Issue Number 3: 12th February 2016

The US moves closer to implementing a seafood traceability programme to combat IUU fishing
The EU Commission opens a public consultation on future measures to prevent dumped imports from China
Novel foods and insect-based foods: the next steps
Recently Adopted EU Legislation

The US moves closer to implementing a seafood traceability programme to combat IUU fishing

On 5 February 2016, the National Oceanic and Atmospheric Administration (hereinafter, NOAA) of the United States published a proposal aimed at creating a seafood traceability programme. The programme intends to combat illegal, unreported and unregulated (hereinafter, IUU) fishing and prevent fraudulent trade. The proposed US measures will become part of the global action to combat IUU fishing, along the lines of other similar regulatory systems, such as the EU’s extensive regulation on IUU fishing (see Trade Perspectives, Issue No. 16 of 11 September 2015). Despite the legitimate objectives, however, potential consequences for international trade need to be taken into account when designing such programmes.

IUU fishing refers to fishing that: (1) lacks authorisation, does not comply with conservation and management measures developed by regional fisheries management organisations (hereinafter, RFMOs), or violates national laws or international obligations (i.e., is illegal); (2) is not properly reported under international, RFMO or national laws and regulations (i.e., is unreported); and (3) is performed by vessels with no national flag or that jeopardise fish stocks (i.e., is unregulated). Relevant treaties and agreements include the 1982 UN Convention on the Law of the Sea, the 1995 UN Fish Stocks Agreement and the 1995 FAO Code of Conduct for Responsible Fisheries. The FAO Port State Measures Agreement, intended to build on previous global instruments and adding the first set of binding minimum standards specifically intended to combat IUU fishing, was adopted in 2009, but stills lacks the necessary number of ratifications to enter into force. In line with this proposal, the US ratified this agreement on 11 February 2016, spurring hope that more countries will follow soon. With respect to the US, according to a 2014 study, USD 2 billion in illegal wild-caught seafood was imported into the US, which represented 32% of such goods. The US imports most of its seafood from China, Thailand, Indonesia, Ecuador, Canada, Vietnam, the Philippines, India, Mexico and Chile. The 5 February 2016 proposal by the NOAA is part of a larger US strategy presented in a 17 June 2014 Presidential Memorandum entitled ‘Establishing a Comprehensive Framework to Combat Illegal, Unreported, and Unregulated Fishing and Seafood Fraud’. Said Memorandum put in place a Presidential Task Force on Combating IUU Fishing and Seafood Fraud, which later recommended, inter alia, that the US develop a risk-based traceability programme.

The introduction of a trade permit, as well as filing and recordkeeping procedures relating to the importation of certain fish and fish products are at the heart of the proposal. According to the comments published with the proposal, these measures are aimed at implementing the prohibition of the import and trade, in interstate or foreign commerce, of fish taken, possessed, transported or sold in violation of any foreign law or regulation. The information to be filed must be collected at the time of entry via an electronic single window, consistent with the Safety and Accountability for Every (SAFE) Port Act of 2006 and other applicable statutes. Specifically, the National Marine Fisheries Service (hereinafter, NMFS) proposes to integrate the collection of catch and landing documentation for certain fish and fish products within the government-wide International Trade Data System (ITDS). The programme would require an annually renewable ‘International Fisheries Trade Permit’ (hereinafter, IFTP) and specific data for certain fish and fish products to be filed and retained, as a condition of import, to enable the US to exclude the entry into commerce of products of illegal fishing activities.

