EU, which, due to Japanese regulations, may not be labelled as beer. Instead, another product category entitled ‘bubbly spirits’ applies and subjects beers exported from the EU to different prices and taxes as Japanese beers.
Indeed, issues surrounding the importation of alcoholic beverages into Japan, and potential discrimination compared to relevant domestic alcoholic beverages, is not a novel subject in international trade law. The 1996 Japan – Alcoholic Beverages II dispute before the WTO Dispute Settlement Body (hereinafter, DSB) is one of the most famous WTO disputes in its history. There, Canada, the EU and the US took issue with the Japanese Liquor Tax Law, which taxed Sh?ch?, a distilled alcoholic beverage common in Japan, at a lower rate than other alcoholic products such as vodka, liqueurs, gin, jenever (a Dutch and Belgian liquor also referred to as genièvre, genever, peket), rum, whisky and brandy. According to Article III:2 of the WTO General Agreement on Tariffs and Trade 1994 (hereinafter, GATT), products imported from one WTO Member to another must not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to ‘like domestic products’. The panel and WTO Appellate Body concluded that the Japanese Liquor Tax Law was inconsistent with Article III:2 of the GATT, and recognised suggested criteria for determining, on a case-by-case basis, whether an imported product is ‘like’ or ‘similar’ to a domestic product, including the product’s end-uses in a given market, consumers’ country-specific tastes and habits, as well as the product’s properties, nature and quality. However, the case-by-case basis for this determination means that legal assessments would be required for each type of product affected by a potentially discriminatory measure, such as the present Japanese regulation classifying beer imported from the EU as ‘bubbly spirits’. While the recent EU report does note that good discussions were held with respect to Belgian beer as well as the treatment of Japanese Sh?ch?, the issues do not yet appear to be resolved.
Another apparent issue complicating the negotiations of the EU-Japan FTA relates to the automotive sector, in which Japan has strong offensive interests. The EU automotive sector, supported by the governments of France, Germany and Italy, has been particularly outspoken against the EU-Japan FTA and had originally opposed the opening of the negotiations. This was shortly after the entry into force of the EU-Korea FTA, which led to an increased importation of Korean cars into the EU and thereby severely affected EU manufacturers (see Trade Perspectives, Issue No. 18 of 5 October 2012). According to the EU report, discussions highlighted the approach of sector-specific ‘parallelism’ between tariffs and NTMs (i.e., the phasing out of the EU’s 10% duty on cars from Japan in return for the Japanese pledge to remove NTMs, such as the Kei (small) car concept and particular safety criteria, for cars exported from the EU). The EU is reportedly now contending that it was dangerous to link the negotiations on tariffs and NTMs too closely, as this could mean no more progress on the NTM front until the stalemate on tariffs has been overcome. Finding a solution for the various NTMs is obviously more complex than phasing out tariff rates. Reciprocity is key and, in December 2015, the EU’s chief negotiator noted that the EU was open to a ‘speedy elimination’ of the duties on autos if it could be justified (i.e., offset) by the removal of NTMs. While FTA negotiations are always governed by the interplay of the different areas of negotiations, this stronger emphasis on sector-specific ‘parallelism’ appears to needlessly obstruct the entire process. A way to mitigate the possible future negative effects of the FTA is the introduction of an effective safeguard mechanism. The EU-Korea contains such a bilateral safeguard clause, allowing the EU to re-impose duties on the importation of certain goods if the EU producers in those sensitive industries are hit by a particularly injurious surge of imports (see Trade Perspectives, Issue No. 13 of 2 July 2010). This was specifically included to address the effects on the EU automobile manufacturers. In the latest negotiation round for the EU-Japan FTA, Japan explained the functioning of their proposed specific safeguard clauses, while the EU noted that it favours discussing the application of special safeguards in a more horizontal manner.
