Issue Number 8: 17th April 2015
- Ecuador’s controversial safeguard measures may threaten its ability to benefit from the EU’s GSP+ preferences
- The EU Parliament’s ENVI Committee votes in favour of a compromise text to amend the EU’s biofuels framework
- European Parliament’s ENVI Committee calls for better labelling of alcoholic beverages as part of a new Alcohol Strategy
- Recently Adopted EU Legislation
Ecuador’s controversial safeguard measures may threaten its ability to benefit from the EU’s GSP+ preferences
On 2 April 2015, Ecuador notified the WTO of its decision to introduce temporary safeguard measures in order to regulate the general level of imports and resolve Ecuador’s critical balance-of-payments problems. The safeguard measures, which cover over 2,900 10-digit subheadings, stand to have a particular prejudicial effect on exports to Ecuador of a wide range of products from, inter alia, the EU, the US, China, Chile, Colombia, Peru and other trading partners. In addition, it stands to have serious implications on the ability of Ecuadorian exporters to continue accessing the EU market at the advantageous GSP+ preferential rates under the terms of the so-called “standstill Regulation”.
The legal basis of Ecuador’s controversial safeguard measure is provided in Resolución No. 011-2015, adopted on 6 March 2015 by Ecuador’s Foreign Trade Committee (i.e., Comité de Comercio Exterior, hereinafter, COMEX). This measure was approved following the application of safeguard measures on products originating from Peru and Colombia within the framework of the Cartagena Agreement signed among Bolivia, Colombia, Ecuador, Peru and Venezuela. The regional safeguard consisted of an ad valorem surcharge of 7% for products imported from Peru and of 21% for products imported from Colombia. Ecuador justified the measure on the basis of alleged devaluations of the currencies in these two countries, according to a mechanism foreseen in Article 98 of the Cartagena Agreement. This measure, which entered into force on 5 January 2015, was terminated with COMEX Resolución No. 010-2015. However, on the same day, Resolución No. 011-2015 was adopted and new safeguard measures started to apply as of 11 March 2015. Resolución No. 011-2015 was subsequently amended by Resolución No. 016-2015, which added 13 more tariff lines and removed 6 from the list.
In relevant part, the safeguard measures take the form of ad valorem tariff surcharges of four levels: 5%, 15%, 25% and 45%, applied to 2,962 10-digit subheadings, or approximately 38% of a total of 7,581 subheadings, amounting to over 30% of imports recorded in 2014. Tariff lines covered by the measures include a vast range of sectors, such as live animals and agricultural products, fresh fruits, processed foodstuffs, alcoholic beverages, plastics, textiles and apparel, footwear, electrical machinery and equipment, inter alia.
Ecuador’s measures came into effect on 11 March 2015 and, according to Ecuador’s notification, are to apply for a period up to 15 months. The measures are applied with respect to affected imports from all sources, with the exception of Bolivia and Paraguay, inasmuch as these are considered less-developed countries of the Latin American Integration Association and in light of Resolución 70 of the Committee of Representatives of the Latin American Integration Association (ALADI).
According to Ecuador’s WTO notification, the restrictions were introduced under the provisions of Article XVIII.B of the GATT on governmental assistance to economic development. These provisions and its related instruments (i.e., the Understanding on the Balance-of-Payments Provisions) allow WTO developing-country Members, in presence of certain requirements, to deviate temporarily from the obligations of the GATT (i.e., Articles II and XI of the GATT) when experiencing balance-of-payment difficulties. In particular, restrictive import measures may only be applied to control the general level of imports and may not exceed what is necessary to address the balance-of-payments situation.
Recourse to this mechanism was sought to “rapidly offset the negative balance of payments and the decrease in the liquidity of the Ecuadorian economy”, which Ecuador considers affected by factors such as: (i) the fall in international prices of oil and other commodities; (ii) the decline of the remittances from Ecuadorian residents abroad; (iii) the appreciation of the US dollar (which is legal tender in Ecuador); and (vi) the devaluation of the national currencies of neighbouring countries. To comply with the requirements of the WTO, Ecuador must ensure that its import restrictions do not exceed those necessary to forestall the threat of, or to stop, a “serious decline” in its monetary reserves, or to achieve a reasonable rate of increase in its reserves, should it claim its reserves to be “inadequate”.
