Trade Perspectives©

11 March 2024

 

The African Union adopts a Protocol on Digital Trade: A significant step towards harmonised rules or towards adverse impacts for businesses?

On 18 February 2024, the African Union Assembly adopted the much-anticipated Protocol on Digital Trade (hereinafter, the Protocol) under the African Continental Free Trade Area (hereinafter, AfCFTA). While the full text of the Protocol is not yet publicly available, on 9 February 2024, the AfCFTA Secretariat had published the draft Protocol, which aims, notably, to “promote and facilitate intra-African digital trade by eliminating barriers to digital trade among the State Parties” and to “establish predictable and transparent harmonised rules, and common principles and standards for digital trade”. This article provides an overview of the draft Protocol and underscores the areas where the digital trade rules align with or diverge from other similar agreements and their potential implications for businesses.

The AfCFTA Protocol on Digital Trade and related global developments

In May 2019, the African Continental Free Trade Area, one of the largest free trade areas in the world, with a market of more than 1.3 billion people in 54 African Countries, entered into force. The AfCFTA seeks to remove tariffs on 90% of goods, promote the socioeconomic transformation of Africa through industrialisation, and is supposed to lead to a 50% increase in intra-Africa trade. In 2020, the Heads of State and Government of the African Union mandated negotiations for a Protocol on Digital Trade under the AfCFTA and endorsed the deadline of December 2021 for its conclusion.

With the adoption of the Protocol on Digital Trade, the AfCFTA joins the growing list of preferential trade agreements (hereinafter, PTAs) with detailed chapters on digital trade, such as the Agreement on Electronic Commerce of the Association of Southeast Asian Nations (ASEAN), the EU’s recent PTAs, and Singapore’s Digital Economy Agreements, as well as cross-regional PTAs, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (hereinafter, CPTPP). Until now, only two African countries have negotiated provisions on digital trade for their agreements with trading partners, namely Kenya under the US-Kenya Strategic Trade and Investment Partnership (STIP) and Morocco under the US-Morocco Free Trade Agreement. These developments occur in parallel to the plurilateral negotiations for an Agreement on Trade Related Aspects of Electronic Commerce at the World Trade Organization (hereinafter, WTO).

The AfCFTA Protocol on Digital Trade is very timely, given the growing economic importance of digital trade in Africa. According to a joint study by the WTO and the World Bank, “on average, Africa’s exports of digitally delivered services have increased by 7.3 percent per year since 2015 (just below the global average of 8.6 percent)”. The study further notes that the largest sectors of digitally delivered services include business, professional, and technical services, followed by telecommunications and computer services. However, the continuation of Africa’s positive trend for digitally delivered services could depend on how the Protocol balances the liberalisation of digital trade and the policy space accorded to African countries to regulate digital trade in the interest of legitimate public policy objectives and other broader societal interests.

The AfCFTA Protocol on Digital Trade: Setting the stage for greater harmonisation?

The draft Protocol indicates a broad scope and depth of coverage compared to similar commitments in, for instance, the CPTPP and the EU’s PTAs with New Zealand and Chile. The draft Protocol contains 52 articles and is divided into eleven parts, namely: 1) General provisions; 2) Market access and treatment of digital products; 3) Facilitating digital; 4) Data governance; 5) Business and consumer trust; 6) Digital trade inclusion; 7) Emerging technologies and innovation; 8) Institutional arrangements; 9) Transparency; 10) Technical assistance, capacity building and cooperation; and 11) Final provisions.

Pursuant to Article 46(1) thereof, the draft Protocol foresees the adoption of Annexes on rules of origin, cross-border digital payments, cross-border data transfers, criteria for determining the legitimate public reasons for disclosure of source code, digital identities, financial technology, emerging and advanced technologies, and online safety and security, which must be negotiated “after the adoption” of the Protocol. This list is non-exhaustive, as Article 46(2) notes that “State Parties may develop any additional annexes as deemed necessary for effective implementation of this Protocol”, and once adopted, the Annexes will “form an integral part” of the Protocol. The broad scope and depth of coverage could be due to the fact that many African countries are yet to establish the necessary regulatory frameworks for digital trade. The Protocol will, therefore, act as the reference point for policy makers to ensure regulatory harmonisation across the Continent. For example, currently, only thirty-six out of fifty-four African countries have enacted data protection laws.

