Issue Number 8: 21st April 2017
- The continued saga surrounding the importation of citrus fruit into the EU from South Africa
- Australia and the EU conclude discussions on the scope of negotiations for a free trade agreement
- Update on COOL: Italian draft decree on the mandatory indication of the address of the production facility; Compliance with Italian and French COOL measures
- Recently Adopted EU Legislation
The continued saga surrounding the importation of citrus fruit into the EU from South Africa
On 11 April 2017, the European Commission (hereinafter, Commission) provided a written answer to a Parliamentary question on ‘Poor plant health checks on citrus imports at certain EU ports’, which was originally tabled on 13 February 2017 by Clara Eugenia Aguilera Garcia, a Member of the European Parliament (hereinafter, MEP) from Spain. The Parliamentary question revisits issues surrounding the importation of citrus fruits into the EU from South Africa, and could spark concerns of EU protectionism vis-à-vis South African exports.
According to the Parliamentary question tabled by MEP Aguilera Garcia, and on the basis of media reports (e.g., Fresh Fruit Portal), Spain’s Citrus Management Committee (hereinafter, CMC) has obtained documentation from the Citrus Growers’ Association of Southern Africa (hereinafter, CGA) that demonstrates the varied levels of inspections performed by Kwaliteits Controle-Bureau (hereinafter, KCB), a private company certified to perform plant health inspections in the Netherlands, and comparable entities in Spain. The Parliamentary question specifies that the variance pertains to both the “rigour and independence of border inspections to identify” Citrus Black Spot (hereinafter, CBS), a plant disease caused by the fungus Guignardia citricarpa Kiely (renamed Phyllosticta citricarpa (McAlpine) Van der Aa). With respect to the independence of KCB, or alleged lack thereof, the Parliamentary question specifies that KCB’s management board includes Dutch fruit and vegetable importers. MEP Aguilera Garcia also states that South Africa has been “avoiding” the more rigorous and independent inspections in Spanish ports by importing fresh citrus fruit through the Port of Rotterdam and importing citrus fruit juice via the UK. The Parliamentary question actually contains two questions: first, whether “the Commission [has] looked into the unusual situation at the KCB”; and second, “if it transpired that plant health inspections at the [Port of Rotterdam] were indeed being carried out by the importers, would the Commission consider those border checks to be sufficient with regard to safeguarding plant health in the European citrus sector”?
The answer provided on behalf of the Commission was given by Vytenis Andriukaitis, European Commissioner for Health and Food Safety. According to Commissioner Andriukaitis, as part of regular audits carried out under EU law, the Commission inspected the functioning of the Dutch plant health import inspection system in 2011, in particular verifying the inspections undertaken by the KCB. Commissioner Andriukaitis added that the Commission concluded that the Dutch plant health import inspection system did not raise major concerns and that it met EU requirements. The answer also states that, during a new round of audits in 2017-2018, the Netherlands will be one of seven or eight EU Member States that will have their plant health import inspection systems checked by the Commission. The final paragraph of the answer clarified that entities under the authority and supervision of responsible official bodies of EU Member States may perform plant health inspections “as long as this does not create a conflict of interest” and that, therefore, “it can be concluded that importers are not allowed to carry out plant health checks”. The answer did not address whether such an allegation is actually occurring in the Netherlands.