The notification triggers a procedure of consultations by WTO Members within the WTO’s Committee on Balance-of-Payments Restrictions, in order to review the restrictive import measures applied for balance-of-payments purposes and evaluate the presence of the requirements that should warrant the application of such measures. In the context of such consultations, Ecuador will need to provide, inter alia, an explanation of how its measures meet the requirements of Article XVIII of the GATT, and a schedule for their removal. Consultations will also involve a report from the International Monetary Fund, which, according to Article XV:2 of the GATT, must be consulted whenever problems concerning monetary reserves, balance of payments or foreign exchange arrangements are being considered or dealt with. In any event, the outcome of such consultations, which is formalised through a report of the Committee on Balance-of-Payments Restrictions to be adopted by the WTO General Council, does not prevent eventual recourse to the WTO dispute settlement mechanisms by affected WTO Members .
Outside of the WTO framework, Ecuador’s measures look poised to have an immediate and severe impact on Ecuador’s relations with the EU, threatening the possibility for Ecuadorian exporters to continue enjoying GSP+ preferential tariff rates under the terms of the “standstill Regulation” (i.e., Regulation (EU) No. 1384/2014 on the tariff treatment for goods originating in Ecuador). This arrangement followed the initialling of a Protocol of Accession by Ecuador to the Trade Agreement between the EU and its Member States and Colombia and Peru (which, like Ecuador, are Member Countries of the Andean Community). In relevant part, with the “standstill Regulation”, the EU agreed to extend to Ecuador its advantageous GSP+ tariff preferences, which would have otherwise expired on 1 January 2015 as a consequence of Ecuador’s “graduation” under the GSP (i.e., Ecuador was classified as upper middle income country by the World Bank in 2013). However, entitlement to the extended preferential rates requires Ecuador to abstain from introducing new duties on imports from the EU, increasing existing levels of customs duties, and introducing any other restriction. Ecuador’s safeguard measures are a clear violation of these rules and may well prompt the EU Commission to act in order to suspend GSP+ preferences for Ecuador’s exports to the EU.
The suspension of GSP+ preferences for Ecuadorian exporters would have severe consequences on the competitiveness of a number of Ecuador’s key exports to the EU. In 2013, Ecuador’s exports to the EU reached a total of EUR 2.57 billion. Reports indicate that approximately 60% of Ecuador’s exports to the EU benefit from GSP+ rates. Ecuador is a leading exporter to the EU of products such as bananas, plantains, shrimps, canned tuna, cocoa beans and roses. GPS+ rates allow its products to remain competitive vis-à-vis exports from Central and Latin American countries (many of which also benefit from preferential access) and certain Asian countries. They also allow it to be competitive vis-à-vis certain domestically-produced EU products. In 2014, Ecuador exported EUR 811.5 million worth of bananas and EUR 19.6 million worth of plantains to the EU, while facing significant competition from Colombia, Costa Rica and the Dominican Republic, among others. In the fisheries industry, Ecuador exported EUR 584.4 million worth of shrimps and EUR 434.5 million worth of tuna in 2014. In those sectors, Ecuador competed with numerous African countries, as well as Asian countries such as Indonesia, the Philippines, Thailand and Viet Nam. Ecuador also competes closely with Colombia in the cut roses and cocoa bean sectors, where its exports valued EUR 132.1 million and EUR 95.4 million in 2014, respectively. Other relevant exports from Ecuador to the EU, which could lose their preferential market access under the GSP+ scheme, are hides and skins exports. The serious harm that a possible suspension of GSP+ rates stands to cause to Ecuador’s exports to the EU should prompt Ecuador’s authorities to reconsider the decision to maintain safeguard measures or to reduce their scope, coverage and impact.
For its part, the EU should act to remove the prejudice arising from the imposition of new safeguard measures. In 2013, the EU exported EUR 2.29 billion in goods to Ecuador. In 2014, this value reached 2.25 billion. Major affected exports to Ecuador from the EU include tubes and pipes, electric generating sets and the telecom equipment, apparel and footwear and machinery sectors. For example, with respect to the apparel, clothing and footwear sectors the EU exported EUR 34.9 million worth of products in 2014. The most affected countries in the EU include Spain, Italy, Germany and Portugal. In 2014, Spain and Italy exported EUR 30.3 million and EUR 1.99 million worth of ready-made apparel and footwear to Ecuador.
