EUROPEAN LIVESTOCK AND MEAT TRADING UNION / EUROPÄISCHE VIEH- UND FLEISCHHANDELSUNION

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1 EUROPEAN LIVESTOCK AND MEAT TRADING UNION / EUROPÄISCHE VIEH- UND FLEISCHHANDELSUNION Brussels, 14 th September 2010 O/REF: note N EN Trade Sustainability Impact Assessment (SIA) of the EU-Canada Comprehensive Economic and Trade Agreement (CETA) What s at stake for Europe s meat industry? Introduction... 2 Latest state of play of the negotiations... 2 Online opposition: A EU-Canada FACEBOOK Group... 2 Funny opposition: The Canadian Trade Justice Network... 3 Legal draft text leaked... 3 Background: EU Canada Trade... 3 The EU-Canada relationship so far... 3 CETA: How did we get here?... 4 CETA: What s at stake... 4 EU-Canada trade in 2009 / Trade in goods... 5 Factors inhibiting trade and investment between the EU and Canada... 5 Tariffs... 5 Non-tariff barriers (NTBs)... 5 Environmental Issues... 6 Impact for EU-Canadian agriculture and meat products... 7 Processed foods... 7 Calendar... 8 Sensitive products... 9 BSE /TSE...9 Offensive interests Beef Sector: A special case... 10

2 Introduction On 7 th September 2010, DG TRADE presented their Inception Report of the Trade Sustainability Impact Assessment (SIA) of the EU-Canada Comprehensive Economic and Trade Agreement (CETA). The Inception Report establishes a strong foundation for the research, analysis and methodology for the SIA. The SIA builds on a joint 2008 EU-Canada study to examine and assess costs and benefits of a closer EU-Canada economic partnership. Following the 2008 study and a related Scoping Exercise, CETA negotiations were authorised and then officially launched at the EU-Canada Summit in Prague on 6 th May As of publication of this report, the most recent round of negotiations was held in July Since its beginning, UECBV has followed this issue closely and produced a detailed position paper on the matter in July The key elements thereof are illustrated in this note. Latest state of play of the negotiations According to CELCAA -the European Liaison Committee for the Agricultural and Agri- Food Trade-, parties expect negotiations to be concluded hopefully in 2011, in Mr. Philipp Dupuis (DG TRADE) words, speaking at the last DG Trade Civil Society Dialogue meeting on 7 th September The next negotiation round is scheduled for mid- October with -starting from January 2011 onwards- a round scheduled every 3 month. Both parties are still working on the text and substantial development has been achieved. A stocktaking exercise will be carried out by the end of the year. Market access negotiations have not started yet. Online opposition: An EU-Canada FACEBOOK Group A Facebook group has been created against the EU-Canada deal with about 700 members at It states that the EU agreement will go beyond NAFTA in many ways that threaten public services and local democracy in Canada. It states while Canadian companies are mostly interested in reducing European regulatory barriers to entry for products like meat and genetically modified crops, European companies see Canada's public services, including water treatment, transportation, energy and even health care, as ripe for privatization. Most of these services are delivered provincially or locally, which is why for the first time the provinces (though not their cities) are part of the negotiations. Because these services are often delivered through public spending at the provincial and municipal level, the EU is also pushing to liberalize local procurement rules, which will weaken democratic controls over how communities spend public money -- controls that currently let communities set their own economic priorities but that would be eliminated in favour of corporate priorities under the Canada-EU agreement. 2