Discussions and issues surrounding the importation of citrus fruit into the EU from South Africa have been ongoing for years, including after the Commission adopted emergency measures against citrus from South Africa in December 2013 (see Trade Perspectives, Issue No. 1 of 10 January 2014). Although Guignardia citricarpa is classified as a harmful organism under Council Directive 2000/29/EC of 8 May 2000 on protective measures against the introduction into the Community of organisms harmful to plants or plant products and against their spread within the Community, CBS is harmless to humans and the negative effects of CBS are limited to damage to fruits’ appearance by causing spots on fruit leaves and blemishes on fruits, which may potentially reduce both the quality and quantity of harvests. The Commission implemented emergency measures against the importation of citrus fruits from South Africa after 36 consignments of citrus fruit were intercepted following the identification of CBS in 2013. The EU currently allows five detections of CBS before the Commission may decide to prohibit the further importation of citrus fruits from South Africa, although such a prohibition does not automatically enter into effect upon a fifth detection of CBS. Since 2014, South Africa has worked with the Commission to maintain imports of citrus fruit into the EU by ensuring that citrus fruit exports from South Africa originate in ‘regionalised’ CBS-free areas. In September 2015, South Africa even voluntarily partially suspended citrus exports to the EU following the detection of CBS in a July 2014 consignment. According to Europhyt data, during 2016, CBS was only detected in 4 consignments of citrus fruits imported into the EU from South Africa. According to the CMC, Spanish officials carried out 401 inspections on 12,092 metric tonnes of citrus fruits during the 2016 season, detecting 10 consignments with CBS in total. To contrast, Dutch ports carried out 4,828 inspections on 270,976 metric tonnes, but detected CBS only in 5 consignments in total. The CGA explains the contrast as being due to the overly zealous inspection rate of Spanish officials, noting that when compared to EU ports as a whole, the Netherlands’ rate of inspection and detection is normal.
Given the data in 2016, and the historical willingness by South Africa to work with the EU to ensure that CBS does not spread in the EU, the attacks by the domestic citrus industry in the EU appear to be somewhat unwarranted and disproportionate. Reportedly, South Africa has even avoided pursuing WTO dispute settlement proceedings, an option that it did consider in October 2014. Nonetheless, this course of action remains available as an option. In this regard, it should be noted that Article 2.2 of the WTO Agreement on the Application of Sanitary and Phytosanitary Measures (hereinafter, SPS Agreement) requires that any trade restrictive measure (e.g., the prohibition on the importation of citrus fruits from a specific country due to SPS reasons) adopted by WTO Members for SPS reasons be necessary, be based on scientific principles, and not be maintained without sufficient scientific evidence. Article 2.3 of the SPS Agreement requires that measures be non-discriminatory and not be disguised restrictions to international trade. Further, Article 5 of the SPS Agreement mandates, inter alia, that SPS measures be based on appropriate risk assessments. Under these provisions, South Africa could choose to bring claims that a 2014 opinion of the European Food Safety Authority (EFSA) was arguably not based on sufficient scientific evidence. South Africa could even choose to test the scope of Article 6 of the SPS Agreement, which deals with ‘regionalisation’. That is to say, South Africa could argue that the EU should adapt its measures controlling the importation of citrus fruits from South Africa so that citrus fruits can be freely imported into areas of the EU where citrus fruit are not grown and harvested (e.g., some northern and western parts of the EU), and those areas compartmentalised under the concept of regionalisation (see Trade Perspectives, Issue No. 5 of 10 March 2017).
As it stands, South Africa appears to be withstanding the efforts by the domestic EU citrus industry to protect local industry, in spite of repeated attempts to block imports, arguably overzealous border inspections, and negative reports in the media. In South Africa, however, the domestic industry remains burdened by the additional costs of complying with ‘regionalisation’- and traceability-related requirements. To lower these costs and ensure the long-term stability of its import market to the EU, South Africa may want to re-consider the option of WTO dispute settlement. Outside of a bilaterally-agreed system of real regionalisation in the EU, the idea of subjecting imports to differing degrees (and costs) of SPS scrutiny at importation, depending on the ports of entry and on the protectionist attitude of certain EU Member States’ authorities, also runs counter to the very idea and legal certainty of the EU’s internal market. WTO law on non-discrimination (i.e., most favoured nation and national treatment principles) and EU law on free circulation of goods within the internal market must be respected. Affected stakeholders should work with governmental authorities to this end and provide meaningful facts demonstrating the trade-related burdens that they are facing.