In general terms, the draft Protocol aligns with digital trade commitments in other trade agreements regarding, inter alia, personal data protection, the protection of the source code of software, cybersecurity, online consumer protection, digital inclusion, as well as rules required to facilitate digital trade, such as paperless trading, electronic contracts, electronic invoicing, digital identities, and digital payments. This alignment is particularly beneficial for businesses engaged in, or interested in, Africa’s burgeoning digital economy, as it provides a standardised framework that promotes legal and commercial certainty.

Africa’s priority: Regional integration before global integration?

Notably, the draft Protocol diverges in various instances from global best practices on key aspects related to digital trade, such as regarding market access and non-discriminatory treatment of digital products, cross-border data transfers, and data localisation requirements. This could reflect Africa’s priorities in those areas, particularly supporting the growth of nascent African companies providing digitally traded goods and services, by creating possibilities for African countries to limit market access for foreign ‘like’ goods and services. This is intended to enable African countries to prioritise broader societal interests, such as closing Africa’s digital divide with the rest of the world, even if it means deviating from well-established commitments in other PTAs and disregarding the possible adverse implications for businesses.

For example, in the context of market access and the Customs treatment of digital products, Article 5 of the draft Protocol foresees an Annex on Rules of Origin, which would lay down “Rules of Origin for the determination of origin of African-owned enterprises, African digital platforms and African content” and would “define the scope of digital products covered by the Protocol, taking into account the objective to develop an AfCFTA Digital Market, trade in African products, promotion of African firms and use of African digital platforms”. This implies that, once the Annex on Rules of Origin is adopted, digitally traded goods or services not meeting the criteria set therein, would not be eligible for preferential treatment under the draft Protocol. It also appears that the rules of origin would be intended to assist in effectuating some of Africa’s policy priority areas, for example, South Africa’s Communication to the WTO of 1 December 2023, which strongly criticises the WTO Moratorium on electronic transmissions due to, inter alia, the loss of revenues that would have otherwise accrued to the Government. In that context, pursuant to Article 6(1) of the draft Protocol, the prohibition against imposing Customs duties on electronic transmissions is “subject to the scope and origin criteria that shall be set out in the Annex of Rules of Origin”. Such provision is inconsistent with the WTO Moratorium on customs duties on electronic transmissions (see Trade Perspectives, Issue No. 13 of 4 July 2022), which was recently extended at the 13th WTO Ministerial Conference in February 2024.

Additionally, with respect to the requirements on the location of computing facilities, Article 22 of the draft Protocol prohibits the Parties to the Protocol from requiring businesses “to use or locate computing facilities in their territories as a condition for conducting digital trade in the territory”. That prohibition is limited in scope compared to the new rules on cross-border data flows agreed in the EU-Japan Economic Partnership Agreement, which prohibits six forms of data localisation measures relating to the use of computing facilities or network elements, storage or processing, and obtaining prior approval for data transfers, (see Trade Perspectives, Issue No. 21 of 20 November 2023). Notably, the requirements mandating companies to keep data within a territory are prevalent in Africa, with varying degrees of strictness. For example, all government data, subscriber and consumer data in Nigeria, and the data for public cloud computing services and e-commerce operators in Algeria, are subject to data localisation requirements, for various objectives, such as data protection and the protection of national security, which in turn, inform the exceptions applied to cross-border data flows. However, measures taken to achieve such objectives can be perceived as protectionist in nature, intended to protect local service providers from the competition of ‘like’ foreign service providers. The European Commission notes that, “from a trade perspective, unjustified data localisation requirements can raise the cost of conducting business across borders”.