3 Funny opposition: The Canadian Trade Justice Network The grouping of environmental, labour, social justice and other civil society organizations created a whole webpage to challenge CETA and push for a more sustainable and equitable Canadian trade policy. They have created a funny poster on 10 reasons why CETA is bad for Canada. Download it here. Moreover, they give reasons why CETA is bad for food sovereignty. Legal draft text leaked The network also published the leaked text of January Download it here. Background: EU-Canada Trade Canada is currently the EU's eleventh most important trading partner, accounting for 1.8% of the EU's total external trade in The EU is Canada's second most important trading partner, after the U.S., with a 10.5% share of its total external trade. The value of bilateral trade in goods rose to 40.2bn in 2009, with high value-added products such as machinery, transport equipment and chemicals making up 57% of the EU's exports of goods to Canada and 40% of its imports of goods from Canada. Trade in services, particularly travel and transportation, is an important area of the trade relationship. Investment, too, is a strong feature, with the EU ranking as the seventh investor in Canada, and Canada as the second investor in the EU (2008). EU exports of goods to Canada in 2009: 22.4bn EU imports of goods from Canada in 2009: 17.8bn The EU-Canada relationship so far In 1976, Canada and the EU signed the first-ever Framework Agreement for Commercial and Economic Cooperation between the EU and an industrialised country. For over 30 years, the Agreement has provided the foundation for the management and development of the EU-Canada relationship in an increasing number of fields, including trade. The EU and Canada meet in annual bilateral Summits, at which the issues of greatest importance to the relationship, including trade issues, are discussed. In addition, senior European Commission and Canadian Federal Government officials, in the presence of representatives of the Canadian provinces and of EU Member States, meet once a year in a Joint Cooperation Committee to review the full range of issues relating to EU- Canada economic and trade relations. 3

4 A number of bilateral agreements designed to facilitate closer trade have been signed over the years. These include agreements on cooperation between EU and Canadian customs administrators (1997); a Veterinary Agreement (1999) aiming to improve bilateral trade in live animals and animal products; a Wine and Spirits Agreement (2003); a Civil Aviation Safety Agreement (2009) and a Comprehensive Air Transport Agreement (2009). CETA: How did we get here? At their June 2007 Summit, Canada and the EU agreed to undertake jointly a study to assess the costs and benefits of a closer economic partnership. The Joint Study, published in October 2008, demonstrated potential gains for both Canada and the EU from the liberalisation of their bilateral trade. At their October 2008 Summit, the EU and Canada agreed to work together to define the scope of a deepened economic agreement, and to identify the factors which would be crucial to the success of any negotiations. A Joint Report on the EU-Canada Scoping Exercise was agreed on in February 2009, and at the EU-Canada Summit in Prague on 6 th May 2009 the launch of negotiations for a Comprehensive Economic and Trade Agreement (CETA) was announced. The first round of CETA negotiations took place from 19 th to 23 rd October 2009 in Ottawa, and was considered by both sides to have been very productive. Good progress was made in most areas towards reaching a consolidated common text. Both negotiating partners continue to aim at a very advanced agreement, exceeding in its level of ambition any trade and economic agreement negotiated either by the EU or by Canada to date. A second round of CETA negotiations took place in Brussels in January 2010, a third round in Ottawa from 19 th to 23 rd April, and a forth round in Brussels from 12 th to 16 th July. The next round is scheduled in Ottawa from 18 th to 22 nd October The aim is to conclude the negotiations within 2 to 2½ years. CETA: What s at stake Within the CETA, negotiations are expected on a number of areas including trade in goods and services, investment, government procurement, competition policy, intellectual property and trade and sustainable development. Negotiations on trade of goods are expected to include trade in industrial, agricultural and fishery products while also including tariff and non-tariff measures, trade defence instruments, technical barriers to trade (TBT), sanitary and phytosanitary (SPS) measures, customs/trade facilitation and rules of origin. EU-Canada trade in 2009 / 2010 In 2009, bilateral trade in goods and services between the EU and Canada was 58.7 bill ion, making the EU the second largest trading partner for Canada after the USA. 4