Australia and the EU conclude discussions on the scope of negotiations for a free trade agreement
On 6 April 2017, the European Commissioner for Trade Cecilia Malmström and the Australian Minister for Trade Steven Ciobo announced the conclusion of discussions on the scope of the future EU-Australia free trade agreement (hereinafter, FTA). The accomplishment of this preliminary step paves the way for the actual negotiations to begin shortly. Originally meant to decrease the EU’s looming disadvantage in the Asia-Pacific region due to the Trans-Pacific Partnership (hereinafter, TPP), the uncertainties surrounding the TPP’s fate, for the time being, open up important opportunities for the EU in the upcoming negotiations with Australia, as well as with New Zealand, and look poised to provide Australia with new market access potential in the EU market.
In the 2015 EU trade and investment strategy document ‘Trade for all’, the EU noted that the Asia-Pacific region was crucial to European economic interests and that it would “request authorisation to negotiate FTAs with Australia and New Zealand, taking into account EU agricultural sensitivities”. The EU further stated that those FTAs would provide a solid platform for deeper integration with wider Asia-Pacific value chains. The conclusion of the scoping study means that actual negotiations could potentially commence later this year. Preparations are also well under way for an FTA between the EU and New Zealand (see Trade Perspectives, Issue No. 11 of 3 June 2016). Currently, the trade relationship between Australia and the EU is governed by the ‘EU-Australia Partnership Framework’ of October 2008, which aims at facilitating trade in industrial products between Australia and the EU by reducing technical barriers, including conformity assessment procedures. In 2015, the EU and Australia concluded a legally binding political framework agreement, which also includes some provisions on trade, but no specific (preferential) market access provisions. Additionally, there are a number of bilateral sectoral agreements covering non-tariff measures for industrial products (i.e., Mutual Recognition Agreements, or MRAs) and trade in wine.
On 15 November 2015, Australia and the EU agreed to commence work towards the launch of FTA negotiations. Preparatory work included the – now successfully concluded – scoping study on the future scope of the agreement and, on the EU side, a comprehensive impact assessment taking into account the agreed scope, the new opportunities that the agreement could create for EU businesses, as well as the sensitivities in the farming sector. The EU impact assessment is expected to be finalised and published within the coming months. On 25 February 2016, the European Parliament adopted a resolution on the opening of FTA negotiations with Australia and New Zealand and expressly endorsed the negotiations. The resolution called for the inclusion of a dedicated chapter on the needs and interests of small and medium-sized enterprises (SMEs), which is intended to be central to the scope of negotiations. The scoping study was initiated in 2015 and was originally expected to be finalised by late 2016, but was delayed several times. Reportedly, both sides will aim at full tariff liberalisation, applicable either at the time of entry into force of the agreement, or within seven years thereof, respectively. Therefore, all product sectors are supposed to be included in the upcoming market access offers. However, Australia and the EU also agreed on an option to request special treatment for the respective most sensitive products and, in that context, expressly referred to agricultural and processed agricultural goods. Such special treatment may include sustaining tariffs and longer phase-out periods.
For Australia, an FTA with the EU presents an important opportunity after the apparent failure of the TPP. In 2016, the EU with its 28 Member States was Australia’s third largest trading partner, after China and Japan. Australia ranked as the 19th largest trade in goods partner of the EU. Annual bilateral trade in goods amounted to more than 45.5 billion EURO in 2016, with a positive trade balance of more than 19 billion EURO on the EU side (i.e., EU imports worth 13 billion EURO and EU exports worth around 32 billion EURO). EU exports to Australia include mostly vehicles and machinery, but there is also a trade surplus in the agro-food sector. Australia’s exports to the EU are dominated by mineral commodities (fuels and mining products) and, again, agricultural products. In 2015, total trade in commercial services between the EU and Australia amounted to around 29 billion EURO (i.e., EU imports worth almost 10 billion EURO and EU exports worth almost 20 billion EURO). Finally, in 2015, the EU’s foreign direct investment stock in Australia amounted to around 146 billion EURO, while Australian investment stock in the EU was at around 25 billion EURO. However, ‘Brexit’ will have a considerable effect on the trade between the two parties and, therefore, also on the negotiation dynamics. For example, two-fifths of services trade is due to trade between Australia and the UK. Without the UK, the EU is only the second largest services trading partner, second largest source of services imports and third largest market for services exports. Within hours of the announcement by Australia and the EU, the UK’s Secretary for International Trade Liam Fox addressed an Australian Parliamentary Committee and noted the UK’s intention to accelerate talks for an Australia-UK FTA.