Leveraging digital trade in Africa: Opportunities and challenges

Pursuant to Article 47(2) of the draft Protocol, the Protocol would enter into force 30 days after the 22nd instrument of ratification is deposited with the Chairperson of the African Union Commission. For each State Party that accedes to the Protocol thereafter, the Protocol will enter into force on the date that the State Party deposits its instrument of accession. The timeframe for the Protocol to become effective remains uncertain. Once the Protocol has entered into force, there will be a phase-in period, as Article 48 of the draft Protocol requires the State Parties to “align their national laws, rules and regulations with this Protocol within the period of five (5) years from its entry into force”.

The Protocol will create a common understanding of the regulation of the digital economy in Africa, which presents significant opportunities for businesses to expand their market reach across the Continent. However, deviations from conventional best practices on digital trade rules concerning Customs duties on electronic transmissions, cross-border data flows, and data localisation requirements, which are fundamental for businesses to leverage the benefits of digital trade, could constitute potential barriers to digitally traded goods and services not only with the rest of the world, but also among African countries. Therefore, it is essential for businesses to continue engaging with regulators, as the AfCFTA Protocol on Digital Trade enters into force and is implemented throughout the Continent. While the framework has been set out, it will still be necessary and essential for the various Annexes to be developed over the next few years to give effect to the overall framework. Interested stakeholders should closely follow the developments and voice their concerns and interests, seeking legal assistance where necessary to navigate the new rules.

 

Promoting sustainable finance: The Government of Indonesia updates the Taxonomy for Green Investment

On 18 February 2024, Indonesia’s Financial Services Authority published the Taxonomy for Indonesia’s Sustainable Finance (hereinafter, 2024 Taxonomy), which is a non-binding guidebook setting out a classification of economic activities that support Indonesia’s efforts to achieve sustainable development objectives. The 2024 Taxonomy is an updated version of the Taxonomy for Green Investment, which was published in January 2022 (hereinafter, 2022 Taxonomy) and that defined “what is considered a sustainable investment in support of Indonesia’s pledge to achieve net-zero emissions by 2060”. This article provides a brief overview of sustainable finance in Indonesia, an overview of the 2022 Taxonomy and of the 2024 Taxonomy, which are complementary in nature, and discusses the implications for businesses and investors.

Indonesia’s Roadmap for Sustainable Finance

In recent years, the concept of ‘sustainable finance’, which refers to the incorporation of environmental, social, and governance considerations (e.g., climate change mitigation and the preservation of biodiversity) when making investment decisions, has been increasingly adopted by businesses and financial institutions. As part of the Government of Indonesia’s efforts to pursue sustainable finance, Indonesia’s Financial Services Authority issued two roadmaps that outline the targets and stages for implementing sustainable finance during the respective periods.

The Roadmap for Sustainable Finance 2015-2019 aimed to “increase the understanding and capacity of financial services sector actors to move towards a low-carbon economy” by, inter alia, calling on the introduction of sustainable finance principles and the identification of sustainable business criteria. Subsequently, the Sustainable Finance Roadmap Phase II for 2021-2025 has focused on creating “a comprehensive sustainable finance ecosystem”, by, inter alia, calling for the establishment of a “green taxonomy” to help relevant stakeholders assess whether certain economic activities can be considered sustainable.

Indonesia’s 2022 Taxonomy for Green Investment

The 2022 Taxonomy established the classification of economic activities that support Indonesia’s “environmental protection and management efforts, as well as mitigation and adaptation to climate change”. The 2022 Taxonomy covers 919 economic sub-sectors/groups/business activities, in line with the 2017 Indonesian Standard for Industrial Classifications, and adopts a “traffic-light” system by categorising economic activities into three categories: 1) Green for activities that “do no significant harm, apply minimum safeguard, provide positive impact to the environment and align with the environmental objective of the taxonomy”; 2) Yellow for activities that “do no significant harm” to the environment but that are still in a “transition” to align with Indonesia’s environmental objectives; and 3) Red for activities that are harmful to the environment.

The 2022 Taxonomy is intended to be a living document that is to be revised when there are new “green” business activities, changes in environmental standards and policies, as well as technological advancements.

