Issue Number 12: 17th June 2016

The EU and the Philippines kick off negotiations for a free trade agreement
The European Commission finally presents its criteria to be used to identify endocrine disruptors in the field of plant protection products and biocides
An update on Nutrient Profiles in light of the Dextro Energy case
Recently Adopted EU Legislation

The EU and the Philippines kick off negotiations for a free trade agreement

On 23-27 May 2016, the EU and the Philippines held their first negotiating round for a free trade agreement (hereinafter, FTA) in Brussels. On 3 June 2016, the European Commission (hereinafter, Commission) published a report of those negotiations (hereinafter, Report). The main objective of this first round was to clarify the respective negotiating approaches and start focussing on some of the key areas of negotiation

After the Council of the EU authorised the Commission to begin FTA negotiations with the Philippines (see Trade Perspectives, Issue No. 22 of 4 December 2015), trade negotiations were officially launched at the political level on 22 December 2015 (see Trade Perspectives, Issue No. 1 of 15 January 2016). The Philippines is now the fifth individual ASEAN Member State (hereinafter, AMS) to either having concluded or be in the process of negotiating an FTA with the EU. Originally, the EU and ASEAN initiated negotiations to conclude a ‘region-to-region’ agreement, but the parties agreed to put those discussions on hold, due to the complexity and sensitivity of ‘block-to-block’ trade negotiations. Instead, the Council of the EU decided to pursue negotiations with individual AMSs. FTA negotiations with Singapore were concluded in 2014, those with Viet Nam in 2015, and negotiations with Malaysia and Thailand are still ongoing, but de facto suspended. Indonesia looks poised to be the next ASEAN Member State to commence trade negotiations with the EU. The strategic objective of the ‘region-to-region’ agreement has been maintained, insomuch as the individual agreements are to be concluded with a view to eventually use these agreements as ‘stepping stones’ for an EU-ASEAN FTA (see Trade Perspectives, Issue No. 9 of 4 May 2012), but the process is now piecemeal, particularly on the ASEAN side.

While negotiations with the Philippines are still at a very early stage, various issues look poised to be at the centre of negotiations. The first, and perhaps one of the more complex issues, will likely be that of fisheries, in particular with respect to illegal, unreported and unregulated (hereinafter, IUU) fishing. In 2014, the EU issued a warning to the Philippines regarding a possible violation of the EU standard on traceability of imported fish products. The warning has since been revoked by the EU, after the Philippines enacted a new fisheries law that is supposed to ensure compliance with international agreements on fishing, as well as institute measures to help prevent illegal fishing and protect marine resources. During the first negotiating round, the Commission already indicated that the EU will put forth its approach for an ambitious chapter on trade and sustainable development that will include the sustainable management of natural resources, including fisheries. The issue of IUU fishing has particular importance because tuna represents a major Filipino export to the EU. The Philippines is a major fishing nation and it is the world’s second largest archipelagic state, where, expectedly, its fishery products sector plays a key socio-economic role. In 2014, the fishery products sector in the Philippines represented about 1.6% of its gross domestic product (hereinafter, GDP) (equivalent to gross value-added of USD 4.4 billion). The same year, fishery exports totalled USD 1.3 billion, with tuna leading the export list (USD 443 million), followed by seaweed (USD 219 million) and shrimp/prawn (USD 120 million). For its part, the EU imported fishery products worth EUR 185 million from the Philippines in 2015, which represented 2.7% of total imports from the country. While this made the Philippines only the EU’s 27^th source of fishery imports worldwide, and accounted for under 1% of total fishery imports into the EU, in 2014 the Philippines ranked as the 7^th largest foreign supplier of canned tuna to the EU and tuna represented, in terms of value, more than 90% of the EU’s fishery imports from the Philippines. Additionally, tuna is among the products for which the Philippines is expected to advocate for rather ‘flexible’ rules of origin, thus extending market access to a larger range of products. The FTA negotiations offer a unique opportunity for the Philippines to continue to combat IUU fishing, while increasing the market access of its fishery products to the EU. FTA negotiations should ensure continuous access to the EU market for Philippines’ fishery products, in particular tuna.