5 Trade in goods In 2009, EU-Canada trade in goods reached 40.2 billion. The EU maintained a slight trade surplus with exports of 22.4 billion compared to imports of 17.8 billion from Canada. The EU s primary exports are in machinery and transport equipment, manufactured goods, chemicals, mineral fuels, medicinal and pharmaceutical products. The largest imports from Canada in the EU are in machinery and transport equipment, manufactured goods, crude materials, mineral fuels and chemicals. Noticeably, agriculture and crude materials play a relatively far more important role in Canada s trade with the EU while manufacturing of machinery and transport equipment and chemicals are relatively far more important for the EU. Within agricultural exports, cereals (primarily wheat) and fish and seafood play a significant role in Canada s exports. Factors inhibiting trade and investment between the EU and Canada Tariffs In general, EU and Canadian exporters are subject to low average tariff rates in bilateral trade. Canada -> EU In terms of Canada s exports into the EU, a number of high tariff rates are encountered in the agricultural and other sectors. In terms of agriculture, the EU maintains tariff quotas and in-quota duties for a number of single products with high over-quota duties on beef and pork. Tariff peaks and tariff escalation (on processed agricultural products) are also a concern for Canadian companies. Sectors that are particularly affected by tariff peaks include agriculture, agri-food and others. In many instances, there are concerns that tariff barriers make trade in these products prohibitive as they render many Canadian products non-competitive. EU -> Canada With respect to the EU, Canada s average tariff rate on agricultural goods is 21.9% while tariff peaks serve to compound the negative effect on exports from the EU. EU exports into Canada are particularly restricted by tariffs in the dairy sector which are levied with an out-of-quota tariff of 245.6% on cheese. Canada further maintains tariff quotas with high over-quota duties on imports of poultry, egg, beef, wheat, barley and margarine products. Non-tariff barriers (NTBs) In addition to tariffs, bilateral trade and investment between the EU and Canada is restricted by a series of non-tariff barriers. These include quotas (primarily on agricultural products through the EU s Common Agricultural Policy), export restrictions (specifically on raw fish from Canada), SPS and TBT measures, mutual recognition and trade facilitation. 5

6 Among trade restrictions encountered between the EU and Canada, SPS measures, TBT and mutual recognition overlap in a number of instances. Differences in sanitary approval, standards and labelling and packaging requirements in agricultural products, processed food and beverages between the EU and Canada serve as a key and oft-cited impediment. Some controversial measures include the EU s ban on hormone treated beef and its approval process for genetically modified organisms (GMOs), as many in the EU argue the hormones themselves are the barrier to trade whereas many Canadians argue the ban and approval process are the barriers. In such instances there continues to be a lack of mutual recognition of many food safety standards and inspection processes. Additional barriers are present that limit trade facilitation in both markets. Improvements in mutual recognition in the areas of customs control standards including security and each region s trusted shipper programme could serve to improve trade between the EU and Canada. Additionally, barriers exist that prevent or limit the movement of professionals such as burdensome residency requirements; practices related to occupational licensing, certification and registration; and differences in occupational standards. With respect to competition policy, EU market access is inhibited by state trading in Canada as it pertains to alcoholic beverages and wheat. In the former, provincial control of the alcoholic beverages sector may favour locally produced wines and spirits, adversely affecting the EU industry. In the latter, the Canadian Wheat Board (CWB) -a state marketing agency that is the largest exporter of wheat in the world- has received complaints of being a non-competitive seller due to claims of unfair pricing, price pooling, cost pooling and government underwriting of initial producer prices and export credit. Environmental Issues The overall environmental trade profile is one where Canada is a net exporter of many primary materials, i.e. fossil fuels, timber and timber products, agricultural products both food and non food, fisheries products, minerals, and other primary commodities. The EU is a net exporter of semi-finished and manufactured goods and products, and also of services. Most traded economic activity will therefore be on the Canadian side. It can therefore be expected that liberalised trade between Canada and the EU will lead in particular to increased demand for Canadian resources, notably agriculture, fisheries, fuel, minerals and, possibly, forestry products. The importance of extractive industries in Canada-EU trade is likely to raise some sustainability issues across the country. In addition to these potential environmental impacts, it is essential to assess social impacts on aboriginal and other remote rural communities who are most impacted by the expansion of such activities. Canada s agriculture is primarily based on large-scale industrial monocultures that are chemical and machinery intensive. Several genetically modified crops are also cultivated in Canada. Since the Canadian agriculture industry is already mature and operating at scale, the impacts of liberalised trade should be minor. There are also environmental issues as related to fish farming, transports and forestry to be considered. 6