Equally important, the EU should act promptly also to avoid the risk that Ecuador’s behaviour sets a precedent and that GSP beneficiary countries consider that entitlement to tariff preferences comes without the need to respect the rules. In this regard, it is worth noting that the ‘spirit’ of the EU’s GSP preferential scheme is to support developing countries to reduce poverty and promote sustainable development by increasing export revenue through trading practices that are fair, transparent and non-discriminatory, especially vis-à-vis the EU. The EU’s GSP concessions cause significant constraints to several EU sectors and simply cannot be abused by the beneficiary countries through the imposition of unjustified, unfair and protectionist measures. The EU’s GSP Regulation (i.e., Regulation (EU) No. 978/2012 of the European Parliament and of the Council of 25 October 2012 applying a scheme of generalised tariff preferences) allows preferences to be withdrawn when, inter alia, a beneficiary country applies serious and systematic unfair trading practices. Inasmuch as Ecuador’s recent safeguard measures appear not to be justified and to have been crafted with a protectionist agenda in mind, and inasmuch as its GSP+ preferential access to the EU has generated controversy since the beginning because of the added competition that it brought to certain sectors of the EU industry and the economy, EU authorities will likely have to soon take a stand.
These considerations should prompt the EU to request and obtain fair treatment of its exports in third beneficiary countries and, first and foremost, in Ecuador, a country that is technically no longer entitled to GSP+ preferences, but which benefits from an extension under the terms of the “standstill Regulation”. Instead, reports suggest that Ecuador has been applying, in recent years, a range of measures, such as customs measures, technical regulations and other requirements, affecting imports of a number of products in its territory. Ecuador’s practices have, in fact, given rise to a number of specific trade concerns recently, some of which were expressly discussed in the context of WTO Committee on Technical Barriers to Trade (hereinafter, TBT Committee) meetings. In this light, the adoption of safeguard measures is reportedly viewed, by many of the affected EU industries, as the last “act” of an increasing protectionist trend, rather than a measure aimed at addressing balance-of payments issues. The extension of the EU’s GSP+ preferences to Ecuador was an act in ‘good faith’ in light of Ecuador’s decision to join the FTA Agreement with the EU. However, it is not unconditional, and must require Ecuador to refrain from imposing protectionist measures and ensure a predictable and stable trade and investment environment to EU exporters and traders.
The EU Parliament’s ENVI Committee votes in favour of a compromise text to amend the EU’s biofuels framework
On 14 April 2015, the EU Parliament’s Committee on the Environment, Public Health and Food Safety (i.e., ENVI Committee) voted in favour of a compromise text to amend the EU’s biofuel framework. The text, which was agreed in the context of trilogue negotiations between the competent EU Institutions, will be considered by the EU Parliament’s Plenary on 29 April 2015.
The compromise text is framed within the ongoing legislative procedure to amend the EU’s framework on biofuels, which was triggered when, in October 2012, the EU Commission tabled its proposal (i.e., Proposal for a Directive of the European Parliament and of the Council amending Directive 98/70/EC relating to the quality of petrol and diesel fuels and amending Directive 2009/28/EC on the promotion of the use of energy from renewable sources). In accordance with the ordinary legislative procedure, the EU Commission’s draft (known as the Proposal on Indirect Land Use Change, or ILUC Proposal) was transmitted to the EU Council and the EU Parliament. The latter adopted its position at first reading in September 2013 (see Trade Perspectives Issue No. 15 of 26 July 2013). The EU Council adopted its first reading position in December 2014, on the basis of which, the ENVI Committee tabled its draft recommendation at second reading (see Trade Perspectives Issue No. 1 of 9 January 2015). In February 2015, the ENVI Committee adopted its draft recommendation and, at the same time, the rapporteur (i.e., MEP Nils Torvalds, appointed following the 2014 elections at the EU Parliament) received the mandate to start negotiations with the EU Council. The compromise text is a result of such negotiations.