The second key negotiating issue is the ambition to include provisions on trade and investment in energy and raw materials. Indeed, the Philippines is a country with significant mineral deposits in 30% of its land area, or 9 million hectares, including gold, copper, nickel, aluminium and chromite. It is considered one of five countries worldwide with the highest overall mineral reserves. The Philippines’ mining sector is made up of 47 large-scale mines, 23 of which are owned by foreign investors. Recently, evidence of the social and environmental effects of mining operations appears to be growing in the Philippines, and all of the presidential candidates in the 2016 Philippines’ presidential election campaigned for ‘responsible mining’. Therefore, some political actions can be expected within this sector. Concerns have been raised that the future FTA’s provisions on investment protection could impede the Philippines’ ability to restructure the mining industry. Economically speaking, however, the Philippines’ mining sector is currently of negligible significance, providing less than 1% of the Philippines’ GDP. Criticism was already voiced by the ‘Filipino coalition against mining’, which asserted that the future agreement could allow investors to sue the Filipino Government in international arbitration tribunals, if they believe that their business operations have been unduly affected. Concerns largely stem from the fact that, in recent times, a high number of international investment arbitration cases related to mining. While such concerns must be taken seriously, in order to continue to improve investment protection systems, the most recent investment protection schemes have taken into account previous shortcomings, and have introduced significant changes. Most importantly, the EU and its trading partners have emphasised the ‘right to regulate’ (see e.g., Article 13bis of Chapter II of Chapter 8 of the EU-Viet Nam FTA), as well as definitions for breaches of the obligation of fair and equitable treatment (see e.g., Article 14 of Chapter II of Chapter 8 of the EU-Viet Nam FTA). Concerning investment protection, the EU will likely put forward provisions similar to those included in the EU-Viet Nam FTA, as well as the EU’s proposed Investment Court System, which is under discussion in the negotiations for, inter alia, the Transatlantic Trade and Investment Partnership (TTIP).

The third sensitive issue, which was already mentioned in the EU’s 2009 EU-ASEAN Sustainability Impact Assessment, will be the regulation of the rice sector. This is of particular relevance to the Philippines because of a waiver relating to special treatment for rice within the meaning of Article IX:3 of the WTO Agreement concerning its obligations under Articles 4.2 and Section B of Annex 5 of the Agreement on Agriculture and currently allowing the retention of its import monopoly and quantitative restrictions. The waiver was originally granted by the WTO in 1995, and in 2006 it was extended until 30 June 2012. The further extension recommended by the WTO Council for Trade in Goods during its meeting on 19 June 2014, and adopted by the WTO General Council on 24 July 2014, will expire on 30 June 2017. The expiration of this special treatment will likely cause intensified competition from imports and lower domestic prices, and may thus threaten farmers’ income. According to the relevant WTO document, the Philippines will begin subjecting rice to ordinary customs duties, established on the basis of a tariff-equivalent rate determined in accordance with paragraph 10 of Section B of Annex 5 to the WTO Agreement on Agriculture and the ‘Guidelines for the Calculation of Tariff Equivalents’ attached to Annex 5, once the waiver expires. In 2014, rice farmers accounted for approximately one-third of the Philippines’ labour force. Currently, the Philippines is the world’s eighth largest rice producer, but due to high consumer demand, the Philippines still imports about 10% of its annual rice consumption requirements. Its National Food Authority remains very involved in the market, but is reportedly trying to “stimulate gradual and healthy competition in the domestic rice production as it becomes more market-oriented”. Although negotiations will likely only be concluded after the expiration of the special treatment, FTA negotiations should anticipate the potential problems arising from this issue and tackle this sensitive topic before it has the opportunity to significantly affect Philippines’ farmers.