7 Impact for EU-Canadian agriculture and meat products In terms of bilateral trade, exports to Canada from the EU of agricultural and processed food products accounted for 8.3% of all EU exports to Canada in 2007, while imports from Canada in such products were 6.9% of all Canadian imports. Despite being a major supplier of food that is highly engaged in international trade, Canada operates a trade deficit with the EU in agriculture and processed food. In 2007, the EU exported $2.59 billion in agricultural and agri-food products while importing $1.95 billion. In 2007, agriculture as measured by crop and animal production contributed 1.61% of Canada s GDP ($18.7 billion). Although Canada has only 0.5% of the global population, it produces 1.5% of the world s food, while consuming only 0.6%. Canada is a major global producer of beef amongst others. EU imports of Canadian agricultural and processed foods are largely concentrated in primary agricultural products with cereals (wheat, in particular), oil seeds & oleaginous fruits (particularly canola) and edible vegetables. Tariff quotas and high over-quota duties in the EU exist on beef and pork (amongst others), while high applied tariffs are present on fruit and vegetables. Further, Canada maintains tariff quotas, with high over-quota duties on imports of dairy beef products amongst others. The impact of trade liberalisation in agriculture arising from the CETA is likely to lead to increased exports from Canada of primary agricultural products such as cereals, beef, oilseeds, and soya. While benefiting Canadian producers, there may also be a negative impact on EU producers, who may lose domestic market share as a result of increased competition from Canadian wheat farmers. Canadian red meats (beef) stand to benefit from increased liberalisation. Since 1990, the contribution from red meats has been increasing while producers of red meats are particularly export-oriented, earning 40%, 70% and 56% of their earnings from export markets, respectively. It should be noted that while Canadian producers of beef would stand to likely realise gains from increased liberalisation in the CETA, the size of the impact is contingent on the EU s concessions regarding its treatment of Canadian beef including its restrictions on hormone-treated beef. Processed foods Processed food in Canada accounted for 1.47% ($16, million) of GDP in Major Canadian sectors include meat, dairy product and beverage processing. Processed foods face the most substantial tariff protection in bilateral EU-Canada trade. As such, and based on the above, it appears that increased liberalisation in the bilateral trade of processed foods could stand to significantly benefit both EU and Canadian producers of processed foods. This would include greater overall gains in the EU due to the greater existing exports in such products as cheese, pasta, olive oil, coffee and chocolate and cocoa preparations. Sizeable gains may also be realised by the EU in the alcoholic beverages sector, which already represents the largest exports of agriculture and processed food products to Canada. The level of these gains, however, depends on the degree of liberalisation as well as the dismantling of government control of the alcoholic beverages sector in Canada. From the Canadian perspective, producers of processed 7

8 foods may also realise substantial relative gains from liberalisation as the EU applies tariffs which are contingent on the content of dairy, wheat and sugar ingredients. Calendar Last round of negotiations: 4 th round, 12 th -16 th July, Brussels. Next round of negotiations: 5 th round, 18 th -22 nd October, Ottawa. Then, starting from January 2011 onwards, one round every three months 8

9 The position of the European Meat and Livestock Trading Industry In its position paper of July 2010, UECBV recalled that negotiations are organized bilaterally but they cannot ignore the outstanding multilateral negotiations. Sensitive products In particular for UECBV, the sensitive products issue is crucial. As a result, no concession granted in the framework of bilateral negotiations should relate to the tariff lines which are likely to be declared as sensitive at the end of multilateral negotiations. Otherwise the position of the EU negotiators would be weakened and the impact of a tariff line being classified as sensitive product would be reduced. Yet, this classification leads to quota compensation that would be cumulated with eventual quotas given up bilaterally. So the protection sought in the sensitive feature of the tariff line would not exist. Overall and in general UECBV has asked to place the following tariff lines on the list of sensitive products: Specifically for Canada, our EU interests are most exclusively defensive interests. In addition to the sensitive tariff lines shown above, also the following tariff lines need to be protected and excluded from all tariff concessions: CN Codes: ; ; ; ; 0206 ; 0209 ; 0210 ; 1601;1602. These codes relate to the pig meat sector. BSE /TSE Furthermore, certain third countries with whom the EU Commission is negotiating impose import restrictions upon live animals of the bovine and ovine species and beef and sheep meat originating from the European Union, on account of protection against TSEs and BSE. It appears that these third countries do not observe the recommendations made by the World Organisation for Animal Health (OIE). Canada is among these third countries. Just like the USA vis-à-vis South Korea, no agreement should be concluded if the third countries concerned did not formally commit themselves to aligning their national provisions with the OIE s recommendations on TSEs and BSE. In the absence of such recommendations, the third countries should recognize the EU protection measures. 9

