Would the signing of the interim EPA remedy the woes of the local beef industry?

Would the signing of the interim EPA remedy the woes of the local beef industry?

The local beef industry has for some time hijacked Government and public opinion with frequent projections of its anticipated losses should the country decide not to sign the interim Economic Partnership Agreement (EPA) with the European Union (EU).

Currently the industry enjoys duty free quota free (DFQF) access to European markets courtesy of Namibia’s initialling of the interim EPA. However, this DFQF market access is in the balance given the Government’s reluctance to sign the interim agreement to date.

It was reported in Business Day (13 August 2009) that Namibia’s loss of its DFQF access would result in EU import duties on beef exports of between 63% and 120%, depending on the type of product exported. It was further reported that as a consequence, local beef prices could decline by 25% in the first year and by 50% in the next year, and “This could close down Namibia’s beef industry, and thousands of small-scale producers in rural areas are at risk of losing their livelihoods.”

However, a new threat in beef exports to the EU has developed with a recent agreement through which the EU and the United States (US) resolved their longstanding dispute regarding the EU’s import ban on hormone-treated beef.

The agreement already took effect on 03 August 2009. This new development somehow must have slipped below the radar of the local media despite the potential negative consequences for future Namibian beef exports to the EU.

As a background: In 1996 the US and Canada launched a World Trade Organisation (WTO) challenge against the EU’s import ban on hormone-treated beef. In 1998 the WTO’s Appellate Body found the EU ban to be inconsistent with the Sanitary and Phytosanitary (SPS) Agreement.

However, the EU decided not to comply with the dispute settlement ruling and face the consequent retaliatory sanctions. In 1999 the US and Canada got the green light from the WTO to impose sanctions (through tariffs) to the value of US$ 116,8 million for damagesto trade resulting from the EU’s non-compliance.

In October 2003 the European Food Safety Authority (EFSA) issued a new Hormones Directive (2003/74/EC) founding only one (oestradiol 17ß) to cause and promote cancer, consequently subjecting it to a permanent ban. However, the EU also invoked the precautionary principle with regards to five other hormones (testosterone, progesterone, trenbolone acetate, zeranol and melengestrol acetate), due to inconclusive results.

The US and Canada nonetheless rejected the EFSA evidence and maintained their sanctions. In reprisal the EU launched a WTO challenge in 2004 against the US and Canadian sanctions. In November 2008 the WTO’s Appellate Body, due to certain procedural oversights, only recommended that the EU, the US and Canada should seek consultations to determine EU compliance with the SPS Agreement breaches of 1998.

Although the EU formally requested consultations in this regard with the US and Canada in December 2008, the US in January 2009 announced a new schedule of so-called “Carousel” sanctions (products selected for sanctions are rotated on a six-monthly basis), inter alia targeting French Roquefort cheese and Italian mineral water.

This announcement expedited consultations between the EU and the US up to the agreement reached on 06 May 2009. According to the agreement, the US will not introduce its new “Carousel” sanctions, but will maintain a reduced level (at 68%) of the original 1999 sanctions.

In return the EU will provide an additional duty-free quota of 20 000 tonnes for high-quality hormone-free beef for a period of three years, to be increased to 45 000 tonnes at the beginning of the fourth year – this is over and above the current US quota of 11 500 tonnes per annum. In the fourth year a review is scheduled with the goal to reach a comprehensive agreement on the way forward.

Should this goal be achieved, the US will withdraw all retaliatory duties against the EU. Although the EU claims (in the words of Lütz Guellner, spokesperson for the EU Trade Commissioner, Catherine Ashton) “The new TRQ [tariff rate quota] for high-quality hormone-free beef will be non-discriminatory, open to any country that can meet the requirements.”, the quota is said to be earmarked for US beef producers only. remarked, “It is true that the definition in the new TRQ will be different from those in existing EU quotas.”

At the WTO’s Dispute Settlement Body meeting on 19 June 2009 Uruguay’s ambassador, Guillermo Valles Galmes, remarked that this agreement “defined as high-quality meat only that of the type exported by the US”, adding that beef from Uruguay would continue to face an in-quota tariff of 20% and an over-quota tariff of 100% in the current Hilton beef quota.

The Hilton beef quota comprises a total of 60 250 tonnes of fresh, chilled and frozen beef from Australia, New Zealand, Paraguay and the US, and chilled beef only from Argentina, Brazil and Uruguay. Australia, one of the beneficiaries of the Hilton beef quota, has joined the array of concerned voices regarding the EU definition of high-quality beef for the new quota.

It demanded that the quota should be non-discriminatory in order for its beef exports to qualify for an additional share in EU imports. Should this not be the case, it would request an enlargement of its current EU quota.