Changes introduced by the 2024 Taxonomy

On 20 February 2024, Indonesia’s Financial Services Authority published an update to the 2022 Taxonomy, namely the 2024 Taxonomy, which is intended to be interoperable with other taxonomies, particularly the ASEAN Taxonomy for Sustainable Finance Version 2. The 2024 Taxonomy focuses on five sectors that are included in Indonesia’s Nationally Determined Contribution (hereinafter, NDC) in the context of the United Nations Framework Convention on Climate Change in 2022, namely waste, industrial processes and production use, agriculture, as well as forestry and other land uses. The 2024 Taxonomy puts a primary focus on the economic activities in the energy sector and will gradually cover the other four sectors included in the NDC. Economic activities that fall within the scope of the 2022 Taxonomy, but that are not included in the 2024 Taxonomy, will still be classified in accordance with the “traffic-light” classification system of the 2022 Taxonomy.

Following a different approach than the 2022 Taxonomy, the 2024 Taxonomy classifies economic activities as either “green” or “transitional”. “Green” refers to economic activities that are aligned with the objectives of the Paris Agreement and that consider Indonesia’s net-zero emissions objective. “Transitional” activities refer to economic activities that are not yet in line with the commitments to limit the increase of global temperatures and the net-zero emissions objective, but that fulfil social aspects and that: 1) Move towards the “green” classification within a certain period; 2) Facilitate significant emission reduction in the short or intermediate term; or 3) Encourage other activities to be sustainable.

In general terms, to be classified as “green” under the 2024 Taxonomy, an economic activity must contribute to at least one of four environmental objectives and must not cause harm or loss to the other environmental objectives. The four environmental objectives are: 1) Climate change mitigation; 2) Climate change adaptation; 3) Protection of healthy ecosystems and biodiversity; and 4) Resource resilience and the transition to a circular economy. The 2024 Taxonomy also requires any economic activity to fulfil three “essential criteria”, namely: 1) ‘Do no significant harm’; 2) Remedial measures to transition; and 3) Social aspects (e.g., the protection of human rights).

The 2024 Taxonomy does not provide a list of economic activities considered as “green” or “transitional”. Instead, it relies on two assessment approaches to determine the classification of an economic activity, namely the Technical Screening Criteria and the Sector-Agnostic Decision Tree. The Technical Screening Criteria, which apply to economic activities conducted by corporations or by companies other than micro, small and medium enterprises (hereinafter, MSME), classify activities based on their contributions to environmental objectives using quantitative or qualitative criteria, as well as nature of activity-based criteria. Meanwhile, the Sector-Agnostic Decision Tree, which applies to economic activities conducted by MSMEs, classifies activities based on specific criteria for each environmental objective, and is accompanied by guiding questions, such as whether an economic activity prevents or helps in reducing emissions.

The complexities of coal-fired power plants and the 2024 Taxonomy

Coal-fired power plants, a large contributor of greenhouse gas (GHG) emissions, are Indonesia’s dominant source of electric power. In 2022, Indonesia produced 687 million metric tonnes of coal and 60% of the country’s electricity was generated from coal-fired power plants. As part of its commitments under the Paris Agreement and under the Just Energy Transitional Partnership (JETP) to decrease its GHG emissions, Indonesia committed to phase-out coal-fired power plants (see Trade Perspectives, Issue No. 23 of 12 December 2022). In support of this commitment, the 2024 Taxonomy categorises economic activities that accelerate the retirement of coal-fired plants as either “green” or “transitional”, depending on several factors, such as the duration of the plant’s operation.

At the same time, in order to “support Indonesia’s energy transition that is balanced and gradual”, the 2024 Taxonomy categorises the development of new captive coal-fired power plants, set out in Indonesia’s Electricity Supply Business Plan (i.e., Indonesia’s national plan for electricity generation, distribution, and transmission) as “transitional”, subject to certain criteria. Notably, the plants must be built before 2031, be retired before 2050, and relevant operators must commit to decreasing their greenhouse gas emissions by 35% within ten years of commencing operations. Previously, coal and coal-fired power plants were labelled as “red” under the 2022 Taxonomy. The Chairman of Indonesia’s Financial Services Authority’s Board of Commissioners, Mahendra Siregar, noted that the 2024 Taxonomy “takes a more comprehensive look at priorities in a wider context” with respect to carbon emissions reduction by balancing social progress and economic development aspects.