The negotiating process for the EU-Japan FTA serves as a useful example of common issues that slow the progress of lowering trade barriers between parties, but also highlights the potential advantages of FTAs. Countries have numerous options with respect to lower trade barriers with other countries, including, in the context of the WTO, formal complaints before the WTO’s DSB. However, WTO disputes take years, potentially including consultations, panel proceedings, WTO Appellate Body proceedings and compliance proceedings, and are very costly. Bilateral consultations, in particular through permanent concrete commitments in FTAs, offer, in many situations, a more effective and efficient opportunity to address barriers to trade. Instead of addressing potential barriers on a case-by-case basis, such as with respect to issues relating to the importation of beer from the EU, FTA negotiations can address a wide range of products and sectors simultaneously. But, as witnessed with the issues highlighted by the EU’s chief negotiator with respect to the negotiating approach in the EU-Japan FTA, strict ‘parallelism’ between tariffs and NTMs may obstruct the negotiations and decrease the effectiveness and efficiency of FTAs. This is especially true in the modern context of FTAs, which increasingly address NTMs instead of tariffs, due to the generally low tariff duties present in most countries compared to 20 years ago. To increase the effectiveness of FTA negotiators, however, industry must be actively involved and inform government officials of the barriers they face, so that they are not overlooked in the final agreement. According to the final report of the ‘Trade Sustainability Impact Assessment’ (TSIA) of the EU-Japan FTA, recently published by the Commission, the potential economic gains of an EU-Japan FTA are of the same magnitude as a free trade agreement with the US. Yet, even so, the next negotiating round is not scheduled until October 2016 in Brussels. Interested parties must act to ensure that an effective agreement is not delayed, and that as many barriers to trade as possible are addressed.
A new legislative framework looks poised to include agricultural emissions in the EU’s reduction targets, but EU Member States still need to agree on how to do so
On 17 May 2016, the Agricultural and Fisheries Council (hereinafter, AGRIFISH Council) of the Council of the EU (hereinafter, Council) discussed the role of agriculture in climate mitigation and adaptation. The EU has committed to achieve a reduction of at least 40% of all its domestic greenhouse gas (hereinafter, GHG) emissions by 2030 in the light of the Paris Climate Agreement of November 2015. Besides the Emission Trading System (hereinafter, EU’s ETS) scheme, for which the Commission already presented new proposals in 2015, the Commission aims at adopting a new legislative framework, before the 2016 Summer break, that will include non-ETS sectors, such as agriculture, in the emission reduction targets. The Commission is focusing on the issues of ‘Land Use, Land Use Change and Forestry’ (hereinafter, LULUCF) and possible changes to the ‘Effort Sharing Decision’, a system establishing binding annual GHG emission targets for EU Member States for the period 2013-2020.
The agricultural sector already represents 10% of the total EU’s GHG emissions and that is without including dioxide emissions from land use and land use change. The EU Ministers of Agriculture have underlined the importance of seeing agriculture and forestry as a part of the solution and not as a part of the problem, considering that land and trees have the capacity to capture and store carbon from the atmosphere. EU ministers have also encouraged the Commission to look for a better way to promote the sustainable intensification of food production, while optimising the contribution of the sector on GHG emission mitigation and sequestration, such as afforestation (i.e., the establishment of new trees in land previously used for other purposes).
Afforestation was at the heart of the debate in the AGRIFISH Council, as Ireland and Denmark requested that their afforestation efforts (and not just their existing levels of forest cover) be recognised. Based on a joint discussion paper published on 23 March 2016, these two EU Member States presented their views to the Commission on how to decrease emissions without harming farming and requested that the Commission grants credits for newly planted forests. That position is understandable since, for Ireland and Denmark, agricultural emissions constitute a large portion of their overall emissions. Agriculture in Ireland is responsible for a third of Ireland’s GHG emissions, but it is also a major driver of the country’s economy. The main GHG emissions in Ireland stem from the excessive animal gas output, as milk and beef account for approximately 70% of Ireland’s agricultural output and the country exports over 90% of its beef production. Ireland is committed to and has drawn up an ambitious forest-planting scheme aiming for forests to cover 18% of the country by 2046. Its objective is to achieve complete carbon-neutrality in its agricultural production.
On one side, Denmark has expressed concerns of being ‘punished’ if new forced emission reductions requirements are imposed in relation to agriculture, without being awarded for its efforts in the last 25 years with lower emission reduction requirements. On the other side, Ireland is concerned about the economic impact of high prospective emission reduction requirements in the agricultural sector. Ireland contends that awarding credits only for existing forest cover, as Poland is requesting, but not doing so for the planting of new forest, would create an unjustified competitive disadvantage and would allow some countries to keep GHG emissions at current levels without the effort and cost of planting new trees.
