Issue Number 16: 9th September 2016
- Politics, policy and trade law – A state of play of European trade negotiations in September 2016
- The first WTO panel reports involving Russia as respondent
- Food Standards Scotland’s (FSS) strategy 2016 to 2021 - Scotland considers fiscal measures and advertising bans on ‘discretionary foods and drinks’
- Recently Adopted EU Legislation
Politics, policy and trade law – A state of play of European trade negotiations in September 2016
On 6 September 2016, it became public that the EU will likely seek the renegotiation of some aspects of the free trade agreement between the EU and Korea (hereinafter, EU-Korea FTA), due to concerns from the aerospace industry. At the same time, EU trade policy and, in particular, negotiations of comprehensive trade and investment agreements have become the subject of intense political discussions. Most notably, various EU Member States’ heads of State and trade ministers called for the suspension of negotiations with the US concerning the Transatlantic Trade and Investment Partnership (hereinafter, TTIP). Nonetheless, the EU’s negotiations with a high number of trading partners are ongoing and look poised to deliver important agreements.
In the coming months, the EU is expected to request the renegotiation of certain aspects of the EU-Korea FTA. The key reason appears to be an issue with tariffs on plane engines when they return to Korea after repairs and maintenance in a third country. Reportedly, a new engine is subject to near-zero entry tariffs while the same engine, as it returns after maintenance in a third country, will be subjected to an 8% duty from 2017. This has particular significance because maintenance and service contracts are often of greater importance to aerospace companies than the sale of the plane engines. Korea is an important market for military aircraft as well as civil aircraft operated by Korean Air and Asiana. This request for renegotiation will be an interesting test for EU trade policy and negotiators, showing that agreements can be amended in case it becomes necessary.
During the past two weeks, Austrian, French and German politicians have raised doubts about the prospects of TTIP and set the tone for the upcoming months. In Austria, Chancellor Kern and Vice Chancellor Mitterlehner fuelled the debate with comments about TTIP and CETA. Mitterlehner was quoted saying that “Only the greatest optimists expect that [TTIP] can be completed this year”. Chancellor Kern later announced that he would push for improvements in the Comprehensive Economic and Trade Agreement (hereinafter, CETA) negotiated between the EU and Canada - an agreement that is supposed to be signed in late October 2016. In France, President Hollande and Minister of Trade Fekl voiced their opposition to TTIP in no uncertain terms. Trade Minister Fekl announced that he would request a halt to TTIP negotiations at the next EU trade ministers’ meeting, scheduled to take place on 23 September 2016. Fekl’s position was later supported by President Hollande. In Germany, the governing parties appear to be at odds over TTIP. The Social Democratic Minister of Economics, Gabriel, declared TTIP negotiations to have “de facto failed”, while Christian Democratic Chancellor Merkel said on 9 September 2016 that the EU should carry on with the negotiations. The European Commission (hereinafter, Commission) only underlined that it still has a unanimous mandate by the EU Member States and that negotiations are ongoing and progressing.
Public debate generally focuses on the “high-profile” agreements (e.g., CETA and TTIP), while the EU is actually currently involved in a far greater number of trade negotiations. Numerous issues are at stake for all involved parties and a high number of legal issues are to be addressed, be it as part of the agreement or as part of the negotiating process. Comprehensive trade and investment agreements enable negotiators to develop and improve trade laws and regulations. Despite the rather political nature of the mainstream debate, there are important legal developments that should be expected as the EU continues the negotiation of its various trade and investment agreements.