10 Offensive interests A few offensive interests have been identified by the meat industry, e.g. The sheep meat export potential is represented by niche market opportunities and has considerable interest for the sheep meat sector in certain EU Member States such as Ireland. Concerning the two pig meat tariff lines, they correspond to products whose increased value produces a better profit in Canada than in the European Union. Consumption of these products in the EU is estimated at 70,000t and 66,000t respectively. They are already exported to Canada where they are imported under a tariff quota of 2,970t. It would have been opened in the context of the hormone dispute. Insofar as this dispute is being resolved, the quota needs to be either removed or increased considerably. Beef Sector: A special case Up until now, because of EU requirements concerning growth promoters, the Canadian exports are limited to bison meat. The Canadian beef industry has not developed any hormone-free cattle production like the U.S. beef industry has. The reasons are to be sought in: Canada s vocation for mass-supplying the U.S. market and the Mexican market with live cattle and beef; The extra production costs arising from hormone-free cattle production. The increase in such costs is estimated between 10% and 20% (control and certification administrative charges not included). Nonetheless, recent factors would lead to a redeployment of Canada s exports of beef. Among these factors: The EU production deficit. This deficit is growing. The deficit growth concerns mainly beef destined for manufacturing but its upward impact on prices affects all the quality categories (among others, the hindquarter cuts from which high-value cuts are obtained). 10

11 Production of high-quality cuts in the EU is estimated at 7%-8% of the beef production but it contributes to approximately 23% of the overall carcase value. Consumption of these cuts exceeds production. The gap is filled by imports under tariff quotas [High-quality beef import tariff quotas: Argentina: 28,000t (soon to be 29,000t); Australia: 7,150t; Brazil: 5,000t (soon to be 10,000t); Paraguay: 1,000t; Uruguay: 6,300t; USA: 11,500t but usage rate of about 17% (except from 2008 onwards) whereas for the other origins the usage rate is generally 100% unless there are irregular veterinary impediments or whatever impediment]. Moreover, with an attractive EU price, out-of-quota imports (i.e. imports paying full customs duty) from Argentina, Australia, Brazil (mainly) have gone up in the past years except in 2008 (implementation of Decision 2008/61/EC). In 2007, these imports were estimated at 150,000t carcase weight equivalent. Given the production and import levels, consumption of high-quality beef in the EU is estimated at 800, ,000t carcase weight equivalent (year: 2007). The possibility that Canada tries to take advantage of the EU dynamic market in high-quality cuts is not to be ruled out. The U.S. introduction of labelling giving indication of the origin of the meat. This curbs the trade flows coming from Canada. So Canada is incited to diversify its outlets. The provisional suspension of the EU-US hormone dispute. Canada should thereby be encouraged to follow the U.S. example. As a result, the Canadian industry will be for initiating hormone-free cattle production. The transport costs. They do not hamper exports to the EU since they are not higher than those paid by the other suppliers to the EU except where they do not originate from Canada s East Coast but from Canada s West Coast. The level of sea transport costs is estimated at US$ per tonne (West Coast: +US$165). The air transport costs amount to about US$1,000-1,200 per tonne. The conclusion is that, in both the pig meat sector and the beef sector, the utmost cauti on is insisted upon. Canada is a serious potential competitor. 11