A key part of the debate is about how exactly agricultural emissions reduction should be targeted, rather than whether agriculture should be part of the emission reduction effort or not. Back in 2014, the Commission Communication ‘A policy framework for climate and energy in the period of 2020 to 2030’ already outlined three options for the inclusion of agriculture and land use in the emissions reduction effort. Option 1 involved having LULUCF as a particular focus area separate from agriculture, the latter being part of the general reduction target together with other sectors. In that case, EU Member States can decide how to allocate the general reduction effort among those different sectors, including agriculture, in the way they deem most appropriate. Option 2 involves merging land use and agricultural emissions in a separated ‘land use sector pillar’ with its own reduction targets. Option 3 would consist in concentrating all non-ETS sectors, including agriculture, within the same reduction target. Ireland and Denmark, together with Romania, Finland, Austria, Slovenia and Poland, support this approach. Environmental NGOs have expressed concerns that, by claiming credits for existing or new forest land, these countries are trying to use their land use and forestry sector to weaken the overall emission reduction effort. The next AGRIFISH Council meeting will take place at the end of June but, at this stage, EU Member States do not seem close to reaching an agreement yet. In particular, this topic is linked to other conflicting dossiers such as the ongoing crisis in the farming sector and the need to revise the ‘greening’ obligations of farmers under EU’s Common Agriculture Policy (CAP) rules that were agreed just three years ago. Moreover, the competitive position of the EU’s farming products in export markets could also be affected by all the above. Finally, the debate on how to account for afforestation and reforestation efforts in the fight against climate change resonates with the ongoing debates in some EU Member States, such as France, regarding how to treat certain imported products that have been linked to deforestation (see Trade Perspectives, Issue No. 2 of 29 January 2016) and the efforts already done by those non-EU countries.
In this context, it remains to be seen what the final proposal of the legislative framework by the Commission, regarding the inclusion of non-ETS sectors in the emission reduction targets, will look like, in particular regarding the agricultural sector and the future design of the EU’s GHG emission mitigation scheme and its impact on farmers. Interested parties should closely monitor the upcoming Commission proposal, so as to evaluate how that proposal will ensure cost-effectiveness and provide incentives to reduce emissions. Non-EU players will be interested to follow closely how the EU treats its own afforestation and reforestation practices and to contrast that with the way in which some EU Member States are dealing with imported products that have been associated with deforestation.
MEPs renew call on the Commission for mandatory COOL of meat and milk in processed foods while some EU Member States already started to draft such measures
On 12 May 2016, Members of the EU Parliament (hereinafter, MEPs) voted in favour of a non-binding Resolution (hereinafter, the Resolution) on the mandatory indication of the country of origin or place of provenance for certain foods (with 422 votes to 159, with 68 abstentions). In the Resolution, MEPs call for better information to be provided to EU consumers. MEPs advocate that country of origin labelling (hereinafter, COOL) should be made mandatory for milk, dairy and meat products. The vote followed several previous resolutions on COOL from MEPs. In its resolution of 11 February 2015, the EU Parliament urged the Commission to come up with legislative proposals to make labelling of the origin of meat in processed foods mandatory (see Trade Perspectives, Issue No. 3 of 6 February 2015). At the same time, certain EU Member States (including France) are moving ahead with drafts on mandatory COOL on meat used as an ingredient in foods.
Several food products are subject to mandatory COOL in the EU, including honey, fruits and vegetables, fish, certain meats and olive oil. COOL was made mandatory for unprocessed fresh beef and beef products in the aftermath of the bovine spongiform encephalopathy (i.e., BSE) crisis by means of Regulation (EC) No. 1760/2000 establishing a system for the identification and registration of bovine animals and regarding the labelling of beef and beef products. In addition, Regulation (EU) No. 1169/2011 on the provision of food information to consumers (hereinafter, FIR) further requires that unprocessed fresh, chilled or frozen meat of swine, poultry, sheep and goats be accompanied by a COOL indication (the relevant implementing rules, which apply since 1 April 2015, are contained in Commission Implementing Regulation (EU) No. 1337/2013 laying down rules for the application of Regulation (EU) No. 1169/2011 as regards the indication of the country of origin or place of provenance for fresh, chilled and frozen meat of swine, sheep, goats and poultry (see Trade Perspectives, Issue No. 23 of 13 December 2013)). Likewise, the FIR requires that COOL be mandatory in instances where a failure to provide such information could mislead consumers. The scope of mandatory COOL in the EU may be further expanded by specific provisions in the FIR that enable the Commission to table legislative proposals on mandatory COOL for, inter alia, other types of meat, milk, unprocessed foods and meat used as an ingredient in processed foods (as sought once again by MEPs).