With respect to agreements which the EU is currently negotiating, TTIP is receiving the most publicity and stimulates the most intense public and political debate. Negotiations are ongoing and, on 22 August 2016, the Commission published its public report on the 14th round of negotiations, which took place in mid-July. Progress appears to have been achieved in a number of fields. Possibly in order to avoid the issue that has recently been identified within the EU-Korea FTA, progress was reported on the issue of “re-importation of goods after repair”. Noteworthy for the pharmaceuticals and generics sector, is the mention that negotiators recognised the endorsement by the International Council for Harmonisation (ICH) to develop guidelines for the harmonisation of “Biopharmaceutics Classification System (BCS) – waivers”. The issue of generics and biosimilars is of key relevance for public health and comprehensive free trade agreements should include balanced provisions in particular with respect to intellectual property rights and competition rules (see Trade Perspectives, Issue No. 10 of 15 May 2015). Particularly interesting is the fact that the agreement will likely contain a fairly high number of sector-specific annexes. Currently, annexes are being discussed concerning at least the sectors of cosmetics, textiles and clothing, medical devices, engineering and chemicals. Sector-specific annexes are key to advance certain issues and to tackle specific trade irritants and potential trade barriers. TTIP also looks poised to include a high number of fora that will be established through the agreement. This will set the conditions for TTIP to become a ‘living’ agreement, allowing a continuous cooperation and the deepening of trade relations. The next negotiating round is currently scheduled for the “autumn”, but may be complicated by the upcoming US presidential elections and the growing opposition by EU Member States’ governments.
As reported in July (see Trade Perspectives, Issue No. 13 of 1 July 2016), the Commission and EU Member States intensively debated the question of whether the CETA must be qualified as a ‘mixed’ or ‘EU only’ agreement. Likely in order to avoid further contentions with EU Member States, the Commission declared the CETA to be of a ‘mixed’ nature. Despite renegotiations during the process of ‘legal scrubbing’ of the CETA with respect to the investment protection provisions, calls remain to reopen negotiations on specific aspects. In particular, the Austrian Chancellor Kern recently spoke up against the CETA, saying that “[t]his will be difficult, this will be the next conflict in the EU that Austria will trigger […]. We must focus on making sure [that] we don’t shift the power balance in favour of global enterprises”. At the same time, a debate has arisen concerning conditions for the provisional application of the parts of the agreements falling under EU competence. Article 218(5) of the TFEU reads that “[t]he Council of the European Union shall adopt a decision authorising the signing of the agreement and, if necessary, its provisional application before entry into force”. With respect to the CETA, such a Council Decision is now expected to occur in October 2016, with the signing of the CETA expected shortly afterwards. Still, current political discussions indicate that the path to CETA’s provisional application or eventual entry into force might remain complicated.
The EU-Singapore FTA negotiations concluded in October 2014. However, a debate about the competence to conclude and sign the agreement has prompted the Commission to lodge a request for an advisory opinion to the Court of Justice of the EU (hereinafter, CJEU) in July 2015. The Commission asked if the Union has “the requisite competence to sign and conclude alone the Free Trade Agreement with Singapore”. It now appears that this hold-up may be resolved soon and likely in a more legally-sound manner than the Commission’s decision with respect to the CETA. On 13 September 2016, the CJEU is scheduled to conduct the hearing in preparation of its decision and will likely render its advisory opinion later this year or in early 2017. The signing of the agreement could therefore occur in the first half of 2017.
Despite all the debates about the “high-profile” agreements, a good number of other agreements of equal importance for trade and the further development of trade law and policy are currently under negotiation and taking shape without the same spotlight. All those agreements present their own specificities and legal issues that must be debated and resolved. The upcoming negotiating rounds will provide the fora to do so, but interested parties must remain continuously involved and be prepared to advance their priorities.
Regarding the FTA with Ecuador, the Council is expected to adopt the decision on the signature and provisional application at the beginning of November 2016. Similarly, the Council decisions concerning the conclusion of the EU-Vietnam FTA are expected to occur in early 2017. Negotiations with MERCOSUR have been sporadic for a decade, but finally received new momentum with the exchange of market access offers on 11 May 2016. The next negotiating round is now scheduled for 10-14 October 2016. The 17th round of EU-Japan FTA negotiations will be held at the end of September 2016 and a conclusion of negotiations is reportedly still possible by the end of 2016. The second round of negotiations with the Philippines is scheduled for the fourth quarter and, as negotiations with Indonesia were officially launched in July, the first round of those negotiations will also likely take place before year’s end. Concerning the update of the agreement with Mexico, a second round of negotiations will take place in November 2016. Finally, the “Online public consultation on the future of EU-Australia and EU-New Zealand trade and economic relations” was closed on 3 June 2016 and FTA negotiations are under serious considerations, though unlikely to launch before 2017. On 8 September 2016, the Committees on Foreign Affairs and on International Trade of the European Parliament, held an exchange of views with the Ministers for Foreign Affairs and for Trade, Tourism and Investment of Australia. During the debate, the Australian trade minister pointed out that a trade agreement with the EU has far greater priority than any future deal with the UK. An FTA between the EU and New Zealand would also offer a unique opportunity to deal with a wealth of existing trade issues (see Trade Perspectives, Issue No. 11 of 3 June 2016).