The move by the Government of Indonesia to categorise the development of new captive coal-fired power plants as “transitional” has sparked criticism from environmentalists. For instance, Yayasan Indonesia Cerah, an organisation that campaigns for a faster energy transition, claimed that this move raised “doubts about the taxonomy’s maturity and questions its reliability in achieving climate commitments”. The revision also reflects Indonesia’s conflicting interests to prioritise the development of its domestic industry over its climate ambition. According to the Financial Services Authority, the development of captive coal power plants is justified, as it supports the availability of minerals for supporting energy transition, such as nickel for electric vehicles. Notably, captive power plants are mostly built within processing facilities for minerals, such as smelters for aluminium and nickel that are often located in remote areas that lack access to power grid. Indonesia’s investments in captive power plants have been increasing to support its downstream mining industry, particularly for the processing of nickel.

Making use of Indonesia’s new Taxonomy for Sustainable Finance

The main objectives of Indonesia’s taxonomies are to provide a common framework for determining which economic activities can be considered ‘green’ or environmentally sustainable and to create a reference framework for investors and businesses. Investors can refer to the criteria under the 2022 Taxonomy or the 2024 Taxonomy, as relevant, when it comes to their due diligence efforts to identify sustainable investment opportunities or to assess the environmental impact of their investment portfolios in Indonesia. Businesses can use the 2022 Taxonomy and the 2024 Taxonomy to, inter alia, improve their environmental performance, such as by adapting their existing activities in accordance with the respective taxonomy’s criteria, to gain access to “green” financing, as well as to avoid reputational risks associated with unsustainable practices.

The interoperability of classification between the new 2024 Taxonomy and the ASEAN Taxonomy would allow investors that are already familiar with the standards and classification of the ASEAN Taxonomy to easily navigate Indonesia’s 2024 Taxonomy. This would enhance Indonesia’s access to a larger pool of capital from regional and international investors and would foster greater collaboration among ASEAN Member States to address common environmental challenges in the region. As the classification of businesses’ activities under the 2024 Taxonomy will have to be assessed and identified on a case-to-case basis, businesses should consider seeking expert assistance to undertake an accurate assessment of their business activities or investments.

 

Italy bans the production and sale of cultivated meat, as well as the use of meat-related terms on plant-based meat product labelling

On 1 December 2023, Italy published Law No. 172 on Provisions regarding the ban on the production and placing on the market of food and feed consisting of, isolated or produced from cell or tissue cultures deriving from vertebrate animals as well as the ban on the denomination of meat for processed products containing vegetable proteins (hereinafter, Law No. 172/2023) in its Official Journal and it entered into force on 16 December 2023. Law No. 172/2023 bans the production and sale of cultivated meat within the country, as well as the use of meat-related terms, such as ‘steak’ and ‘salami’, on the labels of plant-based products. The article provides an overview of Law No. 172/2023 and addresses the regulatory issues related to cultivated meat in the EU, notably with respect to Regulation (EU) No 2015/2283 on novel foods (hereinafter, the NFR), as well as the use of ‘meaty’ names on plant-based products.

The prohibition of cultured meat and of meaty names in Italy

Article 2(1) of Law No. 172/2023 concerns the ‘Ban on the production and marketing of food and feed consisting of, isolated or produced from cell or tissue cultures deriving from vertebrate animals’. It provides that, “Based on the precautionary principle (…), food sector operators and feed sector operators are prohibited from using in the preparation of food, drinks and feed, selling, holding for sale, importing, producing for export, administer or distribute for food consumption or promote for the aforementioned purposes foods or feeds consisting of, isolated or produced from cell or tissue cultures deriving from vertebrate animals”.