The ILUC Proposal builds on the framework laid down by the Fuel Quality Directive and the Renewable Energy Directive, which, inter alia, provide for so-called ‘sustainability criteria’ (i.e., rules prescribing how biofuels must be produced for purposes of compliance with the relevant targets and requirements). These criteria are based on two drivers: (i) the use of biofuels must lead to a 35% GHG emissions saving (although this target is set to increase); and (ii) the land used to produce biofuels must have certain characteristics (i.e., it must not have high biodiversity value and/or high carbon stock). Biofuels that do not conform to these requirements are considered ‘unsustainable’ and, although they will theoretically continue to enjoy access to the EU’s market, they will not be eligible for demonstrating compliance with the targets, nor entitled to financial support, which may (de facto, if not de jure) discourage their use and importation, thereby effectively restricting market access of those biofuels or of the feedstocks used to produce them.
In relevant part, the ILUC Proposal lays down rules to prevent that ILUC emissions arising from the production of biofuels (where land could have been used for food, feed or fibre production) offset the GHG emissions savings obtained by the use of biofuels (therefore decreasing their overall sustainability). It also seeks to start the transition from biofuels produced from food crops to biofuels obtained from non-food crops. In this context, the ILUC Proposal envisages a primary distinction between ‘first generation’ biofuels (i.e., from food crops) and ‘second generation’ biofuels (i.e., from alternative sources, such as forest residues, algae or municipal waste).
In particular, the compromise text caps at 7% the contribution of ‘first generation’ biofuels to the mandatory target of the Renewable Energy Directive, which requires EU Member States to ensure that, by 2020, 10% of the energy used for transport originate from renewable sources. In addition, the compromise text envisages a framework to incentivise ‘second generation’ biofuels, including through the creation of national targets under the Renewable Energy Directive. Specifically, EU Member States shall endeavour to achieve a target set (in principle) at 0.5% of the energy from renewable sources used in transport by 2020, to be fulfilled by ‘second-generation’ biofuels only. On the other hand, the Fuel Quality Directive provides that EU Member States reduce by 6% the GHG intensity of transport fuels used by road vehicles and certain other non-road machinery by 2020. The compromise texts foresees that EU Member States have the possibility to set a 7% cap to the contribution of ‘first generation’ biofuels to the attainment of this target.
From the beginning, the attribution of ILUC factors to ‘first generation’ biofuels has been one of the most controversial elements throughout this procedure. The compromise text foresees that ILUC factors (which remain identical to those proposed by the EU Commission for biofuels obtained from cereals and other starch-rich crops; sugars; and oil crops (i.e., 12; 13; and 55 gCO2eq/MJ, respectively) be relevant only for monitoring and reporting purposes under both the Renewable Energy Directive and the Fuel Quality Directive. However, the possibility is left open for the EU Commission to propose, by 2017 at the latest, that ILUC factors be factored-in the ‘sustainability criteria’ under the Renewable Energy Directive.
The ILUC Proposal also foresees a further tightening of the GHG emissions savings requirement (i.e., the first ‘sustainability criterion’) under both the Renewable Energy Directive and the Fuel Quality Directive. In particular, it provides that biofuels produced in installations starting operations after the entry into force of the amendments must achieve a 60% GHG emissions saving, while biofuels produced in installations already in operation must achieve a 35% GHG emissions saving until 2017, raising to 50% as of 2018.
Should the current compromise text be finally adopted, EU Member States will need to enact the necessary amendments through their domestic legal frameworks in 2017. As it stands, the EU’s biofuel framework already incorporates a number of elements that are questionable under WTO law. In particular, as mentioned, the ‘sustainability criteria’ appear to de facto (if not de jure) discriminate against biofuels obtained from certain feedstocks (such as palm oil or soybean oil), which are produced in third countries and imported into the EU (see Trade Perspectives Issue No. 17 of 20 September 2013). The amendments envisaged in the compromise text stand to add to this scenario, in that, where these biofuels qualify as ‘first generation’ biofuels they will be affected by disincentives (such as the 7% cap) and will be excluded from the promotion schemes. The inclusion of ILUC factors among the ‘sustainability criteria’ will clearly limit market access of specific biofuels to the EU and, even if they remain relevant only for monitoring and reporting purposes, they may negatively affect long-term investments in the relevant sectors.