The strong public and political debate about TTIP and CETA overshadows the fact that the EU is simultaneously involved in a high number of trade negotiations. Through preferential trade agreements, trade irritants are removed, greater market access secured and more intense cooperation established, thereby strongly contributing to good (trade) relations between the respective parties. Currently, trade policy appears to be more heavily affected by political considerations and election campaigns than by lucid and rational thinking. Trade policy and, in particular, negotiations concerning certain agreements, like the TTIP and the CETA, have become popular topics and both activists and non-governmental organisations (NGOs) are heavily involved in negative campaigns to the detriment of said agreements. A public debate is important and necessary and trade policy is obviously also a key political issue. However, any debate should be based on facts and sound legal and socio-economic considerations. Moreover, any criticism must be specific in nature and should not just attack trade policy or trade negotiations in general. Stakeholders must act now, take part in the debate and contribute to achieve a more balanced discussion and to shape globalised trade relations.
The first WTO panel reports involving Russia as respondent
On 12 August 2016, the WTO issued the panel report in the case brought by the EU regarding ‘Russia - Tariff Treatment of Certain Agricultural and Manufacturing Products’ (WT/DS/485 - hereinafter, the first case). On 19 August 2016, the WTO issued the panel report in the case brought by the EU regarding ‘Russian Federation - Measures on the Importation of Live Pigs, Pork and Other Pig Products from the EU’ (WT/DS/475 - hereinafter, the second case). These two cases are the first instances of WTO panel reports involving Russia as a respondent.
On 22 August 2012, Russia joined the WTO following a negotiating process of nearly two decades. It became the 156th WTO Member. Since then, Russia has been involved in several WTO disputes: 4 cases as complainant, 6 cases as respondent and 28 cases as third party. The rules and procedures of the WTO dispute settlement system are provided by the Understanding on rules and procedures governing the settlement of disputes - Annex 2 of the WTO Agreement.
The first case dealt with 12 measures related to Russia’s tariff treatment of certain agricultural and manufacturing products (i.e., various types of paper and paperboard products, along with some palm oil products and household freezers). The first 11 measures were customs duties provided for in the Common Customs Tariff (hereinafter, CCT) of the Eurasian Economic Community (hereinafter, EAEC), of which Russia is a Member. The EU asserted that the Russian customs authorities were required to apply the rates set out in the CCT. The EU characterised measure 12 as ‘a more general measure consisting in systematic duty variations, to the extent that they result in the application of duties in excess of bound rates’. The EU claimed that these measures were inconsistent with Articles II:1(a) and II:1(b) of the General Agreement on Tariffs and Trade (hereinafter, GATT). The Panel stated that the first 11 measures were inconsistent with Article II:1(b), first sentence of the GATT. The Panel recommended that Russia bring them into conformity with its WTO Schedules of Concessions (i.e., list of bound tariff rates). However, the Panel concluded that the EU failed to establish an inconsistency of measure 12 with Articles II:1(a) and II:1(b) of the GATT. The core substantive issue in this case was whether certain applied duty rates were higher than those bound in Russia’s tariff Schedules. Aside from difficult technical calculations for some of the duties, this issue was fairly straightforward.
