Summary
The debate on the EU’s TRQ offer for beef in the EU-Mercusor negotiations throws into sharp relief the double standards which the EU applies to the use of quantitative restrictions on trade in sensitive agricultural products. While routinely using such tools to protect EU producers in trade arrangements with competitive agricultural exporters, the EU insists on a prohibition on the use of quantitative restriction on imports from the EU under trade arrangements with ACP countries. This is despite the EU often being the major source of agricultural imports in sensitive sectors in EPA signatory countries.
It also raises the potentially important issue of the effects of Brexit in the beef sector both in terms of the threat to the functioning of national and regional beef markets in the ACP (particularly in Africa) and the future value of preferential access to EU27 markets in the post-Brexit context. This will require ACP beef exporters to the EU to pay close attention to the prospects for a ‘hard’ Brexit in the meat sector as EU27/UK negotiation progress throughout the course of 2018.
Following reports that the EC was looking to offer Mercosur a tariff rate quota allowing ‘tariff-free imports of 99,000 tonnes of South American beef annually’ (1), the Irish Agriculture Minister Michael Breed wrote to Trade Commissioner Malmstrom to express concern at the scope of the EU’s beef sector offer to the Mercosur Group.
In her response on the 21st February Trade Commissioner Malmstrom sought to reassure the Irish Minister the EC ‘has taken and will continue to take into account the sensitivity of the European beef industry when conducting negotiations’ (2). However she also highlighted how beef was ‘among the few important exporting interests that have clearly been identified by Mercosur in the negotiations’ and that therefore it was ‘not realistic to expect Mercosur to agree to conclude a negotiation removing the steep tariff and non-tariff barriers affecting EU exports in nearly all sectors, including agriculture, without any concession on that product’.
The EC has regularly noted how ‘partial liberalisation mechanisms such as tariff rate quotas (TRQs) allow the EU to provide limited market access on these products for Mercosur countries, while also safeguarding the interests of EU farmers’ (3). However the EC now looks willing to offer 99,000 tonnes of duty free access, ‘compared to an initial offer of 70,000 tonnes’ (1). This offer is only half of the 200,000 tonnes of beef access which Mercosur was reportedly demanding.
In her letter Trade Commissioner Malmstrom argued the TRQ based approach was ‘meant to limit the negative impact of trade liberalisation on the EU beef sector’. She further stressed the EC’s desire to ‘avoid any concessions that would go beyond what EU sensitive sectors can accommodate’ (2). She also noted how the ‘EU’s offers on beef in this negotiation go back to May 2004…at a time when the EU consisted of 25 member states’ (2), not the current EU28. She suggested the finalization of the EU’s offer ‘would allow for Mercosur to improve their offer in a number of respects’.
The issue of the potential benefits of the Mercosur agreement for other EU sectors has led Italy’s Minister for the Economy, Ivan Scalfarotto to indignantly declare ‘can you believe that such a big, large agreement fails because of some beef?’ (4) Against this background there remains an expectation that a final agreement may be concluded by the end of April 2018.
However, Irish beef producers are deeply concerned that the market effects of any TRQ concessions to Mercosur producers could coincide with the ‘possible imposition by the UK of steep tariffs against Irish beef after Brexit’ (4). These concerns however need to be placed in context.
One the one hand Mercosur countries already account for around 73% of total extra EU imports of frozen and fresh and chilled beef combined. On the other hand EU27 member states export over 225,000 tonnes of beef and veal to the UK annually, with most of this coming from Ireland. A ‘hard’ Brexit could severely disrupt these EU27 exports to the UK, forcing them back on to EU27 markets in a context where total EU28 beef consumption in 2017 was put at 7.9 million tonnes. This was down 0.62% compared to 2016 but is projected to mark the beginning of a declining trend in beef consumption in the EU28 (9).
By 2030 EU beef consumption is projected to be down 5.13% compared to 2016 consumption levels (- 407,000 tonnes) (9). In terms of market access commitments this decline in EU beef consumption does not take into account the withdrawal of UK beef import demand from the EU market equation. In 2017 the UK accounted for 7.7% of total EU28 beef imports and 3.7% of EU imports from Mercosur countries (10). The granting of a 99,000 tonnes duty free quota for Mercosur beef needs to be seen against this background.