The agro-food sector looks poised to become one of the key contentious sectors during the upcoming negotiations. Australia maintains relatively high tariffs, in particular for processed agricultural and food products. This includes tariffs for cheeses, wines and spirits. For cheeses, the ‘Cheese and Curd Quota Scheme’ aims at improving the competitiveness of the Australian dairy industry through a combination of quota restrictions and tariff reductions. Additionally, strict Australian biosecurity measures impede certain EU exports such as pig meat products. At the same time, Australia is also an important producer of agricultural goods. In particular, Australia’s beef exporters are expected to advocate for the FTA and significant liberalisation benefitting beef products. Currently, Australian beef is subject to strict market access regulation by the EU. Together with Argentina, Canada, New Zealand, Uruguay and the US, Australia shares a tariff-free quota of 48,200 metric tonnes for grain-fed beef (i.e., the so-called High Quality Beef or HQB tariff-rate quota). Additionally, Australian beef exporters can dispose of a quota of 7,150 metric tonnes at a tariff rate of 20%. Reportedly, Australian beef exporters are concerned that they would soon reach the limits of the quota, which would render further growth impossible without amended market access rules. Important beef producing EU Member States, such as Ireland, will likely oppose any large increase of the quota or reduction of the tariffs. In the vegetables sector, Italy is interested in settling an important trade issue with respect to canned tomatoes. In 2016, Australia had imposed anti-dumping duties on canned tomatoes by a number of Italian companies, which have a 40% market share in Australia. Two companies lodged an appeal, which led to the removal of duties in one case and a reduction of duties in the other case. However, the duties are still applied vis-à-vis the other companies.
On a related note, Australia has, so far, been reluctant to embrace the EU’s approach on Geographical Indications (hereinafter, GIs). In 2015, Australia’s Deputy Secretary for Trade, Justin Brown, noted that Australia has historically maintained “different perspectives and approaches” in this area. Currently, only GIs for wines produced in the EU and in Australia are protected under the 2009 ‘Agreement between the European Community and Australia on trade in wine’, which replaced an earlier agreement from 1994. Negotiations on a multilateral register for wines and spirits are ongoing under the WTO Agreement on Trade-Related Intellectual Property Rights (TRIPs). However, GIs for other products are not recognised by Australia, referring EU manufacturers instead to Australia’s certification trademarks, which are only enforced through legal action by the holders of the trademarks. For instance, EU manufacturers have registered Australian certification trademarks for, inter alia, Prosciutto di Parma, Roquefort and Parmigiano Reggiano. In preparation of the FTA negotiations and the EU’s impact assessment, the EU specifically noted that products protected under EU’s GIs are facing abuses and imitation in Australia (see Trade Perspectives, Issue No. 4 of 26 February 2016 on ‘Italian sounding’ products). The European Parliament noted in its resolution that the “negotiations must result in strong and enforceable provisions covering the recognition and protection of intellectual property rights, including geographical indications (GIs)”. The diverging approaches will have to be consolidated during the negotiations and within the scoping study. Australia has reportedly already agreed to conditionally accept provisions on GIs.
Further important sectors for the negotiations will be the motor vehicles sector and the services sector. Due to existing FTAs between Australia and China, Japan, Korea and the US, motor vehicles originating in the EU are practically the only cars subject to import duties. Currently, Australia is applying a 5% import duty on cars and, more importantly, applies a 33% tax on luxury vehicles. Australia has a very competitive services sector and will likely aim at ambitious provisions in this area. As usual, the EU is expected to exclude audio-visual services from the agreement.