The EU’s biofuel framework is not alien to discussions and controversy within the WTO system, in light of its impact on international trade. In May 2013, Argentina filed a request for WTO consultations with the EU alleging that the EU’s ‘sustainability criteria’ discriminated against Argentinean soybean diesel (see Trade Perspectives Issue No. 11 of 31 May 2013). In addition, a number of WTO Members (including Argentina, Indonesia, Malaysia and the US) have repeatedly voiced their concerns in respect of various aspects of the EU’s framework in the context of the WTO TBT Committee.
Although the compromise text has been described by some as ‘minimal’ (possibly due to the difficulties to reconcile the opposed interests at stake), it remains to be seen how the Plenary of the EU Parliament will react to it and, should it be adopted, whether its implementation will result (as expected) in market access restrictions and (de facto, if not de jure) discrimination among ‘like products’ that will trigger a wave of WTO litigation. Hopefully, EU legislators will give careful consideration to WTO rules as they decide on a system that, while pursuing noble and legitimate objectives such as environmental protection and reduction of CO2 emissions, it cannot be discriminatory and overly trade-restrictive. Operators and countries affected by this regulatory scheme should do the utmost to make their scientific/legal views known to EU legislators before the voting takes place.
European Parliament’s ENVI Committee calls for better labelling of alcoholic beverages as part of a new Alcohol Strategy
On 31 March 2015, the EU Parliament’s ENVI Committee supported the ‘Resolution on Alcohol Strategy’, which calls for a new EU strategy for the period 2016-2022 to tackle harm from alcohol (hereinafter, the Resolution). In particular, the Resolution emphasises the importance of better labelling of alcoholic beverages, including the addition of ingredient lists and nutrition labelling requirements.
The Resolution notes that the misuse of alcohol is the second largest lifestyle related cause of disease in Europe and that alcohol addiction is a risk factor for over 60 chronic diseases. The Resolution calls on the EU Commission and EU Member States to review and strengthen the implementation of measures aimed at restricting alcohol sales to those under the legal age for alcohol purchase, take actions to properly regulate the cross-border sale of alcohol on the Internet, as well as campaigns to raise awareness of the dangers of binge drinking (i.e., heavy episodic drinking of alcoholic beverages with the primary intention of becoming intoxicated in a short period of time), especially for individuals under the legal age of consumption, who are more likely to engage in this activity. The Resolution further suggests labels to warn consumers about the dangers of drink driving and drinking when pregnant. In particular, it urges the EU Commission to immediately produce the report foreseen in Regulation (EU) No. 1169/2011 on the provision of food information to consumers (hereinafter, the FIR) by December 2014, evaluating existing EU legislation with regard to the need to improve consumer information on alcoholic beverages, ensuring that consumers are aware of the ingredients, calories content and other nutritional information.
The FIR requires, as of 13 December 2016, mandatory nutrition labelling on all foods. To avoid unnecessary burdens on food business operators, the FIR exempts from the mandatory nutrition declaration certain categories of foods that are unprocessed or for which nutrition information is not a determining factor in consumers’ purchasing decisions. The question is whether, taking into account their specific nature, alcoholic beverages should continue to be exempted from nutrition labelling. According to Article 16(4) of the FIR, neither a list of ingredients nor a nutrition declaration are currently mandatory for beverages containing more than 1.2% alcohol by volume. Article 30(1) of the FIR provides that the mandatory nutrition declaration must include the following: (a) energy value; and (b) the amounts of fat, saturates, carbohydrate, sugars, protein and salt. Under Article 30(2), the content of the mandatory nutrition declaration may be supplemented with an indication of the amounts of one or more of the following: (a) mono-unsaturates; (b) polyunsaturates; (c) polyols; (d) starch; (e) fibre; (f) certain vitamins or minerals, present in significant amounts. However, according Article 30(4) of the FIR, where the labelling for beverages containing more than 1.2% alcohol by volume provides a nutrition declaration, the content of the declaration may be limited to the energy value only. Therefore, the possibility is given for alcoholic beverages to declare only limited elements of the nutrition declaration.
The general rule according to Article 32 of the FIR is that the energy value and the amount of nutrients must be expressed per 100g or per 100ml. There is an ongoing debate in the spirit drinks, wine and beer industry whether 100ml is the right reference point. While a standard serving of beer is usually more than 100ml (330ml, for example), a 150ml glass of wine may be a bit more and a spirit serving (usually 20-30ml) is less than 100ml. It is often argued that the information a consumer needs is linked to the choices in front of him: a glass of wine, a pint or half pint of beer, or a shot of a spirit drink. But also these choices vary in relation to the country and geographic region.