The fourth controversial issue concerns the exchange of views on intellectual property rights relative to pharmaceuticals (and other issues). This is confirmed by articles citing internal Commission’s reports. Indeed, in parallel to the first negotiating round, the Thailand-based civil society group ‘Focus on the Global South’ held various press conferences and fora to highlight, in particular, the issue of pharmaceuticals and generic medicines. The group asserts that the future agreement would contravene the spirit and letter of the Philippine 2007 ‘Universally Accessible Cheaper and Quality Medicines Act of 2008’, known as the ‘Cheap Medicines Bill’, and would also impede efforts aimed at ensuring access to affordable medicines for Filipino consumers. The law has two core objectives: (1) to reduce the cost of medicines to 50% of their 2001 prices and to make them available nationwide; and (2) to ensure the production, distribution, and availability of generics to the general public. The 2008 law amended the Philippines Intellectual Property Code and allows generics-producing firms to test, produce, and register their own versions of patented drugs, while prohibiting the granting of new patents based only on newly-discovered uses of a known drug substance. Areas of concern for ‘Focus on the Global South’ are the so-called TRIPs Plus provisions (i.e., obligations that extend beyond those required under the TRIPs Agreement) related to patents, as well as general access to generic medicines. On a larger scale, the issue of generics, biosimilars and trade agreements has resulted in growing debates (see Trade Perspectives, Issue No. 10 of 15 May 2015) and the generics and biosimilars sector has of late been more outspoken and active in its efforts to make FTAs more balanced by taking into account the interests of all stakeholders and of the consumers. Interested parties must get involved now while negotiations are still in their early stages.

To summarize, FTA negotiations provide negotiating parties the opportunity to tackle both tariffs and non-tariff measures, which may constitute barriers to trade. Having in mind a possible future ‘region-to-region’ agreement with ASEAN, the Commission is aiming at conformity and consistency within the various ASEAN FTAs, in particular vis-à-vis the recently-concluded FTAs between the EU and Singapore and Viet Nam, which serve, respectively, as blueprints for the negotiations with the Philippines and with other AMSs. This does not mean, however, that the Philippines cannot tackle issues specific only to the EU-Philippines relations. In its Report, the EU does highlight that negotiations will take into account “the specificities of the EU-Philippines relations”. The Philippines should keep its interests in mind and be prepared to put forth, as early as possible, its own proposals during the negotiations, taking into account, inter alia, the aforementioned topics. At the same time, the Philippines must avoid the erosion of preferences, as it may graduate from the GSP+ preference scheme during the coming years and at a time when FTA negotiations might not yet have been concluded. Therefore, the Philippines should pursue swift negotiations and ensure that the future FTA will not fall behind current preferences, and even include, within the scope of the FTA, products currently excluded from GSP+ benefits. These ongoing negotiations are an important opportunity, but can only be considered mutually beneficial if both parties are well prepared and if interested stakeholders get involved and proactively on board. The next negotiating round has been tentatively scheduled for October 2016 and will likely take place in Manila. Negotiations look poised to slowly gain pace and interested parties must act now.

The European Commission finally presents its criteria to be used to identify endocrine disruptors in the field of plant protection products and biocides

On 15 June 2016, the Commission published a number of documents relating to the identification of endocrine disruptors in the plant protection products and biocides areas. Specifically, the Commission released: 1) a Communication providing an overview of the scientific and regulatory context; 2) an Impact Assessment Report on the different criteria used to identify endocrine disruptors; and 3) two draft legal acts that set relevant criteria to identify endocrine disruptors. A major point of interest for businesses and third countries was whether the Commission would eliminate the ‘hazard-based’ approach to the regulation of endocrine disruptors in favour of a ‘risk-based’ approach. The Commission chose to maintain its hazard-based approach, which, if fully implemented, could have major effects on industry stakeholders.

The International Programme on Chemical Safety of the World Health Organization (hereinafter, WHO/IPCS) defines an endocrine disruptor as an “exogenous substance or mixture that alters function(s) of the endocrine system and consequentially causes adverse health effects in an intact organism, or its progeny, or (sub)populations”. Provisions relating to endocrine disruptors are present in various pieces of EU legislation. In relevant part, the Plant Protection Products Regulation (i.e., Regulation (EC) No. 1107/2009 of the European Parliament and of the Council concerning the placing of plant protection products on the market and repealing Council Directives 79/117/EEC and 91/414/EEC) and the Biocidal Products Regulation (i.e., Regulation (EU) No. 528/2012 of the European Parliament and of the Council concerning the making available on the market and use of biocidal products) establish rules for the approval of substances considered as endocrine disruptors and provide that, by December 2013, the Commission was to have established scientific criteria for the determination of endocrine disrupting properties (see Trade Perspectives, Issue No. 22 of 28 November 2014). The two draft legal acts released on 15 June 2016 by the Commission address this requirement, whereby the draft Commission Regulation containing criteria applicable to the chemical substances falling under the Plant Protection Products Regulation fulfils the Commission’s obligation, and the draft delegated act containing criteria applicable to the chemical substances falling under the Biocidal Products Regulation will fulfil the Commission’s obligation once it is adopted.