The current proposal represents the first step in implementing the traceability programme. In this first step, the traceability programme would only apply to ‘at-risk species’ identified by the NOAA. However, it is foreseen to expand the application of the reporting requirements to encompass all seafood at first point of sale or import. The list proposed in 50 C.F.R. § 300.324(a) includes: Abalone; Atlantic Cod; Pacific Cod; Blue Crab; Red King Crab; Dolphinfish (Mahi Mahi); Grouper; Red Snapper; Sea Cucumber; Shrimp Sharks; Swordfish; Tunas (Albacore, Bigeye, Skipjack, Yellowfin, and Bluefin). While Bluefin Tuna was traditionally an object of IUU fishing, it is now covered by the catch documentation schemes of two regional fisheries organisations and was, therefore, not part of the identified list of ‘at-risk species’ and is only covered for reasons of consistency of application. In addition, 50 C.F.R. § 300.324(b) of the proposed regulation details the data that is to be provided by the importer: (a) information on the entity(ies) harvesting or producing the fish; (b) information on the fish that was harvested and processed; (c) Information on where and when the fish were harvested and landed; and (d) the IFTP number for the importer of record. As proposed, 50 C.F.R. § 300.324(d) provides for the possibility of on-site verification inspections and audits of the documentation. The importer of record is also obligated to keep records regarding the chain of custody of the fish or fish products that are sufficient to trace the fish or fish products from point of entry into US commerce to the point of harvest.

Due to technological limitations of automated data processing for imaged documents and the requirements for the phase-in of the data system, the chain of custody information would need to be maintained by the importer and would, at this stage, not be subject to a reporting requirement. The programme is intended to help authorities verify that the fish or fish products were lawfully acquired by providing information that traces each import shipment from point of harvest to entry into commerce. As the published comments to the proposed traceability programme point out, the EU’s IUU regulations use a slightly different approach. The EU’s IUU fishing Regulation most notably provides for a catch certification scheme for importation and exportation of fishery products. The catch certification scheme of the EU’s IUU Regulation is a central element of the EU’s IUU system, and is also intended to ensure product traceability of all fishery products traded with the EU at all stages of production, from catch to processing and marketing, and to facilitate the control of their compliance with conservation and management rules. Thus, while the US uses a different approach from the EU to combat IUU fishing, the use of a traceability requirement to combat IUU fishing is common to both frameworks.

So, while the objectives of IUU fishing measures are clear, their conception and their impact on international trade need to be carefully analysed in order to avoid potential trade distortions and/or barriers with possibly detrimental consequences, especially for small fishery businesses. IUU fishing regulations look poised to have a significant impact on fisheries trade and need to be compliant with the relevant rules, in particular of the WTO General Agreement on Tariffs and Trade 1994 (hereinafter, GATT), the Agreement on Import Licensing Procedures and the Agreement on Technical Barriers to Trade (hereinafter, TBT Agreement). New proposals, such as the new traceability programme proposed by the US, may be subject to debate within the relevant WTO fora. The traceability programme may be qualified as a technical regulation under the TBT Agreement and would have to comply, in particular, with Article 2.2 thereof, requiring WTO Members to ensure that technical regulations are not prepared, adopted or applied with a view to, or with the effect of, creating unnecessary obstacles to international trade. Additionally, Article XI:1 of the GATT prevents WTO Members from adopting prohibitions or restrictions other than duties, taxes or other charges, at the point of importation (or exportation). Given the broad interpretation of this prohibition by WTO panels and the WTO Appellate Body, the IFTP and its inherent reporting duties may likely be qualified as such a measure and a detailed scrutiny of the scheme and of its application would need to be conducted to determine whether the exception of GATT Article XX could be resorted to by the US.

These measures may also have an impact on the US’s obligation to avoid discrimination between ‘like’ domestic and imported products, embodied in Article III of the GATT. The US’s IUU proposal exclusively applies to fish and fish products that are imported into the US. In regards to US domestic wild-capture fisheries, the existing data reporting and record retention requirements are deemed sufficient to ensure traceability. Hence, the absence of the IFTP, the corresponding fee and the fulfilment of the reporting requirements are likely to represent additional steps, and result in higher costs, possibly causing delays that negatively affect the conditions of competition of imported fishery products vis-à-vis products obtained by domestic catches. However, Article III:4 of the GATT allows WTO Members to apply different treatment to ‘like’ imported and domestic products, provided that such treatment is not less favourable. In examining whether a violation of the national treatment requirement exists, the WTO Appellate Body in Korea – Various Measures on Beef looked at the “fundamental thrust and effect of the measure”. Whether the different requirements result in the granting of less favourable treatment to imported products vis-à-vis the ‘like’ domestic products will then depend on the actual application and the effects of the requirements foreseen in the respective regulations.

