EU dairy exporters have complained Canada’s system for the allocation of the CETA cheese TRQ unfairly favours local manufacturers. The EU makes use of similar yet even more severe arrangements for TRQ administration in sensitive sectors, with under the EU-South Africa TDCA import licences being allocated only to ‘approved undertakings’ (EU dairy companies) on food safety grounds. Important lessons in regard to how to ensure TRQ regulated imports under recently concluded EPAs do not undermine local producers can be learned from EU practices with regard to TRQ administration. These lessons could prove useful in ensuring that expanded imports from the EU in sensitive sectors do not undermine local agro-food sector development.
In July the European Dairy Association (EDA) complained about the manner in which the Canadian authorities planned to allocate import licences under the EU-Canada Comprehensive Economic and Trade Agreement (CETA) cheese TRQ. The initial proposal from the Canadian authorities was to allocate 60% of the TRQ import licences to Canadian cheese manufacturers. EDA maintained this system of TRQ administration ‘would threaten the access of EU cheeses to the Canadian market’ (1).
It is argued the proposed TRQ administration system violates the ‘general principle…that tariff rate quota administration should be as conducive to trade as possible’ and must not ‘impair or nullify the market access commitments negotiated’. The EDA argued a system of TRQ administration should be established which is ‘transparent, predictable, minimise transactional costs for traders, maximises fill rates and aims to avoid potential speculation’ (1). It is maintained allocating 60% of the TRQ to Canadian cheese manufacturers ‘would not be in accordance with these principles’. The EDA urged the EC to take this issue up with the Canadian government (1).
The issue was duly taken up by the EC, with the Canadian TRQ allocation system being amended to grant ‘half the new quota … to the domestic industry’s cheese makers while the other half is allocated to distributors and end retailers’ (2).
The TRQ administration system introduced is in line with the Canadian governments’ ‘Export and Import Permits Act’ (EIPA). The TRQ will be progressively expanded over 5 years, this will consist of:
- 299 tonnes for the period from 21 September to 31st December 2017;
- 5,333 tonnes in 2018;
- 8,000 tonnes in 2019;
- 10,667 tonnes in 2020;
- 13,333 tonnes in 2021;
- 16,000 tonnes from 2022 onwards (3).
To place this TRQ in context in 2016 the EU exported a total of 15,224 tonnes of cheese to Canada (4), in the face of high standards MFN tariffs of between C$2.84/kg and C$3.32/kg, with in some cases, specific duties of 245.5% (5).
EU Cheese Exports to Canada (tonnes)
According to the Canadian governments’ 1 August 2017 notification to importers ‘during the phase-in period from 2017 to 2021, at least 30 percent of the TRQ will be available to new entrants every year. After the end of the phase-in period from 2022 and in subsequent years, at least 10 percent of the TRQ quantity will be available for new entrants’.
The following TRQ allocation system has been announced:
- ‘50 percent of the TRQ is allocated to the cheese manufacturers group:
- 30 percent is allocated to the small and medium-sized cheese manufacturers pool;
- 20 percent is allocated to the large cheese manufacturers pool.
- 50 percent of the TRQ is allocated to the distributors and retailers group:
- 30 percent is allocated to the small and medium-sized enterprise distributors and retailers pool;
- 20 percent is allocated to the large distributors and retailers pool’ (3).
Specific allocations will be based on market shares. Provision is made for subsequent allocations to be proportionally reduced in the face of under-utilisation of the quota allocation (3).
|Comment and Analysis
It is somewhat ironic that EU cheese exporters are falling victim to the same practice of TRQ licence allocation under the CETA as South African cheese exporters experienced under the EU-South Africa TDCA concluded in 1999. Under the TDCA the only bodies permitted to import South Africa cheese into the EU were European dairy companies. This was justified on food safety grounds, since under EU domestic regulations the only bodies allowed to place dairy products for sale on the EU market were ‘approved undertakings’. The only companies de facto able to gain ‘approved undertakings’ status in the dairy sector were EU dairy companies.
This severely restricted export opportunities for South African dairy companies, since they needed to export through their competitors. Despite a 5,000 tonne TRQ, between 2005 and 2015 South African dairy exporters supplied cheese to the EU market in only 4 years, with the volume never exceeding 59 tonnes.
In comparison to this EU practice the Canadian system of TRQ administration is far less severe. Nevertheless Canada’s use of similar TRQ allocation mechanisms highlights how in moving forward with EPA implementation, ACP governments may wish to consider the use of similar administrative arrangements for TRQ import licence allocations to those used by both the EU and Canada in order to manage trade in sensitive agro-food sectors.
(1) Dairyreporter.com, ‘EDA expresses CETA cheese concerns’, 20 July 2017
(2) CBCNews, ‘Canada carves out more European cheese for retailers after EU concerns’, 1 August 2017
(3) Global Affairs Canada, ‘Dairy – CETA Cheese Tariff Rate Quota (TRQ) (Items 141 to 157 on the Import Control List)’, Serial No. 895, 1 August 1 2017
(4) EC Milk Market Observatory, ‘EU Dairy Exports to Third countries’, 12 June 2017
(5) Canadian Customs tariff Schedule – dairy products
|Key words: Cheese, CETA, TRQs
Area for Posting: EU Trade Policy, Dairy, EPA General