Summary
The EU-Pacific EPA is essentially two bilaterally concluded agreements with Papua New Guinea (PNG) and Fiji, which the EC hopes other Pacific ACP countries will accede to as they graduate out of LDC status. Agri-food products are of marginal importance in EU exports to PNG, but central to the EU’s imports form PNG, with the trade in palm oil playing a dominant role (around 58% of total imports by value). In recent years PNG has exported ‘differentiated’ palm oil in the form of ‘fully traceable sustainably certified palm oil ‘processed at a dedicated plant in the UK for distribution to sustainability sensitive food product manufacturers across the EU. It is unclear how a ‘no-deal’ Brexit would impact this trade. It is also unclear how Brexit could impact on the trade in canned tuna which has been a major growth area under the EU-PNG EPA.
- The Scope of the Pacific-EU EPA
There is no regional economic partnership agreement with the Pacific region, but rather two bilateral agreements with Papua New Guinea (PNG) and Fiji respectively. PNG signed its agreement with the EU on 30 July 2009 with the Parliament of PNG ratifying the agreement on 25 May 2011.
While both the PNG and Fijian agreements are open to the accession of other Pacific island countries only Samoa and the Solomon Islands have indicated an interest in acceding to an EPA, with this requiring the submission of tariff reduction offers to the EU.
This relative lack of interest in a regional EPA reflects the marginal level of trade which most Pacific islands beyond Fiji and PNG have with the EU. PNG and Fiji together account for 83% of EU-Pacific trade. Given the role of other Pacific Rim countries in trade with Pacific ACP countries there are also wider regional complications which a trade agreement with the EU could give rise to.
However this is changing as some Pacific ACP members are graduated out of least developed country status. According to the EC ‘the end of 2018 is a target date for Samoa’s accession in view of its graduation out of Least Developed Country (LDC) status’. The EC also anticipates the future graduation of Kiribati, Solomon Islands, Tuvalu and Vanuatu out of LDC status will increase the attractiveness of the EU’s EPAs.
The principal attraction of the EPA as structure din the Pacific is the concessions the EU has granted in regard to global sourcing of tuna used in local canning operations. This move has stimulated a major expansion of PNGs canned tuna exports and it is felt the granting of similar global sourcing arrangement would make the Pacific EPA attractive to other small island ACP Pacific nations. It is against this background the ‘EU is supportive of the accession of other Pacific States to the existing Agreement with a view to extending EPA benefits to them’.
- EU-PNG Agri-Food Trade
The PNG-EU EPA provides duty free-quota free access to the EU market, with PNG committing to liberalisation of 88% of its current import trade with the EU. This needs to be seen in a context where the EU’s export trade to PNG is marginal and tends to be ‘bulky’, with individual exports having a profound effect on annual trends.
Trends in Total EU Trade with PNG and Fiji
| 2014 | 2015 | 2016 | 2017 | % change | |
| EU Exports PNG | 135 | 165 | 214 | 164 | +21.5% |
| EU Imports PNG | 794 | 747 | 682 | 898 | +13.1% |
Source: EC, ‘Individual reports and info sheets on implementation of EU Free Trade Agreements’, Commission Staff Working Documents, SWD(2018) 454 final, 31 October 2018.
EU agro-food exports to PNG are even more marginal at around 2% of total EU exports. These agri-food exports consist mainly of meat preparations and preparations of fruit, vegetables and nuts. Agri-food products however dominate EU imports from PNG amounting to 63.1% in 2014 and 68.3% in 2017. This consists largely of palm oil products (84.7% of PNG agro-food exports), coffee (11.6%), cocoa beans (1.6%) and some tropical fruits (1.6%) (2).
However in the case of PNG the main impact of the EPA has been in the fisheries sector where newly introduced global sourcing’ provisions allow Pacific EPA signatories to ‘source fish from any vessel for further processing (regardless of who caught the fish, or where it is caught)’. According to the EC analysis ‘this exclusive exemption recognises the special importance of fisheries, especially canned tuna (HS 1604), for long-term economic development in the region’. It is maintained that ‘thanks to the provision, countries can further develop their onshore processing capacity, creating local employment and income’.
Between 2007 and 2017 this saw the value of PNGs canned tuna exports to the EU increase 317%, while the volume of exports increased 132%. By 2017 canned tuna accounted for 17.7% of the value of total PNG exports to the EU, up from 10.9% in 2007 (3).
Value of PNG Canned Tuna (1604) to the EU (million)
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| 38.1 | 30.2 | 41.9 | 46.2 | 65.7 | 113.0 | 127.6 | 104.8 | 105.6 | 106.8 | 158.8 |
Volume of PNG Canned Tuna (1604) to the EU (tonnes)
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| 17,165 | 9,319 | 16,404 | 18,381 | 21,250 | 27,792 | 28,595 | 28,01 | 28,601 | 30,306 | 39,858 |
Source: EC Market Access Data Base
- The Utilisation of Institutional Structures
According to the EC ‘Five meetings of the Trade Committee established under the EPA have taken place between the Parties to the Agreement. The last Committee meeting in 2017 discussed the state of play of EPA implementation (particularly PNG and Fiji’s tariff schedules) and ratification, as well as rules of procedure, rules of origin, sustainability issues (fisheries management and regulations, progress on labour issues, environmental protection reforms, etc.) and possible areas for deepening cooperation under the EPA’ (1).
PNG has made all the tariff cuts it has committed to and is now seeking to move beyond the fisheries sector in diversifying its exports to the EU. It is unclear what the impact of Brexit could be on these efforts (1).