One of the key issues, which had been identified by the relevant stakeholders, was whether the criteria for the identification of endocrine disrupters should be hazard-based or risk-based. A hazard-based approach regulates substances on the basis of their intrinsic properties, without taking account of the exposure to the substance. A risk-based approach factors in the exposure. Notably, the European Food Safety Authority’s ‘Scientific Opinion on the hazard assessment of endocrine disruptors: Scientific criteria for identification of endocrine disruptors and appropriateness of existing test methods for assessing effects mediated by these substances on human health and the environment’, released in February 2013, supported the principle of a risk-based approach for plant protection products. The Communication published by the Commission on 15 June 2016, accompanying the two relevant draft legal acts, addresses the issue by noting that the question faced by the Commission was to establish criteria to determine what is to be considered an endocrine disruptor for the purposes of plant protection products and biocidal products, but not to decide how to regulate these substances. According to the Commission, as a general rule, the Plant Protection Products Regulation and the Biocidal Products Regulation already established that endocrine disruptors be regulated on the basis of hazard, without undergoing a specific risk assessment on the basis of considerations of exposure. The Biocidal Products Regulation does have a wider scope of derogation than that of the Plant Protection Products Regulation, which the Commission addressed by equally widening the scope of the Plant Protection Products Regulation (i.e., the grounds for possible derogations under the draft Commission Regulation now refer to ‘negligible risk’).

Interested stakeholders were hopeful, however, that the Commission would nonetheless adopt a risk-based approach to regulating endocrine disruptors. This is especially true in the context of the WTO Committee on Technical Barriers to Trade (hereinafter, TBT), where other WTO Members have repeatedly raised a ‘specific trade concern’ regarding the ‘European Union – Revised Proposal for the Categorization of Compounds as Endocrine Disruptors of 19 February 2013 by DG Environment’ since the 17 June 2013 meeting of the TBT Committee. Reports indicate that the issue was discussed at the most recent meeting of the TBT Committee, which was, coincidently, on the same day that the Commission published the new set of documents (15 June 2016). Sources indicate that Argentina and Canada added the ‘specific trade concern’ to the agenda of the meeting of the WTO TBT Committee of 15-16 June 2016, but that interventions were also made by New Zealand, Chile, South Africa, Colombia, Guatemala and Thailand. In general, it appears as though WTO Members remained concerned that a hazard-based approach is more trade restrictive than necessary to fulfil its legitimate objective of protecting human health, animal health and the environment. Sources indicate that, at the most recent meeting of the WTO TBT Committee, at least one WTO Member stated that a hazard-based approach could restrict imports and exports without actually increasing safety for consumers. Indeed, under Article 2.2 of the WTO TBT Agreement, technical regulations shall not be more trade restrictive than necessary to fulfil a legitimate objective, taking account of the risks non-fulfilment would create. With respect to this risk-based approach called for under the TBT Agreement, Article 2.2 goes on to state that, “[i]n assessing such risks, relevant elements of consideration are, inter alia: available scientific and technical information, related processing technology or intended end-uses of products”.

The two draft legal acts still need to be adopted by the Commission under the relevant procedures (i.e., the draft Commission Regulation pertaining to the Plant Protection Products Regulation needs to be voted on by EU Member States, and the draft Delegated Act pertaining to the Biocidal Products Regulation will be discussed by a group of experts of EU Member States prior to adoption by the Commission). The Commission later plans to present both draft texts simultaneously to the European Parliament and the Council of the EU. As a result, there is still time for affected stakeholders to continue attempting to influence the legislation before it is finalized. In addition to concerns raised by WTO Members, trade associations within the EU, notably, the European Crop Association and the Committee of Professional Agricultural Organisations and the General Confederation of Agricultural Cooperatives (jointly referred to as Copa-Cogeca), have also spoken out against the Commission’s selected approach. Reports indicate that critics of the Commission’s approach note that the WHO/IPCS definition of an endocrine disruptor is outdated, and that the adjustments to the grounds for possible derogations imply that the Commission is aware that its criteria are flawed. It remains to be seen if any formal legal action will be taken by third countries, such as a dispute before the WTO, should the draft text become law. In any event, interested parties should continue to monitor developments and take a proactive stand.