It also needs to be seen against the background of the differential Impact of tariff elimination on imports of different beef products. EU import duties on beef are the same regardless of the quality of the beef. The EU has a MFN specific duty of 12.8%+ €3,034 per tonne of boneless fresh or chilled beef. Taking approximate prices for manufacturing beef and striploin, the price per tonne of manufacturing beef is approximately €3,500, while the UK price per tonne of striploin is approximately €13,000. This means that, after the specific duty is applied, the price of striploin will increase by approximately 36% to €17,698, while the price of manufacturing beef would increase by almost 100% to €6,982, a much larger proportional increase.
This means that exporters of the cheaper cuts of meat will benefit more from the granting of duty free access to the EU market than exporters of high quality beef cuts. It is therefore unclear which beef market components would be most severely affected by the granting of a 99,000 tonnes TRQ for Mercosur beef exporters
Mercosur Beef Exports to the EU and total Extra EU Beef Imports 2016-2017 (tonnes)
| 2016 | 2017 | |||||||
| 0201 | 0202 | Total | 0201 | 0202 | Total | |||
| Brazil | 25,902 | 39,793 | 65,695 | 22,961 | 33,610 | 56,571 | ||
| Argentina | 31,826 | 1,467 | 33,293 | 37,042 | 1,292 | 38,334 | ||
| Uruguay | 24,743 | 13,906 | 38,649 | 26,483 | 15,763 | 42,246 | ||
| Paraguay | 3,122 | 1,453 | 4,575 | 3,859 | 1,462 | 5,321 | ||
| Mercosur total | 85,593 | 56,619 | 142,212 | 90,345 | 52,127 | 142,472 | ||
| Extra-EU Imports Total | 134,070 | 69,900 | 203,970 | 133,819 | 62,139 | 195,958 | ||
| % share Mercosur | 64% | 81% | 70% | 68% | 84% | 73% | ||
Source: EC Market Access Data Base
0201 = fresh and chilled beef, 0202 = frozen beef
It is against this background that Irish farmers continue to urge Agriculture Commissioner Phil Hogan to stand firm against any increase in the Mercosur beef quota offer. Irish farmers leaders claimed an expanded EU offer on beef ‘flies in the face of everything that the EU stands for’ in terms of reducing the carbon footprint of beef production (7). It is claimed the EU will face major challenges in ensuring compliance with EU standards under any agreement. Brazil’s record of compliance with EU standards over the past 18 years was cited with it being claimed Brazil ‘has consistently failed to meet EU standards on critical issues of traceability, food safety, and animal and plant health, environmental and labour standards’ (8).
It is also held the new EC proposal ignores ‘what is happening in terms of Brexit’. It was maintained given the importance of beef production in Ireland the EU should not ‘agree to a Mercosur deal involving a major increase in substandard beef imports from Brazil at the same time as we face the serious challenges of Brexit’. It was maintained that following Brexit ‘the EU beef market would be 116% self-sufficient’. (7).
| Comment and Analysis Three dimensions of varying importance arise for ACP countries in the current debate on the level of access to be allowed Mercosur beef exports under any future EU-Mercosur trade agreement. The first of these relates to the EU’s use of tariff rate quotas in managing imports of sensitive agricultural products under EU trade agreements. The EU regularly makes use of TRQs for sensitive products in its trade with its major agricultural trade partners. This trade policy practice contrasts sharply with the EU’s desire to see the use of quantitative restrictions on imports from the EU abolished in trade with ACP EPA signatories (see box). There is a certain inconsistency between the EU’s extensive use of TRQs (which are a form of quantitative restriction) to protect sensitive sectors under trade agreements with the EU’s major agricultural sector competitors and the EU’s requirements under EPAs in regard to the prohibition of the use of quantitative restrictions on imports form the EU, in a context where the EU is the major source of imports for sensitive agricultural products in many EPA signatory countries.
