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Canadian Meat Industry Makes Gains in EU Agreement, but U.S. Must Aim Higher

Canadian livestock organizations were understandably pleased when Canada and the European Union announced their free trade agreement Oct. 18. Negotiations had stalled on several occasions, with one of the most contentious issues being access to the EU for Canadian beef and pork products.

The full text of the EU-Canada Comprehensive Economic and Trade Agreement (CETA) is not yet available for review, but according to the Canadian Cattlemen’s Association, the EU will allow duty-free access for 50,000 metric tons (mt) of Canadian beef (carcass weight equivalent), which includes 35,000 mt of fresh/chilled beef and 15,000 mt of frozen beef. Canada will also continue to have access to the existing, shared, duty-free quota for high-quality, grain-fed beef.

The EU will open a tariff rate quota (TRQ) for Canadian pork of 80,000 mt, carcass weight equivalent. It is USMEF’s understanding that the duty-free portion of the TRQ is approximately 75,000 mt (carcass weight equivalent) plus the roughly 4,600 mt TRQ that currently exists for Canadian pork, which will still be subject to specific duties ranging from 233 to 434 euros/mt. The agreement also reportedly provides immediate, duty-free treatment for these items:
  • Pig fat
  • Salted, dried, smoked and cured boneless pork
  • All other processed pork tariff lines in Chapter 16, such as sausages

CETA is not expected to include changes in the EU’s restrictions on the use of hormones or beta agonists in livestock production, and the extent to which it will address any other technical barriers is not entirely clear. A document issued by the Canadian government entitled Technical Summary of Final Negotiated Outcomes includes this list of sanitary and phytosanitary (SPS) measures addressed by the agreement:
  • Agreed to reaffirm and build upon World Trade Organization SPS commitments
  • SPS provisions subject to dispute settlement.
  • Incorporates and updates the existing Canada-EU Veterinary Agreement.
  • Builds on the Veterinary Agreement to establish a framework for cooperation on the full scope of animal-health, plant-health and food-safety provisions.
  • Sanitary and Phytosanitary Measures Joint Management Committee of experts to discuss issues before they become problems, as well as facilitate discussions to resolve issues impeding trade.
  • Canada and the EU agreed to proactively determine equivalency of each other’s inspection and certification systems.
  • With respect to a number of key red meat SPS issues, Canada achieved a parallel exchange of letters. The key objective for Canada is to ensure that commitments are made to facilitate trade in red meats, specifically by advancing the proposal for the acceptance of recycled hot water as a carcass-decontamination technique in the EU (lactic acid was approved in Feb. 2013), and by both Canada and the EU ensuring that both sides are committed to conducting the respective steps toward finalizing the equivalence determination on meat and meat products within a year.

While this list identifies a number of key SPS issues and plots a course for addressing them, referring to these as “outcomes” seems overly optimistic. This is a critical point as it relates to the Transatlantic Trade and Investment Partnership (TTIP) negotiations currently taking place between the United States and the EU. Many observers have suggested that CETA is a blueprint for the TTIP. But Thad Lively, USMEF senior vice president for trade access, cautions that while the TRQs that Canada negotiated in the CETA are significant, their actual impact may fall short of expectations.

“Quotas and duties certainly are some of the more significant obstacles that have held back North American meat exports to Europe,” Lively said. “So from that standpoint, gaining greater access through duty-free quotas could be seen as a significant improvement in market access. But when judged against our ambition of eliminating tariffs and quotas through our FTAs, the CETA falls short. In addition, when I look at the trade activity that is currently taking place, I have to question whether an agreement that creates larger quotas without addressing the EU’s technical trade barriers is going to be enough to truly open the EU market.”

For example, Canada’s access to the EU’s duty-free quota for high-quality, grain-fed beef (originally 20,000 metric tons, now 48,200 mt) has been in place for four years. Yet through July, the EU had imported only 444 metric tons of Canadian beef in 2013. In the most recent quota year (July 1, 2012 to June 30, 2013), the United States was the largest user of the duty-free quota, shipping 16,750 metric tons. But even with Australia and Uruguay’s growing participation, only about two-thirds of the quota was utilized.

“This is why USMEF is very concerned about settling for larger quotas in a trade agreement with the EU,” Lively explained. “In theory, greater duty-free access appears to be a significant breakthrough that offsets the additional costs of serving this unique market and allows more producers and processors to capitalize on high-value opportunities in Europe. But in practice, the impact has been rather limited. That is why it is so important to tackle technical issues such as the hormone ban, beta agonists and pathogen reduction treatments in the TTIP negotiations if we are truly going to open the EU market to U.S. beef and pork. Otherwise Europe is likely to remain a niche market, regardless of how much our quotas are expanded.”

Through July of this year, the EU imported only 9 mt of Canadian pork valued at about $38,000 (Global Trade Atlas data). The EU’s total pork imports during this period were only 17,122 mt, and more than half of this volume came from Switzerland. Chile was the EU’s largest non-European pork supplier at 3,600 mt, and benefiting from its duty-free TRQ, followed by the United States at 1,084 mt.

Europe’s in-quota duties on imported pork are quite significant, ranging from 250 euro/mt to 784 euro/mt. Out-of-quota duties are as high as 1,568 euro/mt. The duties are highest on processed products such as pork sausages, so duty-free access for processed products may in fact provide a boost for Canadian exports. But without more decisive action on technical barriers, it is still difficult to imagine that a larger quota for fresh/frozen pork and duty-free access for processed products will be sufficient for turning the EU into a significant destination for Canadian pork.

These realities are not lost on key members of Congress. At a Senate Finance Committee hearing this week, Chairman Max Baucus (D-Mont.) and Ranking Member Orrin Hatch (R-Utah) both raised the issue of unjustified SPS standards as a key barrier that must be eliminated if the TTIP is to achieve meaningful gains for the U.S. meat industry.

Like CETA, TTIP will likely address BSE rules
It is important to note that Canadian beef will not realize the market access benefits negotiated under CETA until Canada allows imports of beef produced in the EU, which is still banned due to BSE. Lively noted that this is a concession the EU will also press the United States to make in the TTIP.

“At the behest of European beef and veal producers, this is absolutely going to top the list of the EU’s demands,” he said. “EU-produced beef poses no threat to the U.S. industry, either from a commercial or animal health standpoint. This is really just another step toward putting BSE behind us as a trade issue, which is something any beef-exporting country should embrace.”

Lamb access to EU market also lacking
The additional requirements for producing beef and pork for the EU market are fairly widely known in U.S. agricultural circles, but many do not realize that U.S. lamb is completely locked out of the EU. The U.S. and EU have never come to agreement on an export certificate for U.S. lamb, and this is another issue that the two parties must resolve. USMEF is also working with U.S. trade officials to address the lack of access for U.S. lamb in the high-value markets of Japan, Taiwan and South Korea.