The decision to opt for a different approach regarding the fight against IUU fishing shows the current dilemma for fishermen and importers of fishery products. While complying with the ever more fragmented international and domestic fisheries regulations and IUU schemes, the administrative and financial burdens increase. An alternative multilateral effort at the FAO would seem to be the obvious way forward instead of a piecemeal and country-specific approach. However, the example of the FAO Port State Measures Agreement, which was adopted in 2009 and still not having entered into force due to the lack of ratifications, shows the difficulty of implementing common international and multilateral regulations. Still, in order to minimise the negative effects on trade, a future multilateral solution should replace the current plethora of individual frameworks and level the playing field for all market actors.

The fight against IUU fishing must continue and the recent US proposal shows the increasing importance of this issue. Realisation of further recommendations of the Presidential Task Force on Combating IUU Fishing and Seafood Fraud may only be a matter of time, and non-governmental organisations such as Oceana and the World Wide Fund for Nature (i.e., the WWF) have already called on the US to take further steps. Stakeholders, in particular businesses relying on fish products and governments relying on fish imports and exports, need to continually monitor the issue and adjust business practices or domestic regulations and enforcement accordingly. Comments to the proposed US traceability programme may be submitted until 5 April 2016. After comprehensive analysis of the proposed rules, stakeholders should evaluate and make use of this consultative opportunity in order to minimise the potential negative effects on trade of the US measure.

The EU Commission opens a public consultation on future measures to prevent dumped imports from China

On 10 February 2016, the EU Commission opened public consultations regarding whether, and if so, how, the EU should change the treatment of China in anti-dumping (hereinafter, AD) investigations after 11 December 2016. The eventual approach adopted by the EU has the potential to substantially affect EU businesses that compete with China.

In the context of international trade law, ‘dumping’ is a term used to describe the practice by some businesses to charge lower prices for goods in foreign markets than in their domestic market (after accounting for differences in, e.g., conditions and terms of sale, taxation, levels of trade, quantities and physical characteristics). Some associate this practice to predatory pricing, whereby businesses set low prices in order to increase market share and/or drive out competitors in foreign markets. Under WTO law, the distinction between a WTO Member with Market Economy Status (hereinafter, MES) and one that is a Non-Market Economy (hereinafter, NME) is important for determining the ‘normal value’ of goods in AD investigations. The WTO Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (hereinafter, the AD Agreement) contains detailed rules on, inter alia, the calculation of dumping, procedures for initiating and pursuing an AD investigation, the imposition of provisional measures, the imposition and collection of AD duties, and the duration and review of AD measures. Article 18 of the AD Agreement requires WTO Members to ensure that their domestic laws, regulations and administrative procedures conform to the agreement. In the EU, AD investigations are implemented pursuant to Council Regulation (EC) No. 1225/2009 of 30 November 2009 on protection against dumped imports from countries not members of the European Community (hereinafter, Council Regulation (EC) No. 1225/2009).

Article 2 of the AD Agreement provides rules on the determination of dumping. In this regard, the rules dictate how to calculate whether a good has been introduced into the commerce of a foreign country at less than its ‘normal value’. Ideally, investigative authorities in the country of importation are able to complete a proper comparison using the price of the goods in question in the exporting country. However, Article 2.2 of the AD Agreement allows investigating authorities to alter the determination of dumping in certain circumstances, including: 1) when there are no sales of the like product in the ordinary course of trade in the domestic market of the exporting country; or 2) when the ‘particular market situation’ or the low volume of the sales in the domestic market of the exporting country do not permit a proper comparison. Under such circumstances, the investigating authorities may determine dumping using ‘third-country pricing’ (i.e., using a comparable price of the ‘like’ product when exported to an appropriate third country, provided that this price is representative) or by using the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs and for profits. In the EU, according to Article 2.7(a) of Council Regulation (EC) No. 1225/2009, in the case of imports from NME countries, normal value shall be determined, inter alia, on the basis of the price or constructed value in a market economy third country, or the price from such a third country to other countries. Council Regulation (EC) No. 1225/2009 refers to, inter alia, China as a NME countries. The economies of NME countries are traditionally dominated, and thus distorted, by State-trade enterprises. According to Article 2.7(b) of Council Regulation (EC) No. 1225/2009, the burden of showing that market economy conditions do, in fact, prevail in the country of origin (and that, therefore, third-country pricing should not be used), rests on the producer(s) subject to investigation.