Article 3(1) of Law No. 172/2023 concerns the ‘Ban on meat designation for processed products containing vegetable proteins’. It provides that “In order to protect the national livestock heritage, recognizing its high cultural, socio-economic and environmental value, as well as adequate support for its valorisation, while ensuring a high level of protection of human health and the interests of citizens who consume and their right to information, for the production and marketing on the national territory of processed products containing exclusively vegetable proteins, the use of: a) legal, usual and descriptive names referring to meat, to a meat-based production or to products obtained predominantly from meat; b) references to animal species or groups of animal species or to an animal morphology or animal anatomy; c) specific terminologies of butchers, delicatessen or fisheries; d) names of foods of animal origin representative of commercial uses”.

Article 5(1) of Law No. 172/2023 establishes ‘Sanctions’ in case of non-compliance, which can be either monetary or result in the closing of a business’ production plants for one to three years.

Cultured meat in the EU and the EU’s Novel Foods Regulation

Cultured meat, which is also known as synthetic, artificial, or in vitro meat, is a product obtained by harvesting muscle cells from animals, then placing the harvested cells in a breeding medium and, finally, into a bioreactor, similar to that used for the fermentation of beer or yogurt, which supports the growth of muscle tissue fibres. The animal cells are ‘fed’, inter alia, with minerals, salt, and proteins in order for them to continue growing and developing tissues, which then become the cultured meat.

In the EU, cultured meat is considered a novel food, which refers to a food that was not used for human consumption to a significant degree within the EU before 15 May 1997, irrespective of the dates of accession of EU Member States. This includes newly developed, innovative food, or food produced using new technologies and production processes, as well as food traditionally consumed outside of the EU. According to Article 3(2)(a)(vi) of the NFR, “food consisting of, isolated from or produced from cell culture or tissue culture derived from animals, plants, micro-organisms, fungi or algae” falls within the scope of the NFR. The NFR aims at improving conditions so that food businesses can easily bring new and innovative foods to the EU market, while a high level of food safety for consumers is maintained. One of the main features and improvements of the NFR, compared to the previous regulatory framework, concerns the expanded category of novel foods, now including food consisting of, isolated from, or produced from cell culture or tissue culture.

The NFR provides for a centralised authorisation procedure managed by the European Commission (hereinafter, Commission), while centralised safety evaluations of the novel foods are carried out by the European Food Safety Authority (hereinafter, EFSA). The Commission consults the EFSA on the applications and bases its authorisation decisions on the outcome of the EFSA’s evaluations. The NFR contains provisions for the safety assessment of novel foods before they are placed on the market for specific labelling requirements to ensure a high level of health protection and consumer information about specific characteristics or food properties. In addition, the Commission may also, for safety reasons, and taking into account the opinion of the EFSA, impose post-market monitoring requirements.

No application for the authorisation of in vitro meat has been received so far by the Commission in the context of novel food. Some experts think that there is likely to be an application for an authorisation soon, whereas others think that it could still be several years before cultured meat may be placed on the EU market. Before that, and according to some reports, the EFSA will assess the safety of cultured meat, paying particular attention to elements such as growth factors and hormones, culture conditions, antimicrobials, hygiene measures, equipment and potential by-products, impurities, or contamination risks.

The reliance on the precautionary principle for banning cultured meat in Italy

Italy’s ban on the production and marketing of food and feed consisting of, isolated or produced from cell or tissue cultures deriving from vertebrate animals is based on Article 7 of the EU’s General Food Law (i.e., Regulation (EC) No 178/2002 of the European Parliament and of the Council of 28 January 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), which establishes the general requirement for the application of the ‘precautionary principle’ in the EU. Article 7(1) states that, “In specific circumstances where, following an assessment of available information, the possibility of harmful effects on health is identified but scientific uncertainty persists, provisional risk management measures necessary to ensure the high level of health protection chosen in the Community may be adopted, pending further scientific information for a more comprehensive risk assessment”.