On 6 April 2017, Australia and the EU also announced that the next step would be for the Commission to request EU Member States’ authorisation to formally launch the negotiations and to receive specific negotiating directives (i.e., the negotiating mandate). The request to the Council of the EU is tentatively scheduled for June, but a decision is not expected until after the summer recess in August. Hence, discussions on the EU-Australia FTA are still at the beginning and will likely take several years to complete. However, considering the already high level of liberalisation and the relatively smooth trade relations, negotiations look poised to proceed more swiftly than with other negotiating parties. Stakeholders in Government, businesses and trade associations in Australia and the EU should be prepared to engage and interact with their relevant interlocutors within Australia and the EU.
Update on COOL: Italian draft decree on the mandatory indication of the address of the production facility; Compliance with Italian and French COOL measures
On 30 March 2017, Italy notified the Commission of a draft decree laying down rules for the mandatory indication of the name and address of the production facility or, if different, of the packing facility on labels (i.e., schema di decreto legislativo recante la disciplina dell’indicazione obbligatoria nell’etichetta della sede e dell’indirizzo dello stabilimento di produzione o, se diverso, di confezionamento, hereinafter the draft decree). This article also looks at the issue of compliance with Italian and French measures requiring country of origin labelling (hereinafter, COOL) for dairy products.
The draft decree would reintroduce into Italian law a requirement to indicate the establishment of production or packaging (where different) on the labels of certain foodstuffs sold to consumers (see, in relation to Italy’s previous plans to reintroduce mandatory labelling of place of production or packaging on food, Trade Perspectives, Issue No. 17 of 25 September 2015). Italy’s notification states that the draft decree complies with Regulation (EU) No. 1169/2011 of the European Parliament and of the Council of 25 October 2011 on the provision of food information to consumers (hereinafter, FIR).
Under Article 3 of the draft decree, pre-packaged food products intended for the final consumer or for mass caterers must indicate on their packaging or on a label affixed thereto the name of the production facility or, if different, of the packing facility. This shall apply without prejudice to Article 9(h) of the FIR, which states that the indication of the name or business name and address of the food business operator (hereinafter, FBO) referred to in Article 8(1) shall be mandatory. This provision establishes that the food business operator responsible for the food information shall be the operator under whose name or business name the food is marketed or, if that operator is not established in the EU, the importer into the EU market. The indication of the name and address of the production facility or, if different, of the packing facility, is not required under harmonised EU law.
According to Article 4 of the draft decree, the name of the production facility or, if different, of the packing facility, is identified by the locality and by the address of the facility. The address of the facility may be omitted where the indication of the locality clearly and immediately identifies the facility. The indication of the name of the production facility or, if different, of the packing facility may be omitted where: 1) the name is the same as the name indicated on the label in accordance with Article 9(1)(h) of the FIR; 2) the pre-packaged products bear the identification mark referred to in Regulation (EC) No. 853/2004 of the European Parliament and of the Council of 29 April 2004 or the health mark pursuant to Regulation (EC) No. 854/2004 of the European Parliament and of the Council of 29 April 2004; or 3) the mark indicates the name of the facility. Where the FBO responsible for providing food information has multiple facilities, all of his facilities may be indicated, provided that the one in which the product was made is indicated by stamping or another mark.
The justification of the draft decree with the need to protect consumers’ health, which should arguably result from the accurate information provided to consumers and enhanced traceability of food products, does not appear to be the real reason behind the Italian measure. Italian and EU law provide for the highest traceability standards throughout the production chain from farm to consumers, independently of how many production or packing plants are part of it. In case of a food safety incident, the national authorities are able (with the information provided by the FBOs) to trace back any product. It is, therefore, unclear, why the indication of yet another address on the already ‘loaded’ labels of food products is needed. However, the draft decree may be interpreted as a measure requiring COOL through the backdoor. By forcing Italian FBOs and their brands to indicate if they manufacture in other countries, consumers will see from the labels whether the product is, in fact, ‘Made in Italy’ or elsewhere. Under the FIR, only the indication of the name or business name and address of the responsible food business operator is required, not the address of the production facility.