Article 2.7 of Council Regulation (EC) No. 1225/2009 is particularly relevant to AD investigations concerning goods exported from China due to the specific conditions included in the Protocol on the Accession of the People’s Republic of China to the WTO (hereinafter, Accession Protocol) in 2001. Section 15 of the Accession Protocol includes special rules on the application of, inter alia, the AD Agreement. In particular, Paragraph (a)(ii) of Section 15 states that “[t]he importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product”. Paragraph (d) of Section 15 provides that such rules should be terminated once China has established, under the national law of the importing WTO Member, that it is a market economy (this clause may also apply on an industry- or sector-basis), or expire 15 years after the date of China’s accession to the WTO (i.e., 11 December 2016). While some countries, notably the US, have indicated that they will not alter China’s NME status or their rules for administering AD investigations with respect to China, some WTO Members have debated internally and externally whether Section 15 of the Accession Protocol requires them to grant China MES and amend domestic regulations accordingly.

Following internal debates and analysis within EU institutions, the EU Commission launched public consultations on 10 February 2016 to address the issue. In the introduction to the questionnaire released as part of the public consultation, the EU Commission notes that, in the event that China and other WTO Members are removed from the list of Article 2.7(b) of Council Regulation (EC) No. 1225/2009, and the alternative method for calculating dumping margins is no longer be applicable to these countries, the expected result, on average, will be lower dumping margins, because the standard methodology does not take into account the remaining economic distortions in, e.g., China. Accordingly, such lower margins may render less effective the EU’s trade defence instruments. However, it is important to recall that the AD Agreement, and Council Regulation (EC) No. 1225/2009 in Article 2.3, do envisage the use of alternative calculation methods depending on the ‘particular market situation’. In the context of the WTO, the addendum to Article VI of the General Agreement on Tariffs and Trade a NME is present when the importing country proves a “complete or substantially complete State monopoly of trade and prices fixed by the State”. In the EU, Article 2.3 of Council Regulation (EC) No. 1225/2009 states that “[a] particular market situation for the product concerned […] may be deemed to exist, inter alia, when prices are artificially low, when there is significant barter trade, or when there are non-commercial processing arrangements”. Indeed, the effect of Section 15 of the Accession Protocol is a presumption that a NME is present, and that the producers have a burden of showing that market economy conditions prevail in the exporting market. As such, the EU Commission will not necessarily have to stop applying an alternative, or ‘third-country pricing’, methodology to Chinese imports following the expiry of Section 15 of the AD Agreement. It will, at most, just lose the presumption that a ‘particular market situation’ exists. Although this may increase administrative costs for the EU Commission on a case-by-case basis, it may be possible to show on a regular basis that prices in China are indeed artificially low, and thus that a ‘particular market situation’ continues to exist.

Nonetheless, there is still the potential that, if the EU were to grant China MES, or if the EU instead were to choose to continue applying the alternative dumping determination methodology, and China decided to file a dispute in the WTO, there would be significant negative effects on competitors in the EU. As noted by the questionnaire released by the EU Commission as part of the public consultations, there is a concern that Chinese companies could hold an unfair advantage over EU businesses if the EU’s trade defence instruments are rendered less effective. Interested stakeholders should take part in the public consultation before its closing date on 20 April 2016, as well as participate in the stakeholder conference to be held in mid-March 2016.

Novel foods and insect-based foods: the next steps

Regulation (EU) 2015/2283 of the European Parliament and of the Council of 25 November 2015 on novel foods, amending Regulation (EU) No. 1169/2011 of the European Parliament and of the Council and repealing Regulation (EC) No. 258/97 of the European Parliament and of the Council and Commission Regulation (EC) No. 1852/2001 (hereinafter, the new Novel Foods Regulation, or NFR) was published in the Official Journal of the EU on 11 December 2015. The NFR entered into force on 31 December 2015, but most of its provisions apply from 1 January 2018 (for the history of the adoption of the NFR, see TradePerspectives, Issue No. 3 of 6 February 2015 and Issue No. 11 of 29 May 2015). The next steps will be the transition to a new centralised authorisation procedure for novel foods and the adoption of implementing acts by the EU Commission laying down administrative and scientific requirements for traditional foods from third countries.