At the Leaders’ Summit in Prague on 06 May 2009, Canadian and EU officials announced their plans to pursue a free trade agreement (FTA). Based on the EU-US agreement, Canada now aims for similar market access as compensation, since it partnered with the US in 1996 at the WTO to challenge the EU’s import ban on hormone-treated beef.

The president of the Canadian Cattlemen’s Association (CCA), Brad Wildeman, said, “The EU offers the potential for the largest market for Canadian beef. It’s been about a half-million tonnes deficient in beef over the past couple of years, particularly with the expansion of the EU block. Canada has a real opportunity to capture this large, high-volume market”.

The CCA’s director of Government and International Relations, John Masswohl, said of the EU-US agreement, “I can definitely see that this is an agreement that’s huge enough to be transformative in the industry.” and

“There’s a huge opportunity for Canadian beef producers if we can get preferential access.” He continued “If Canada could ultimately ship 500 000 to 600 000 tonnes of beef to Europe, it would create new demand for at least two million head of cattle and put the industry into an aggressive expansion mode.” and “Beef producers would consider building slaughter plants dedicated to hormone-free cattle if they had assurance of demand.”

At the beginning of 2010 the EU Presidency will be transferred from Sweden to Spain. The website for the new Spanish Presidency already contains its priorities for 2010.

One of these priorities is the resumption and finalisation of the EU-Mercosur FTA negotiations (Mercosur: Argentina, Brazil, Paraguay and Uruguay). During the previous rounds of FTA talks Mercosur requested an additional 315 000 tonnes of beef over and above its share in the Hilton beef quota.

This request came since most of the Mercosur beef exports to Europe are outside of the quota (at 100% import tariff). The EU has already offered the Mercosur countries a 10 000 tonnes duty-free quota, with yearon- year increases to a maximum of 116 000 tonnes – this despite the fact that the Mercosur annual beef exports to the EU are in the order of 300 000 tonnes.

Given the dissatisfaction from the Mercosur negotiators regarding this offer, the EU has proposed an additional quota of 100 000 tonnes under the Hilton beef quota. This offer consequently requires larger EU access to Mercosur markets for industrial goods, services and investments. Botswana and Namibia are the only remaining African, Caribbean and Pacific (ACP) beneficiaries eligible to export beef to the EU.

Botswana has signed the interim EPA to secure its market access, but Namibia has not yet signed the agreement due to unresolved issues in the legal text. During the past five years earnings in real terms from the ACP preferences have steadily declined as a result of the EU’s Common Agricultural Policy (CAP) reforms.

The only real significant benefit derived during this period was the abolishment of the 8% residual tariff as from the beginning of 2008, hence the better than expected results of the past financial year.

The European Commission’s “Prospects for agricultural markets and income in the EU: 2008 – 2015”, published in March this year, reported that EU beef production is expected to decline by 4,3% until 2015 as a result of on-going CAP reforms (decoupling of beef and veal payments) and the consequent reduction in the EU’s dairy herd.

However, EU beef imports to fill the deficit are only expected to increase by a modest 12,4% over the same period. This is mainly attributed to the continuing switch away from red meat, with a projected decline of 2,7% in red meat consumption and an increase in the production and consumption of poultry and pig meat.

The newly created EU high-quality beef quota more or less equals the combined beef exports from Botswana and Namibia. This new quota is earmarked for the EU’s high-quality market – the same segment that Botswana and Namibia will need to supply to avoid any competition from the lower-priced Mercosur beef exports.

Thus a new competitor has entered the market with similar (duty-free) preferences. Should any of either Canada or Mercosur (under their FTA negotiations), or Australia, be successful in securing additional market access to the EU, this would have severe long-term implications for both the Botswana and Namibian beef industries.

Given this disquieting reality, there exist sufficient grounds to focus on a timely diversification in terms of products and markets. Product diversification is an important prerequisite to adapt to the value-added demands of the EU markets, as well as entering new markets with a differential advantage.

During question time at a recent Southern African Customs Union (SACU) – European Free Trade Association (EFTA) export promotion seminar in Windhoek (20 - 21 July 2009), a representative from the Agricultural Trade Forum (ATF) raised the concern of the auctioning-off of Norwegian beef import quotas to third parties and the consequent negative influence on Namibian exports.

The answer from the panel was that should Namibia add sufficient value to the demands of a Norwegian importer, there would be no reason why such an importer would auction-off an import quota to a third party.

Thus the answer to long-term survival in the international beef export market is evident, as is the consequences of continuing to maintain the practice of traditional primary product exports.

From the above it should be clear that a signature to the interim EPA would not secure the industry’s long-term survival.

Therefore the motivation behind the recurring doomsday messages of anticipated losses and eventual closing down of the beef industry should be queried.

Wallie Roux

(Wallie Roux is an independent trade policy analyst)