**An update on Nutrient Profiles in light of the Dextro Energy case**

In June 2016, stakeholders’ comments have been published regarding the Commission’s Regulatory Fitness and Performance (hereinafter, REFIT) Programme, which aims at consolidating better law-making procedures, simplifying EU law and reducing administrative and regulatory burdens. These comments concern, in particular, the roadmap published in October 2015 for the evaluation of Regulation (EC) No. 1924/2006 on nutrition and health claims made on foods (hereinafter, NHCR) with regard to: (1) nutrient profiles; and (2) health claims made on plants and their preparations. The purpose of this evaluation is to assess whether these two specific elements, required for the implementation of the NHCR have proven to be ‘fit for purpose’ and whether the NHCR has achieved, to date, its overall objectives of truthful information to consumers and of facilitation of the free movement of foods bearing claims. The evaluation examines whether nutrient profiles, provided for in the NHCR, which have not yet been adopted, are warranted and adequate to ensure the fulfilment of the objectives of the Regulation.

In simple terms, the so-called nutrient profiles are generally intended to determine whether foods are, based on their nutrient composition, eligible to bear claims (see Trade Perspectives, Issue No. 13 of 26 June 2015). Nutrient profiles must ensure that foods high in, e.g., sugar, fat or salt, do not carry a nutrition or health claim. The application of nutrient profiles as an additional criterion in the NHCR aims at avoiding a situation where nutrition or health claims mask the overall nutritional status of a food product, which could mislead consumers when trying to make healthy choices in the context of a balanced diet. Article 4 of the NHCR foresees the setting of such nutrient profiles by the EU Commission. The development of nutrient profiles, originally scheduled for January 2009, has not been finalised.

On 12 April 2016, European Parliament voted in favour of a resolution on the REFIT Programme. The resolution calls on the Commission to consider eliminating the concept of nutrient profiles from the NHCR, and states that the aims of the NHCR, such as ensuring that information that is provided concerning foods is true and that specific indications are given concerning fat, sugar and salt content, have now been achieved by Regulation (EU) No. 1169/2011 on the provision of food information to consumers (hereinafter, the FIR).

The idea of not needing nutrient profiles under the NHCR can also be observed in the judgment of 16 March 2016 in Case T-100/15, Dextro Energy v Commission, where the EU General Court held that energy tablets, or ‘cubes’, consisting almost entirely of glucose, cannot bear health claims relating to the contribution to energy-yielding metabolism. The court found that, although scientifically true, such claims would encourage excessive consumption of sugars, which is not recommended under generally accepted nutrition and health principles. Dextro Energy has now appealed the case to the Court of Justice of the EU (Case C-296/16 P), claiming that the Commission exceeded its discretion by not authorising the claims, and that a ban of Dextro Energy’s claims cannot be justified with allegedly generally accepted scientific advice. The action reportedly states that “the claims do neither convey a conflicting or confusing message to consumers, nor are they in any way ambiguous or misleading. The Commission should at least have authorised them with specific conditions of use. The statutory principles of proportionality and equality have not been properly observed”.

Under the REFIT programme, the Commission is currently evaluating, inter alia, whether there is an ‘EU added value’ resulting from the setting of nutrient profiles at EU level compared to what could be achieved by EU Member States at national level, as well as the extent to which an action is required at EU level. The Commission is asking what the most likely consequences of withdrawing the existing provision in the NHCR on the setting of nutrient profiles would be. In the EU Member States, there are already a number of nutrient profile models in place, underpinning different initiatives, such as restrictions on adverting to children and front-of-pack (hereinafter, FoP) nutrition labelling schemes.