The second case concerned the Russian ban on imported pigs and related products from the EU, along with issuing a few country-specific bans involving Estonia, Latvia, Lithuania, and Poland. Russia argued that the ban was necessary due to cases of African Swine Fever (hereinafter, ASF) in wild boar found in Lithuania and Poland, and later in some Latvian boars and pigs. The EU declared that these cases of ASF were very limited in number. The EU also took measures, according to the applicable EU legislation (i.e., Council Directive 2002/60/EC of 27 June 2002 laying down specific provisions for the control of ASF and amending Directive 92/119/EEC as regards Teschen disease and ASF) to limit the spread of the virus. The EU argued that Russia’s import restrictions appeared to be inconsistent with a number of Russia’s obligations under the WTO Agreement on Sanitary and Phytosanitary Measures (hereinafter, SPS Agreement) and the GATT. The EU alleged that the Russian measures appeared to violate Article 2.2 of the SPS Agreement, which provides that measures be necessary, based on scientific principles and not maintained without sufficient scientific evidence. Article 5 of the SPS Agreement, which the EU also considered to be breached, further elaborated on these obligations. Inter alia, this provision requires that SPS measures be based on an appropriate risk assessment and that they be not more trade-restrictive than required to achieve the chosen level of protection. The EU also held that Russia’s import restrictions appeared to be discriminatory and amount to a disguised restriction to international trade (in contravention of Articles 2.3 and 5.5 of the SPS Agreement). In this regard, the EU referred to the fact that Russia did not apply measures similar to those against the EU, neither in its own territory (despite the widespread existence of ASF in certain regions of Russia), nor against third countries, such as Belarus and Ukraine (where Russia agreed to the ‘regionalisation’ measures adopted in those countries following ASF outbreaks in their territories). Actually, the EU submitted that Russia did not act in accordance with the rules on ‘regionalisation’ laid down in Article 6 of the SPS Agreement.
The WTO panel report condemned Russia for not customising the ban around the actual circumstances in the areas where the pigs or pig products were being imported from, because the EU had proven that there were regions that were fully ASF-free. Also, Russia violated procedural rules by requesting unnecessary information on changing risk levels and for the determination of a disease-free area. The procedural elements of the SPS measures were not respected, as well as their scientific basis. In addition, the economic implications of the policy were questioned, as well as the proportionality of the adopted measures. The panel deemed that the ban was more trade-restrictive than what was needed to fulfil Russia’s goal of preventing the spread of the ASF, and agreed with the EU’s claims that the import bans led to unfair discrimination between WTO Members facing similar conditions. Certain other claims were left unaddressed, with the WTO panel citing a lack of evidence, inter alia.
To summarise, the findings of these two cases highlight that national measures of WTO Members must be compliant with international obligations. The WTO panel reports aim at increasing legal certainty and predictability for trade in specific fields such as SPS measures and customs duties. WTO Members can exercise the right to determine their appropriate levels of sanitary protection and to restrict imports accordingly on the basis of sanitary concerns only when this is done in line with WTO rules. In the second case, EU products have been declared safe and there is thus no need for any WTO Member to maintain unjustified import restrictions.
Food Standards Scotland’s (FSS) strategy 2016 to 2021 - Scotland considers fiscal measures and advertising bans on ‘discretionary foods and drinks’
On 9 December 2014, the Scottish Parliament passed the Food (Scotland) Act 2015, which received Royal Assent on 13 January 2015, and which, notably, established Food Standards Scotland (hereinafter, FSS). The FSS is Scotland’s new food authority, the responsibilities of which were previously covered by the UK Food Standards Agency (hereinafter, FSA). As some of FSA’s functions have been distributed to other departments, the FSS was established to serve as a single food standards authority in Scotland. In August 2016, the FSS published its first five-year strategy, as well as a three-year corporate plan, which together indicate that the FSS is pondering implementing fiscal measures and advertising bans on ‘discretionary foods and drinks’ as a strategy to tackle obesity.
The Food (Scotland) Act 2015 gives the FSS three objectives: (1) to protect the public from risks to health that may arise in connection with the consumption of food; (2) to improve the extent to which members of the public have diets that are conducive to good health; and (3) to protect the other interests of consumers in relation to food. The Act provides the FSS with the legitimacy to carry out activities to help achieve these three objectives, and, in doing so, to protect consumers and help them to have better health. The FSS has responsibility for food safety, authenticity, standards and labelling, but the Scottish Government has also added matters related to diets to the FSS’s remit.