There is also a legal argument that using 100ml as a reference point may be appropriate. According to Article 33(a) of the FIR, the energy value and the amounts of nutrients may (in addition to per 100g or per 100ml) also be expressed (easily recognisable by the consumer) per portion and/or per consumption unit, provided that the portion or the unit used is quantified on the label and that the number of portions or units contained in the package is stated in addition to the form of expression per 100g or per 100ml. This is, for example, usually done for pots of yoghurt, where the nutritional information is given per 100g and per 125g (i.e., the typical content of a yoghurt pot).
Some argue that there does not appear to be a legitimate reason why soft drinks display ingredients, nutrients and calories, while alcoholic beverages remain silent. Many alcoholic beverages are rich in calories. However, is nutritional information a determining factor in consumers’ purchasing decisions of alcoholic beverages? A glass of beer accounts for around 135-180 calories (hereinafter, kcal). Among the wines and sparkling wines, a glass amounts to 150-160 kcal. Beers and wines also contain carbohydrates, including sugars. In comparison, a typical shot of a spirit drink may have just 40 kcal and no carbohydrates. A bottle of the popular so-called ‘alcopops’ may contain about 200 kcal (for more detail, see Trade Perspectives Issue No. 21 of 11 November 2014).
Reportedly, the definition of ‘alcopops’, which are drinks specifically targeted at young people, appears to be a major stumbling block towards the adoption of the delayed EU Commission report on alcoholic beverages. Ready-to-drink beverages (RTDs), colloquially referred to as ‘alcopops’, are beverages that are in part a spirit, wine or malt and a non-alcoholic drink, served in a pre-mixed format ready for consumption. They are often very high in sugar and do not display much information as to the ingredients, except in the product’s name (e.g., ‘aromatised cocktail with wine’). However, they do not display whether they contain, inter alia, juice, cola or tonic water (which, although tasting bitter, may be high in sugar).
Due to concerns about their appeal to adolescents, Germany adopted in 2004 a Law imposing a special tax on alcoholic soft drinks (alcopops) to protect young people (Gesetz über die Erhebung einer Sondersteuer auf alkoholhaltige Süßgetränke (Alkopops) zum Schutz junger Menschen). This law increased the tax on spirit-based pre-mixes with an alcohol content of between 1.2% and 10%. The German tax on alcopops was so ‘successful’ (i.e., effective in its intended goal) that manufacturers immediately reformulated to similar mixes, but with beer or wine or to high-strength pre-mixes, (i.e., pre-mixed beverages with an alcohol by volume content of 15% or above combined with juice or any other soft drink), which do not fall under the tax due to their wine or beer base or higher alcoholic content. These beverages are similar in flavour, colouring and marketing. It should be noted that the Resolution does not call for specific taxes for certain alcoholic beverages.
On 26 March 2015, the trade body Brewers of Europe announced a voluntary move from brewers to list ingredients and nutrition information on their brands per 100ml. Any changes to labels incur costs, and those costs are borne disproportionately by smaller companies. In addition, nutritional information for alcoholic beverages may require scientific investments to make sure that the information displayed is accurate. As a possible compromise, nutritional information could be delivered off-pack, like on Internet sites. Rather than exact figures, estimates per serving size communicated through modern information channels could serve the purpose of helping consumers to monitor their calorie intake, if they so wish or need. The Resolution will be voted in the plenary of the EU Parliament at the end of April 2015. Interested parties should closely monitor any developments so as to ensure that their legitimate interests are duly taken into account and safeguarded. The next steps taken in the EU on the labelling of alcoholic beverages (in particular the report and eventual legislative proposals put forward by the EU Commission) should also be monitored and stakeholders should be prepared to participate in shaping potentially upcoming EU legislation by interacting with relevant EU Institutions, trade associations and affected stakeholders.
Recently Adopted EU Legislation
Market Access
Trade Remedies
Customs Law
Food and Agricultural Law
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Ignacio Carreño, Eugenia Laurenza, Anna Martelloni, Blanca Salas, Bruno G. Simões and Paolo R. Vergano contributed to this issue.