On 13 May 2016, the Czech Republic submitted a notification 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 laying down a procedure for the provision of information in the field of technical regulations and of rules on Information Society services. The Draft Implementing decree on requirements for foods for which advertising is permitted and which can be offered for sale and sold in schools and school facilities establishes nutrient profiles for food sold and advertised in schools, and bans foods that exceed maximum levels for sugar, salt and fat. Unprocessed fruit and unprocessed vegetables may be offered for sale, sold, or advertised. The same applies to fruit and vegetable juices and nectars with no added sugar. However, only foods may be offered for sale, sold or advertised that meet the following requirements: a) they do not contain sweeteners, except for sugarless gum, or caffeine, except for tea and non-alcoholic beverages with tea extract; b) they do not contain trans-fatty acids from partially-hydrogenated oils; or c) they are not energy or stimulant beverages or food intended for athletes or for individuals performing increased physical activity. An annex to the draft decree sets out specific nutrient profiles for certain foods. Inter alia, processed fruits and vegetables (containing at least 50g of fruit per 100g of the finished product) may have a maximum content of 1g/100ml added sugar. Dairy products, including milk and yoghurt may contain a maximum of 0.5 g/100g salt, 11 g/100 g sugar and 5g/100ml of fat. Salt levels are capped at 2g/100ml in cheese and at 1.8g/100ml in bread. Pastries may have a maximum content of 1.3g/100g salt, 15g/100g sugar and 10g/100g of fat. Non-alcoholic beverages may contain a maximum of 4g/100ml sugar. The draft Czech Decree is currently in its ‘standstill period’ until 16 August 2016, which allows the Commission and other EU Member States time to comment.

Nutrient profiles have also been set in third countries, such as Chile, which requires, as of 27 June 2016, warning messages in the shape of a black octagon (similar to a ‘STOP sign’) to be placed on the FoP with the text ‘High in […]’ when food products exceed certain levels of energy, sodium, sugars or saturated fats (see for more detail Trade Perspectives, Issue No. 16 of 11 September 2015). Another third country, Turkey, is bringing its food law regulations in line with EU law. Turkey has been an EU candidate country since 1999. Accession negotiations started on 3 October 2005 and a revised Accession Partnership was adopted in 2008 (i.e., Council Decision 2008/157/EC of 18 February 2008 establishing the principles, priorities and conditions contained in the Accession Partnership with the Republic of Turkey and repealing Decision 2006/35/EC). Under Chapter 12 of the Accession Partnership (on ‘Food safety, veterinary and phytosanitary policy’), Turkey committed to adopt a framework on food, feed and veterinary matters compliant with EU requirements and allowing for a complete transposition of the EU acquis (i.e., the body of EU law). The Turkish Food Codex Regulation on Labelling (Türk G?da Kodeksi Etiketleme Yönetmeli?i, published on 29 December 2011 in the Official Journal No. 28157) is particularly relevant. Regarding health claims and nutrient profiles, its Article 42(1)(ç) states that the use of health claims may only be permitted if the food/the product fulfils at least three of the following conditions: (1) the product contains no more than 120mg/100kcal sodium; (2) maximum 8% of the energy that it contains comes from saturated fatty acids; (3) maximum 10% of the energy that it contains comes from added sugar; and/or 4) the product contains at least 55mg/100kcal natural calcium. Specific regulations may be adopted for foodstuffs that cannot meet the conditions mentioned in paragraph (ç).

Withdrawing the existing provision in the NHCR on the setting of nutrient profiles and related EU Member States’ action (like now in the Czech Republic on nutrient profiles for food sold or advertised in schools) leads to fragmentation of the internal market. The implementation and interpretation of the concept of nutrient profiles by the EU and its Member States varies considerably. Without common guidelines, the idea to improve the free movement of foods with nutrition and health claims (or other foods where nutrient profiles are applied) within the internal market, and to increase legal certainty for economic operators, are hampered. Barriers to trade may occur regarding third countries like Chile and Turkey that establish their own nutrient profiles (in the case of Turkey, for health claims even before the EU did so). Developments in that regard need to be carefully monitored by stakeholders, should the REFIT evaluation materialise into actual legislative proposals in the EU on nutrient profiles. Stakeholders should be prepared to take part in public consultations and should interact with relevant EU Institutions, trade associations and other affected stakeholders.