In recent weeks, the media has covered stories on related topics such as protein-packed milkshakes made from insects, buffalo worm burgers or pasta products made with flour from ground crickets. In general, there appears to be the potential for insect protein as an economically viable option for both human consumption and animal feed. Indeed, 70% of crickets are made of protein and insect products have excellent nutritional values, including high levels of calcium, iron, vitamin B12 and omega-3. Such products are also sustainable, with crickets requiring much less food and water than cows, while needing a very short time to be ‘reared’.

Insects and insect-based products are already widely consumed around the world, and to a certain extent, in the EU, too. However, in the EU, insects are still considered something ‘novel’. Novel foods are foods that have not been consumed to any significant degree by humans in the EU before May 1997 (when the first novel foods Regulation (EC) No. 258/97 entered into force). In order to be able to commercialise novel insect foods in the EU, producers need to gain pre-market approval (i.e., be declared safe for consumption). This is achieved via the submission of a detailed dossier and the carrying out of a risk assessment of the product. This is why the NFR is so relevant. With respect to the authorisation of novel foods, the NFR provides two main novelties: a new centralised procedure and an additional notification procedure for traditional foods from third countries.

Parts of insects (such as legs, wings, head, etc.) were already included in the EU definition of novel food as food ingredients isolated from animals, while whole insects arguably did not (see TradePerspectives, Issue No. 3 of 6 February 2015). The NFR also clarifies that whole animals, such as whole insects, if not consumed to a significant degree by humans in the EU prior to 15 May 1997, fall under the definition of novel food. While awaiting the adoption of the NFR, trade in some edible insects is tolerated in certain EU Member States, including Belgium. This does, however, not apply to ingredients that were isolated or extracted from insects, such as protein isolates. The UK Food Standards Agency (FSA) has carried out a public consultation, which concluded in September 2015, and which asked UK food businesses that sell edible insects to submit relevant information regarding the history of human consumption of insects prior to 15 May 1997 (see TradePerspectives, Issue No. 18 of 9 October 2015).

The NFR establishes a centralised authorisation system, with the objective to allow greater certainty for applicants seeking an authorisation for novel food and to simplify and speed up said process. The European Food Safety Authority (hereinafter, EFSA) will conduct a scientific risk assessment for the novel food application, while the EU Commission will manage the files of each applicant and put forward a proposal for the authorisation of a novel food, which is found to be safe. Novel foods will only be authorised for use in the EU if they do not present a risk to public health, are not nutritionally disadvantageous when replacing a similar food, and are not misleading to the consumer. The authorisation sets out the conditions for their use, their designation as a food/food ingredient and the labelling requirements.

In order to facilitate trade of traditional food from non-EU countries, which are considered novel foods in the EU, the NFR also introduces a new assessment procedure. If the traditional food in question can historically be demonstrated as being safe and there are no safety concerns raised by EU Member States or EFSA, said traditional food will be allowed to be placed on the EU market on the basis of a notification from the food business operator. Nevertheless, the notification procedure is not necessarily an easier way to get novel foods authorised.

Articles 14 to 20 of the NFR establish the procedure for notifying the placing on the market within the EU of a traditional food from a third country. The EU Commission must forward the notification no later than one month after having verified its validity to EU Member States and to the EFSA. Within four months from the date on which a notification is forwarded by the EU Commission, an EU Member State or the EFSA may submit to the EU Commission duly reasoned safety objections to the placing on the market within the EU of the traditional food concerned. The EU Commission must inform the applicant of any duly reasoned safety objection as soon as it is submitted. The EU Member States, the EFSA and the applicant must be informed of the outcome of the procedure. Where no duly reasoned safety objections have been submitted, the EU Commission must authorise the placing on the market, within the EU, of the traditional food concerned and update the EU list of novel foods specifying that it concerns a traditional food from a third country. Where applicable, certain conditions for use, specific labelling requirements, or post-market monitoring requirements must be specified. Where duly reasoned safety objections have been submitted to the EU Commission, it must not authorise the placing on the market within the EU of the traditional food concerned. In that case, the applicant may submit an application to the EU Commission in accordance with Article 16 of the NFR with, in addition to the information already provided, documented data relating to the duly reasoned safety objections. The EU Commission must, without delay, forward the valid application to the EFSA and make it available to EU Member States.