The FSS is not part of the Scottish Government, but as a public body, it is part of the wider Scottish Administration. The FSS is defined in law as a ‘competent authority’ and an ‘enforcement authority’ to implement and monitor Scottish and EU food and feed regulations. This gives it a regulatory role in relation to food and feed law. Nearly all food and feed law now originates from the EU, so ensuring that the FSS is well-positioned to reflect Scottish perspectives into developing EU policy at the earliest possible stage is considered key to achieving some of the FSS’s objectives. In particular, the following principles govern the FSS’s actions: (1) in working to deliver its strategic outcomes, the FSS takes decisions based on evidence; (2) the FSS will seek to work collaboratively with other bodies in Scotland, the UK and beyond, when doing so may realise greater consumer benefit than working alone; (3) the FSS values its independence alongside Government, while recognising its role in contributing to wider outcomes; and (4) the FSS fulfils its regulatory obligations in Scotland, and in relation to EU food and feed law.
Scotland faces considerable challenges in relation to food and health. Poor diets are one of the most significant causes of ill health in Scotland and are a major factor of obesity. According to the OECD, poor diet contributes to Scotland having one of the highest prevalence rates of overweight and obese people in Europe. By widening the remit of the FSS and providing a specific statutory objective in relation to dietary matters, the Scottish Parliament has set out its ambitions for change. Scottish Ministers have accepted advice from the FSS on changes to some of the Scottish Dietary Goals (SDGs) to reflect the advice from the independent Scientific Advisory Committee on Nutrition (SACN) in relation to carbohydrates and health. Recognising that greater action is needed by industry and government, as well as by communities and individuals, the FSS agreed to consider a wide array of measures, which would include exploring the transition from voluntary to regulated/legislative or fiscal measures that may be appropriate, particularly where previous or existing voluntary arrangements have been unsuccessful.
The FSS states in its three-year corporate plan that this is a long-standing and complex problem, and one that will take time, commitment and effort across a wide spectrum to find and deliver solutions. According to its corporate plan, the FSS committed to identify and press for the implementation of measures to bring about changes to the food environment and to support consumers’ behavioural changes that will be required to make positive progress towards the SDGs. This will include working with partners, including the food and drink industry, to develop specific measures to minimise consumption of ‘discretionary foods and drinks’ (including sugar sweetened beverages), through adjustments to the marketing, promotion and formulation of these products in ways aimed at rebalancing the diet towards a lower sugar and less calorie dense diet. ‘Discretionary foods and drinks’ are defined by the FSS as “high in calories and, low in nutritional value, and which are not required for health and include confectionery, cakes, biscuits, pastries, savoury snacks and sugary drinks”.
There are a number of important legal matters surrounding the work of the FSS and the publication of the five-year strategy and the three-year corporate plan. First, the different ambit of the FSS and the UK’s FSA. Then, the implications of ‘Brexit’ (i.e., the pending withdrawal from the EU by the UK), which incidentally was not supported in Scotland, where there are new calls for a referendum to leave the UK, principally to ‘remain’ in the EU. Finally, the matter of food taxes and marketing bans in the EU’s internal market.
In August 2016, the UK Government published its long-awaited childhood obesity action plan. The emphasis is on voluntary agreements and a tax on sugar-sweetened drinks, which has been called by some an ‘inexcusable’ strategy and a wasted opportunity due to being too ‘soft’. From a legal standpoint, interestingly, the UK’s FSA has the statutory objective of protecting public health and consumers’ other interests in relation to food and drink, but it does not hold a statutory objective such as that of the FSS “to improve the extent to which members of the public have diets which are conducive to good health”.
The FSS’s five-year strategy does not refer explicitly to ‘Brexit’ or an eventual independence of Scotland, but it somehow mysteriously states in Point 3.2 that “[i]t is widely predicted that many different things are expected to affect the supply of food to the UK, including Scotland, over the next 25 years or more, but is difficult to predict the pace and nature of these changes”. The consequences of ‘Brexit’ are, indeed, difficult to predict (for more on relevant trade relations between the UK and the EU, see Trade Perspectives, Issue No. 13 of 1 July 2016). In this context, it must be noted that Scotland’s First Minister Nicola Sturgeon told the Scottish Parliament on 6 September 2016 that the Scottish Government will start preparing the legislation required for a new referendum on independence from the UK, in the event that it is needed.