Importantly, after assessing the available information, the possibility of harmful effects on health must have been identified for the precautionary principle to be applied. Under Article 7(1) of the EU’s General Food Law, the precautionary principle may only be applied following an assessment of the available information and where the possibility of harmful effects on health is identified, provided that scientific uncertainty persists. An ex-ante prohibition of cultured meat produced with a relatively new technology, without the identification of possible harmful effects on health, as Italy has done, appears to be, from a legal point of view, unnecessary and arguably not in compliance with the NFR.

Regarding the application of the precautionary principle, it must be noted that, under the NFR, novel foods are to be authorised by the Commission after a thorough safety assessment by the EFSA. In this regard, Recital 20 of the NFR states that “Novel foods should be authorised and used only if they fulfil the criteria laid down in this Regulation. Novel foods should be safe and if their safety cannot be assessed and scientific uncertainty persists, the precautionary principle may be applied”. Article 7(2) of Regulation (EC) No 178/2002 states that measures based on the precautionary principle must be “proportionate and no more restrictive of trade than is required to achieve the high level of health protection” pursued in the EU and must be reviewed “within a reasonable period of time, depending on the nature of the risk to life or health identified and the type of scientific information needed to clarify the scientific uncertainty and to conduct a more comprehensive risk assessment”.

These are all elements that do not appear to have been considered in the context of Italy’s Law No. 172/2023. Recital 42 of the NFR makes reference to the principle of subsidiarity and states that, “Since the objectives of this Regulation, in particular the laying down of rules for the placing of novel foods on the market within the Union, cannot be sufficiently achieved by the Member States but can rather be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity”. This suggests that Italy may not have the competence to legislate in this field.

Procedural issues and enforcement

On 27 July 2023, Italy had notified its draft law to the Commission, which must be done when a new law is introduced that could threaten the EU’s Single Market, allowing EU Member State and stakeholders to submit comments. However, before the end of the standstill period on 30 October 2023, Italy withdrew the notified draft and then adopted the law. According to media reports, Italy intends to “enforce the law” and, those affected by the Law, could challenge it in Italian courts “to declare the national law inapplicable”. Various media reports also noted that, while the prohibition to produce cultivated meat in Italy itself could be enforceable, the “prohibition on the marketing of legally cultivated meat from other EU member states may not, as it breaches the principle of mutual recognition”.

Italy also appears to be reconsidering the ban on using meat-like terms on plant-based product labels. In that regard, Italy’s Minister of Agriculture, Francesco Lollobrigida, reportedly indicated that he did “not want to have any conflict with local manufacturers”. In France, the Conseil d’État requested a preliminary ruling from the Court of Justice of the EU regarding France’s ban of ‘meaty’ terms for plant-based food products (see Trade Perspectives, Issue No. 16 of 11 September 2023).

Implications of a ban for businesses

The prohibition in Italy is poised to have major implications for the developing cell-based foods industry. Although there has been progress in cultured meat in recent years, production appears to remain small. To date, Singapore is the only country to have allowed the sale of cultured chicken, while companies in the US have been granted regulatory clearance to produce lab-grown chicken. In Israel, in January 2024, the Ministry of Health has issued regulatory approval for Aleph Farm’s cultivated beef. European countries, including the UK, the Netherlands, and Spain, have announced investments in research and in the development of cell-based foods.

The prohibition could damage the opportunity of Italy to take part in cell-based innovations in view of fragile supply chains, increased domestic and international supply constraints, and for Italy’s competitiveness in the global agri-food industry. Cultivated meat appears to be a nascent industry that also has the potential to become a major economic driver, creating new jobs and business opportunities. Questions should also be asked in relation to the competence and legal basis for individual EU Member States to take actions with respect to this novel food industry, as their actions may be short-lived, damaging, and leading to regulatory and industrial fragmentation of the EU market.

 

Recently adopted EU legislation

Trade Law

 

Trade Remedies

 

Food Law

 

Ignacio Carreño, Joanna Christy, Tobias Dolle, Alejandro López Bo, Alya Mahira, Stella Nalwoga, and Paolo R. Vergano contributed to this issue.

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