The EC acknowledges that while ‘development cooperation is essential for EPA implementation’ it is ‘not part of the Pacific-EU EPA or its accession process’. Nevertheless the EDF regional indicative programme in the Pacific is used:
- ‘to strengthen regional trade and business enabling environment and
- to better involve the private sector in order to strengthen the economic integration of the Pacific region’ (1).
In addition in PNG under the national indicative programme initiatives are also being financed ‘strengthen the rural entrepreneurship, investment and trade in PNG’ (1).
The EU concludes its 2017 implementation report with the observation that ‘effective implementation, coupled with corresponding domestic reforms (especially in areas of trade facilitation and improvement of value chains and business climate) will enable Fiji and PNG to take full advantage of the EPA, including to attract EU investment’ (1).
| Comments and Analysis
In recent years given mounting consumer concerns over the sustainability of palm oil production linked to deforestation within certain supply chains, PNG exporters (and those in the Solomon Islands) have sought to differentiate themselves from the mass palm oil market by developing fully traceable sustainably certified palm oil supply chains. This uses a facility in the UK dedicated exclusively to processing fully traceable sustainably certified palm oil, with fully traceable palm oil from this facility then being distributed to sustainability conscious food processors across the EU. It is unclear to what extent a ‘no-deal’ Brexit would disrupt these supply chains. PNGs palm oil export to the EU and UK are concentrated in the category ‘Palm Oil, crude oil, other’ (code 1511 1090), accounting for most 88% of exports to the EU in 2017 of which almost 22% went to the UK. This product category attracts a 3.8% MFN duty in the EU. However the UK takes a higher % of PNG exports of palm oil to the EU in the categories Palm Oil crude oil solid fractions other (1511 9019 ) (intended for human consumption) and Palm Oil solid fraction other (1511 9099), where it takes 79.3% and 54.9% of PNG exports to the EU respectively. This latter category (1511 9099) attracts a 9% MFN duty in the EU. Exports of these latter two categories to the UK account for 24% of PNG palm oil exports to the UK, representing the equivalent of 6% of total PNG palm oil exports to the EU28 market. PNG exporters need to clearly identify what the application of standard EU MFN duties on UK/EU27 trade could mean to these triangular trade flows which serve EU27 markets via refining activities which take place in the UK. The policy priority should be to ensure no tariffs or non-tariff measures are applied to the onward trade in PNG palm oil in ways which disrupt current supply chains to EU27 markets via the UK as a result of a ‘no-deal’ outcome to the current Brexit negotiations. PNG Palm Oil Exports to the EU28 and UK 2017 (tonnes)
Source: EC Market Access Data Base It is also unclear to what extent Brexit could disrupt PNGs trade in canned tuna to the UK. Since 2008 direct canned tuna exports to the UK have accounted for a variable share of PNG canned tuna exports to the EU, ranging from 9.7% in 2008 to a low of 7.3% in 2010 to a high of 20% in 2014. What is clear is that since 2014 direct PNG canned tuna exports to the UK market in both overall volume terms and as a % of total exports to the EU28 has steadily declined in importance, accounting for only 6% of PNG canned tuna exports to the EU in 2017 (3). PNG Canned Tuna exports to the EU and UK Markets (tonnes)
Source: EC Market Access Data Base Publicly available data provides no indication of the extent of PNG canned tuna exports to EU27 member states which may then be forwarded to the UK. However since 2014 exports to the Netherlands and Germany have grown strongly by 182.7% and 81.5% respectively, in a context where overall exports to the EU have grown 42.3%. In this context it is possible onward trade to the UK is taking place by ports of initial landing in the Netherlands or Germany. If this is the case this triangular trade could be disrupted by the application of high standard MFN duties (25%) on EU27/UK trade. However what is clear within the Brexit process is that under a ‘no-deal’ scenario the Government of PNG will need to ensure its current duty free-quota free access to the UK market is retained after the 29th March 2019. There are two options open to the Government of PNG in this regard: a) the launching in association with other ACP EPA signatories of a concerted campaign to persuade the UK government to unilaterally apply Article 129 of the concluded Withdrawal Agreement regardless of the state of play in the ratification process; b) the initiation of immediate steps to ensure the government of PNG is in a position to sign a ‘rolled over’ ‘interim-UK-only’ reciprocal trade agreement based on a revised EPA text by 29th March 2019. Option a) would provide certainty for UK and PNG country commercial operators in the run up to the UK’s withdrawal from the EU, thereby averting disruption of PNG exports to the UK market While option b) would also ensure PNG retained duty free-quota free access to the UK market it would need to include a special annex setting out a detailed list of PNG concerns which would need to be addressed under the final agreement with the UK prior to ratification of the agreement. This would for example need to address future rules of origin issues in the fisheries sector where current global sourcing opportunities could be extended to all fisheries products given the absence of any long distance UK fishing fleet whose fisheries access interests need to be protected and promoted through the rules of origin applied (as is currently the case with the EU). These fisheries and palm oil issues are also relevant to the Solomon Islands (which also exports fully traceable sustainably certified palm oil to the EU via the UK processing facility) Samoa and other Pacific island nations as they determine how to deal with the UK’s departure from the EU, in the context of their pending graduation out of LDC status. |
Source:
(1) EC, ‘Individual reports and info sheets on implementation of EU Free Trade Agreements’, Commission Staff Working Documents, SWD(2018) 454 final, 31 October 2018
http://trade.ec.europa.eu/doclib/docs/2018/october/tradoc_157473.PDF
(2) EC, ‘Agro-food trade statistical factsheet: European Union – Papua New Guinea’, 15 March 2018
https://ec.europa.eu/agriculture/sites/agriculture/files/trade-analysis/statistics/outside-eu/countries/agrifood-papua-new-guinea_en.pdf
(3) EC, Market Access Data Base,
http://madb.europa.eu/madb/statistical_form.htm