COOL is required for a number of specific products (see Trade Perspectives, Issue No. 23 of 13 December 2013) and in cases where omission would be misleading. Italian FBOs and their brands may be forced to use Italian facilities only, in order to cater to those clients having a particular interest in buying Italian products. And arguably, to circumvent the proposed decree, an otherwise needless packaging step in Italy may be added so that an Italian address may be indicated. Article 7 of the draft decree provides for a mutual recognition clause providing that the draft decree does not apply to pre-packaged food products from another EU Member States or from Turkey, or to products from a Member State of the European Free Trade Agreement (EFTA), or signatory to the European Economic Area (EEA) agreement. Such a clause must be included in order not to discriminate against FBOs based in Turkey, and the EU, EFTA and EEA states. However, it must be noted that the discrimination may already happen (de facto) by forcing Italian FBOs to only use Italian facilities, what Italian consumers appear to demand.
The Italian Government has not notified this ‘backdoor’ COOL measure under the authorisation procedure foreseen in the FIR, according to which Italy has already notified measures relating to COOL for dairy products and pasta (see Trade Perspectives, Issue No. 5 of 10 March 2017). Reportedly, Italy is now also considering COOL for rice. So far, Italy only notified the draft decree 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. This way, the draft decree may not come under scrutiny of the Standing Committee on Plants, Animals, Food and Feed (SCPAFF Committee). Starting from the date of notification of the draft decree, a three-month standstill period until 3 July 2017 applies during which Italy cannot adopt the technical regulation in question, enabling the Commission and the other EU Member States to examine the notified text and to respond.
Dairy products are subject to mandatory COOL since 1 January 2017 in France (through Decree No. 2016-1137) and, since 18 April 2017, in Italy (through Decree of 9 December 2016). Both measures apply for a trial period of two years. The question arises as to whether FBOs comply with the new and burdensome COOL requirements for dairy products and whether there are sanctions enforced by the authorities in case of non-compliance. In April 2017, the French consumer organisation Que Choisir published a survey carried out on 40 products of major brands showing that, in more than 50% of the cases, “FBOs insist in maintaining opacity of the origin of the ingredients they use”. It must be noted that the survey also included products where meat is a substantial ingredient because the French COOL measure, unlike the Italian COOL measure, also applies to meat as an ingredient and not only to dairy products. There do not appear to be reports on sanctions for non-compliance with the new French and Italian COOL requirements yet. However, both national measures provide for sanctions in case of non-compliance. In case of infringements, Article 8 of the French Decree No. 2016-1137 foresees fines according to the 5th class of Article 131-13 of the French Penal Code (i.e., 1,500 EURO, which can be raised to 3,000 EURO in case of recidivism). The applicable fines under Article 5 of the Italian Decree of 9 December 2017 are set out in Article 4 of the Law of 3 February 2011 on labelling and quality of food products (i.e., Legge di 3 febbraio 2011, n. 4 Disposizioni in materia di etichettatura e di qualita' dei prodotti alimentari) and may amount to between 1,600 and 9,500 EURO. Violations of the draft decree are subject to a fine of between 2,000 and 18,000 EURO.
The increased (regulatory) activity in EU Member States on COOL and the eventual sanctions by national authorities for non-compliance should be closely monitored and stakeholders should be prepared to participate in the ongoing debates by interacting with the relevant EU institutions, EU Member States, trade associations and affected stakeholders. The consistency of these rules with EU law and WTO rules remains questionable and may lead to potentially costly and destabilising litigation, as well as legal uncertainty for economic operators and consumers. In the future, the Court of Justice of the European Union (hereinafter, CJEU) will probably have to decide on whether certain national EU Member States’ COOL measures comply with EU law, in particular the provisions on free movement of goods. For example, the CJEU may receive a question referred for a preliminary ruling in the context of an appeal against a sanction for non-compliance imposed under any of these national COOL schemes.
Recently Adopted EU Legislation
Trade Remedies
Food and Agricultural Law
Other
Ignacio Carreño, Tobias Dolle, Lourdes Medina Perez, Bruno G. Simões and Paolo R. Vergano contributed to this issue.
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