Regarding the impact of the FSS’s and the UK Government’s eventual measures on the EU internal market, it must be recalled that the European Commission (hereinafter, Commission) has stated that the fact that the UK has voted to leave the EU would not affect the application of EU law. For the time being, EU law continues to apply in full in the UK (including Scotland) until it is no longer an EU Member State. However, the UK appears to be looking ahead to life after ‘Brexit’. In its childhood obesity strategy, the UK Government made clearer labelling a priority, stating that “[t]he UK has led the way, working with industry to implement a voluntary front of pack traffic light labelling scheme, which now covers two thirds of products sold in the UK”. The UK’s traffic light FoP nutrition labelling scheme is precisely a measure where the Commission initiated infringement procedures in October 2014 against the UK, which have not yet been completed (see Trade Perspectives, Issue No. 19 of 17 October 2014). The UK Government’s childhood obesity strategy now reads that “[t]he UK’s decision to leave the EU will give us greater flexibility to determine what information should be presented on packaged food, and how it should be displayed. We want to build on the success of our current labelling scheme, and review additional opportunities to go further and ensure we are using the most effective ways to communicate information to families. This might include clearer visual labelling, such as teaspoons of sugar, to show consumers about the sugar content in packaged food and drink”.
According to Article 110(1) of the Treaty of the Functioning of the European Union (hereinafter, TFEU), EU Member States are allowed, outside of the alcohol, tobacco and energy sectors, to introduce and maintain non-harmonised internal taxes that do not discriminate against like products from other EU Member States. However, food taxes may still violate internal market provisions. According to Article 110(2) of the TFEU, EU Member States may not impose on the products of other EU Member States any internal taxation of such a nature as to afford indirect protection to other products. As for the interpretation of ‘other products’, the Court of Justice of the EU looks at whether the products are in competition with each other. If that is the case, the Court will consider whether the domestic products benefit from some form of indirect protection. The notion of competition is quite broad as it includes actual, as well as potential, competition by requiring that potential substitutes also be considered during the examination. As regards the UK’s tax on sugary drinks, it will come into effect in 2018 (see Trade Perspectives, Issue No. 6 of 24 March 2016).
Reportedly, a tax on sugary drinks is also being considered by the Irish Government as part of the upcoming budget. The issue has been studied in pre-budget tax strategy papers, which outlined the options for the Irish Government. In addition, France appears to be willing to raise the tax on all high calorie foods in an attempt to tackle its increasing obesity problem. In the 1 September issue of its monthly bulletin Trésor-Eco, dedicated to the economic consequences of obesity, France’s Directorate General for the Treasure evokes for the first time this track. There are also WTO implications in relation to such taxes (see Trade Perspectives, Issue No. 2 of 29 January 2016). Fiscal measures on ‘HFSS foods’ (i.e., foods high in fat, salt or sugar) and advertising bans for such foods are currently being discussed, or have already been established, such as the Czech Republic’s Implementing decree on requirements for foods for which advertising is permitted and which can be offered for sale and sold in schools and school facilities (see Trade Perspectives, Issue No. 12 of 17 June 2016).
A common approach would be highly desirable, instead of the current fragmentation within the EU’s internal market. Details on how Scottish fiscal measures on ‘discretionary foods and drinks’ may look like have not been disclosed. While the justification of fiscal measures on such foods may constitute legitimate and ‘noble’ objectives, they must respect EU’s internal market rules. When such measures are proposed or put into place in the UK and Scotland, ‘Brexit’, and its possible scenarios relating to the internal market, add another layer of uncertainty for consumers and the food industry. Interested food industry stakeholders must continue to monitor the developments in relation to food taxes and advertising bans, in particular in the UK, especially Scotland, but also in Ireland, France and other EU Member States.
Recently Adopted EU Legislation
Food and Agricultural Law
Laura Boschi, Ignacio Carreño, Tobias Dolle, David Leys, Bruno G. Simões and Paolo R. Vergano contributed to this issue.
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