The second dimension relates to the prospect raised by Irish beef producers of the potential of the Brexit process giving rise to serious problems of trade displacement in a context where following Brexit in the beef sector the EU27 self-sufficiency rate will reach 116%. This strongly suggests many EU27 beef exporters (most notably Ireland) will be looking for new markets for beef exports beyond the EU27 and the UK. It is unclear to what extent Irish beef exporters would target ACP markets. The bulk of Irish exports to the UK are high quality beef, for which African markets are not a major focus. However there is also a significant proportion of trade in lower quality beef into the UK market, for which markets could be sought in ACP countries (most notably in sub-Saharan Africa). More importantly UK beef exports to EU27 markets are concentrated in the lower value frozen beef sector, where far greater interest in African markets exists with a strong focus on West and Central Africa). African governments may therefore need to be alert to the dangers of trade displacement in the beef sector as a result of Brexit, with this potentially undermining the functioning of national and regional markets for beef (particularly in West Africa). This threat would be enhanced if a 99,000 tonne beef quota were granted Mercosur exporters and this gave rise to increased exports of low quality beef cuts to the EU from Mercosur countries. The third dimension relates to the impact of a new Mercosur quota on ACP beef exports to the EU. This would primarily affect Namibia and Botswana, with the effects on markets for Namibian and Botswana beef exports depending on the quality of the expanded Mercosur beef exports which the enhanced duty free access gave rise to. Namibia has in recent years been seeking to move over to the export of quality differentiated beef cuts, packed and labelled in line with final retailer requirements. This market component is unlikely to be affected by reduced tariff access for bulk beef commodity exports from Mercosur. However exports of undifferentiated bulk commodity beef could be affected by the lower prices increased tariff free exports from Mercosur could give rise to. This would be particularly the case if it coincided with a ‘hard’ Brexit which resulted in a disruption of current EU27/UK beef trade flows. This issue of the prospects for a ‘hard’ Brexit in the meat sector is something which ACP beef exporters will need to pay close attention to in throughout the course of 2018. |
Sources
(1) EURACTIV.com /AFP, ‘EU, Mercosur resume talks on trade deal’, 20 February 2018
https://www.euractiv.com/section/economy-jobs/news/eu-mercosur-resume-talks-on-trade-deal/
(2) EC, ‘Letter Cecilia Malmstrom to Irish Agriculture Minister Michael Creed, 21st February 2018
https://ec.europa.eu/carol/index-iframe.cfm?fuseaction=download&documentId=090166e5b8ba379d&title=6138744_CM%20Letter%20Ireland.pdf
(3) EC, ‘EU-MERCOSUR Association agreement a vast economic potential, building bridges for open trade and sustainable development’
http://trade.ec.europa.eu/doclib/docs/2017/december/tradoc_156465.pdf
(4) Irish Times, ‘Ireland has a beef with EU-Mercosur trade agreement’, 29 January 2018
https://www.irishtimes.com/business/commercial-property/ireland-has-a-beef-with-eu-mercosur-trade-agreement-1.3371362
(5) EC, Meat Market Observatory, ‘Beef and veal market situation CMO Committee’, 22 February 2018
https://ec.europa.eu/agriculture/sites/agriculture/files/market-observatory/meat/beef/doc/market-situation_en.pdf
(6) euractiv.com, ‘EU stalls on new Mercosur trade offers, delaying deal’, 13 December 2017
https://www.euractiv.com/section/economy-jobs/news/eu-stalls-on-new-mercosur-trade-offers-delaying-deal/
(7) Globalmeat.com, ‘Irish Farmers Association urges Commission to stand ground on Mercosur deal’, 8 March 2018
https://www.globalmeatnews.com/Article/2018/03/08/IFA-takes-tough-stance-on-Mercosur
(8) Globalmeatnews.com, ‘Irish farmers accuse EU of naivety’ 23 March 2018
https://www.globalmeatnews.com/Article/2018/03/23/Irish-farmers-accuse-EU-of-naivety
(9) EC, ‘EU Agricultural outlook for the agricultural markets and income 2017-2030’, Tables, 18 December 2017
https://ec.europa.eu/agriculture/sites/agriculture/files/markets-and-prices/medium-term-outlook/2017/2017-tables.pdf
(10) EC Market Access Data Base
http://madb.europa.eu/madb/statistical_form.htm