In the Resolution, MEPs reiterate that COOL should be made mandatory for all kinds of drinking milk, dairy products and meat products. Mandatory labelling would help improve consumer confidence in food products by making the food supply chain more transparent, MEPs say. To better inform EU consumers, in the wake of the horse meat scandal and other food fraud cases, and improve transparency throughout the food chain, COOL should also be made mandatory for meat in processed foods. MEPs point out that 84% of EU citizens consider it necessary to indicate the origin of milk (according to a 2013 Eurobarometer survey), 88% consider such labelling necessary for meat (other than beef, swine, sheep, goat and poultry meat, which are already covered), and more than 90% consider such labelling important for processed foods (according to the report of 17 December 2013 from the Commission to the EU Parliament and Council regarding the mandatory indication of the country of origin or place of provenance for meat used as an ingredient). However, the Commission has yet to make any such proposals, citing the costs of mandatory country of origin labelling to industry and predicting that consumers would not be willing to meet the additional costs.
In a statement, FoodDrinkEurope (hereinafter, FDE, which represents the European food and drink industry) reiterates its strong concern with the impact of such a mandatory requirement for businesses, consumers and the environment. Companies all across Europe, small and large alike, would be negatively affected. FDE argues that small and medium-sized enterprises (SMEs), which make up 99% of the EU food and drink industry, and particularly those located in border regions, are likely to feel the impact even more. FDE highly values transparency and notes that consumers are increasingly interested in information about the origin of the food they buy. In response to this, European food and drink manufacturers are providing the origin of their products and their ingredients on a voluntary basis, led by market demand and where this is feasible from an operational point of view. This approach also helps promote the high quality of EU food products throughout the world. Contrary to what is claimed in the Resolution, FDE argues that costs would increase for ‘lightly processed’ foods, particularly when ingredients are imported from different sources and whose origin frequently varies. Furthermore, real difficulties exist when trying to draw a line between what is ‘lightly processed’ and what is not, given the complexity and diversity of food products and processes. Mandatory COOL would ultimately have a negative impact on the competitiveness of EU companies. Forcing companies to provide the country of origin of ingredients in processed foods would require production lines and batches to be differentiated; this would reduce the flexibility to buy from different sources, would make supply chains less efficient, make production more costly, and likely create more food waste. A (re-)nationalisation of supply would not only go against the objectives of the EU Single Market, it could also have a serious impact on raw material prices and, ultimately, consumer prices.
There are, in fact, certain EU Member States (including France and, reportedly, Portugal) with draft laws on mandatory COOL on meat used as an ingredient in foods. On 16 February and 11 March 2016, the French authorities notified to the Commission, under Article 45 of the FIR, of a draft decree concerning the implementation in France of the mandatory indication of the origin of milk and meat used as an ingredient until 31 December 2018 (Projet de décret relatif à la mise en place en France d’une indication obligatoire de l’origine du lait et des viandes utilisées en tant qu’ingrédient jusqu’au 31 décembre 2018).
Article 45 of the FIR establishes a notification procedure for national measures that establish new food information legislation. EU Member States that deem it necessary to adopt new food information legislation must notify in advance the Commission and the other EU Member States of the measures envisaged and give the reasons justifying them. Such a specific reference to Article 45 is found in Article 39(1) of the FIR, which states that, in addition to the mandatory labelling particulars referred to in Article 9(1) and in Article 10 (notably, Article 9(1)(i) requires COOL in certain cases), EU Member States may, in accordance with the procedure laid down in Article 45, adopt measures requiring additional mandatory particulars for specific types or categories of foods, justified on grounds of at least one of the following: (a) the protection of public health; (b) the protection of consumers; (c) the prevention of fraud; and (d) the protection of industrial and commercial property rights, indications of provenance, registered designations of origin and the prevention of unfair competition. Paragraph 2 of Article 39 provides that, by virtue of paragraph 1, EU Member States may introduce measures concerning COOL only where there is a proven link between certain qualities of the food and its origin or provenance. When notifying such measures to the Commission, EU Member States must provide evidence that the majority of consumers attach significant value to the provision of that information.