The EFSA must adopt its opinion within six months from the date of receipt of this application. In assessing the safety of a traditional food from a third country, the EFSA must consider the following matters: (a) whether the history of safe food use in a third country is substantiated by reliable data; (b) whether the composition of the food and the conditions of its use do not pose a safety risk to human health in the EU; and (c) where the traditional food from the third country is intended to replace another food, whether it does not differ from that food in such a way that its normal consumption would be nutritionally disadvantageous for the consumer. In duly justified cases, where the EFSA requests additional information from the applicant, the six-month period may be extended.

Within three months of the date of publication of the EFSA’s opinion, the EU Commission must submit to the Standing Committee on Plants, Animals, Food and Feed a draft implementing act authorising the placing on the market within the EU of the traditional food from a third country and updating the EU list. The EU Commission may terminate the procedure at any stage, and decide not to proceed with an update, where it considers that such an update is not justified. In such case, where applicable, the EU Commission must take account of the views of EU Member States, the EFSA’s opinion and any other legitimate factors relevant to the update under consideration. The EU Commission must inform the applicant and all EU Member States directly of the reasons for not considering the update to be justified. The applicant may also withdraw its application at any time, thereby terminating the procedure.

According to Article 20 of the NFR, the EU Commission must adopt, by 1 January 2018, implementing acts laying down administrative and scientific requirements concerning traditional foods from third countries concerning: (a) the content, drafting and presentation of the notifications and of applications; (b) the arrangements for verifying the validity, without delay, of those notifications and applications; (c) the arrangements for the exchange of information with the Member States and with the Authority for submitting duly reasoned safety objections; and (d) the type of information to be included in the opinion of the EFSA.

A recent scientific opinion in the form of a risk profile related to the production and consumption of insects as food and feed, published by EFSA on 8 October 2015, highlighted the lack of consumption data for humans. In its draft measure on the authorisation of a novel food or a traditional food from a third country, the EU Commission must take into account any relevant provision of EU law, including the provisions on the precautionary principle and on food safety as referred to in Article 7 and 14 of Regulation (EC) No 178/2002 laying down the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety, respectively. It remains to be seen whether the exception in the NFR, for foods traditionally used in third countries, will ease the authorisation process for insects and insect-based food. Evidence must be provided showing 25 years of traditional safe consumption of the respective insects or insect-based food in third countries. The system may, in practice, not prove to be as efficient, because if any of the 28 EU Member States objects to a notification on the basis of traditional use, the application will be transmitted to the EFSA for a safety assessment, as for other novel foods.

Article 35(1) of the NFR establishes that any request for placing a novel food on the market within the EU submitted to an EU Member State, in accordance with Article 4 of Regulation (EC) No. 258/97, and for which the final decision has not been taken before 1 January 2018, must be treated as an application under the NFR. The EU Commission will complete the respective authorisation procedures. Article 35(2) of the NFR (on transitional measures) lays down that foods not falling within the scope of Regulation (EC) No. 258/97, which are lawfully placed on the market by 1 January 2018 and which fall within the scope of the NFR (e.g., whole insects in certain EU Member States) may continue to be placed on the market until a decision is taken, following an application for authorisation of a novel food or a notification of a traditional food from a third country submitted by the date specified in the implementing rules to be adopted by 1 January 2018, but no later than 2 January 2020.

As with any other sector, the insect food sector needs a solid and effective EU regulatory framework to achieve the legal certainty and commercial predictability necessary for its production activities and investments. The efforts made by the EU legislature to harmonise and clarify the rules on novel foods and to streamline the procedural steps appear to be important steps. It can only be hoped that the EU Commission adopts the implementing acts swiftly, but experience shows that it will likely be around the 1 January 2018 and not earlier. Food business operators producing insects or insect-based food, which intend to start marketing or continue marketing their products on the EU market, must submit a novel food application dossier to the EU Commission. Such operators are recommended to seek expert legal advice regarding the different notification or authorisation procedures under the NFR.