The French draft requires COOL for milk, milk used as an ingredient, and meat listed in its annex (i.e., meat of bovine animals, meat of swine, meat of sheep and goats, and meat of poultry) used as an ingredient. The indication of the origin of meat, for each category of meat, requires the following information: “Country of birth (name of the country of birth of the animals)”; “Country of fattening: (name of the country where fattening took place)”; “Country of slaughter: (name of the country where took place the slaughter of animals)”. When a category of meat comes from animals born, raised and slaughtered in the same country, the indication of origin may be given as “Origin: (name of country)”. A similar provision is foreseen for milk, with the indication of the country of collection, country of packaging and country of processing of milk. For meat and milk, the mention “EU” can be used instead of the name of the country to designate the location of the steps involved. When the steps are carried out on the territory of several countries located outside the EU, the words “Outside EU” can be used instead of the name of the country to designate the location of the relevant steps. In a statement accompanying the notification to the Commission and based on consumer surveys, the French authorities state that a large majority of French consumers demands origin or regional labelling and is willing to pay for it, also for quality reasons. Traceability to effectively avoid fraudulent practices, like in the notorious ‘horse meat scandal’, is also highlighted by the French authorities. This would reassure consumers. In September 2018, the measure would be evaluated and eventually not prolonged after 31 December 2018. It needs to be determined whether the French measure meets at least one of the requirements of Article 45 FIR: (a) the protection of public health; (b) the protection of consumers; (c) the prevention of fraud; and (d) the protection of industrial and commercial property rights, indications of provenance, registered designations of origin and the prevention of unfair competition.
In this context, it must be recalled that, on 10 September 2015, the Italian Government approved a draft bill that would reintroduce a requirement to indicate the establishment of production or packaging (where different) on the labels of certain foodstuffs sold to consumers. However, based on a different legal base than France, this measure can be interpreted as a measure requiring COOL. Different from France, the Italian Government had indicated its intention to avail itself of the provisions of Article 38 of the FIR (presumably, Article 38(2) thereof), and to notify its draft to the Commission under the so-called TRIS (i.e., Technical Regulation Information Service) procedure set up under Directive (EU) 2015/1535 of the European Parliament and of the Council of 9 September 2015 laying down a procedure for the provision of information in the field of technical regulations and of rules on Information Society services (which replaces Directive 98/34/EC (the TRIS Directive) as of 7 October 2015). Italy justified its measure with the need to ensure a more effective protection of consumers’ health, which should arguably result from the increased information to consumers and enhanced traceability (see in relation to Italy’s plan to introduce mandatory labelling of place of production or packaging on food, Trade Perspectives, Issue No. 17 of 25 September 2015).
As to the French notification, the Commission must consult the Standing Committee on the Food Chain and Animal Health if it considers such consultation to be useful or if an EU Member State so requests. In that case, the Commission must ensure that this process be transparent for all stakeholders. France, which deems it necessary to adopt new food information legislation, may take the envisaged measures only three months after the notification, provided that it has not received a negative opinion from the Commission.
The introduction of COOL requirements has consistently proved to be a controversial matter, as shown by the FIR’s negotiating history, which evidences severe disparities of opinion at the very heart of EU Institutions, EU Member States and relevant stakeholders. These disparities are ongoing. Should the Commission embrace the concerns of the MEPs and develop a draft instrument making COOL mandatory for meat used as an ingredient (reportedly, it currently does not have the intention to do so), it should also take into account the EU’s international trade obligations (i.e., WTO). This also applies to French or other EU Member States’ measures. In this respect, there is a number of lessons learnt from the US experience on mandatory COOL for certain agricultural commodities, which gave rise to a landmark (not-yet-settled) WTO dispute triggered in 2008 (for a more detailed assessment of WTO compatibility of such COOL measures, see Trade Perspectives, Issue No. 3 of 6 February 2015). The next steps taken in the EU and its Member States on COOL, along with the eventual legislative proposals put forward, should be monitored and stakeholders should be prepared to participate in shaping potentially upcoming legislation by interacting with relevant Institutions, trade associations and affected other affected parties.
Recently Adopted EU Legislation
Trade Remedies
Customs Law
Food and Agricultural Law
Other
Laura Boschi, Ignacio Carreño, Tobias Dolle, Lourdes Medina, Oscar Ruiz, Bruno G. Simões and Paolo R. Vergano contributed to this issue.
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