Tag: non-tariff barriers

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EU throws hand grenade into global agri-food trade

On 6 July 2022 the EU circulated to WTO Members its proposed revisions to Maximum Residue Limits (MRLs) for two neonicotinoid insecticides clothianidin and thiamethoxam (the documents include the formal notification to the TBT Committee, the proposed draft Commission Regulation, and a comparison of existing and proposed MRLs by agricultural product).

Under WTO rules, this is a necessary step when changes in MRLs are proposed. Other Members now have 60 days in which to provide comments on the proposed changes. These comments are then considered by the Standing Committee on Plant, Animal, Food and Feed, the EU body consisting of Member State representatives that decides on pesticide issues, before final approval is given to the proposed Regulation.

While such notifications of changes in MRLs are routine, this particular notification stands out because it is the first time that the EU, or indeed any WTO Member, has proposed to set MRLs on the basis of the global environmental impact of the specified pesticides rather than on the basis of good agricultural practice (GAP) while ensuring protection of consumer health. Most neonicotinoid insecticides are now not approved for use in the EU (see below for details) which would normally lead to setting the MRLs to zero (in practice, MRLs are lowered to the Limit of analytical Determination (LOD) which is the lowest level that can be detected using current monitoring instruments, usually 0.01 mg/kg).

However, several MRLs for imports have been set either on the basis of Codex Alimentarius standards (CXLs) or on the basis of import tolerances (where an applicant in an exporting country, usually the manufacturer, requests an MRL based on good agricultural practice in the exporting country). Such import tolerances can be granted provided the reason for non-approval in the EU is not related to the protection of consumer health and provided a risk assessment is undertaken by EFSA to show that the proposed import tolerance is not a risk to consumer health (I give a fuller explanation of the legislation and procedures for setting MRLs in my report Implications of the European Green Deal for agri-food trade with developing countries). This means that producers in exporting countries can still use neonicotinoid insecticides to control insect pests when these pesticides are no longer available to EU producers.

The import of the Commission’s proposed Regulation will be to reduce the MRLs for these two neonic insecticides to the LOD. Because these are systemic insecticides which are taken up by the plant and transported to all its tissues (leaves, flowers, roots and stems, as well as pollen and nectar) it seems that it will be very difficult to avoid that residue levels will exceed the LOD if they are used. This would mean that the new EU MRLs are effectively a ban on the import of agricultural commodities that have been produced using these insecticides. It would be helpful to get a more expert opinion than mine on whether this is the case or not.

This proposed change in MRLs for clothianidin and thiamethoxam is the first implementation under the European Green Deal and Farm to Fork Strategies of the Commission promise to take global environmental impacts into account when setting MRLs for pesticide active substances that are not approved or no longer approved for use in the EU. This commitment was given by the Commission, for example, in a declaration attached to the negotiated outcome on the CAP 2023-2027.

The fact that the new MRLs have been set principally because of the impact of these insecticides on ecosystems in the exporting countries rather than to protect consumer health in the EU is one reason for comparing this notification in the title to this post to the equivalent of throwing a hand grenade into international agri-food trade.

A second reason is that neonicotinoid insecticides are the most widely used insecticides globally, with estimates suggesting they have a 24% market share. They are used in over 120 countries in more than 140 crops, including cotton, corn, cereals, sugar beet, oilseed rape, and others.  Thus, the potential consequences of the new MRLs are very far-reaching (even taking into account that the proposed MRLs only cover two of the seven neonicotinoid insecticides in use globally today). Even if the restrictions can be justified, they are likely to cause severe disruptions to international trade.

Background to neonicotinoid insecticides

Neonicotinoid insecticides were first introduced in the early 1990s. They are used to control a variety of pests especially sap-feeding insects such as aphids as well as root-feeding grubs. They are also common in veterinary applications such as tick control and flea collars for pets. They are often used pre-emptively (as pre-treated seeds) regardless of pest presence, infestation pressure or cropping history. As the Pesticides Action Network UK website notes, “Neonics were originally welcomed as much safer for humans, livestock and birds than other insecticides. Seed treatments were seen as a more effective method of targeting pests than spraying crop foliage, and more environmentally-friendly because they can reduce the number of spray applications needed in-field.”

However, the very properties that make neonics popular among farmers – their systemic action, their persistence in crops and soil, and their efficacy at low concentrations – also mean they have unintended consequences for ecosystems. The most recent bee risk assessment reports of the European Food Safety Authority (EFSA) find that the majority of applications of neonicotinoid-containing pesticides pose a risk to wild and honey bees. An EASAC scientific review (European Academies Science Advisory Council, 2015) noted that, while most public attention has focused on potential effects of neonics on honey bees, the impact on a wider range of pollinators as well as on insect species with natural pest control functions and on a wider range of biodiversity indicators such as farmland birds deserved more attention. It concluded that the policy debate should be much broader and include natural pests, biodiversity and soil issues.

Five neonicotinoids have had authorisation in the EU: imidacloprid, chlothianidin, thiamethoxam, thiacloprid and acetamiprid. In 2013, the use of three neonicotinoids (clothianidin, imidacloprid and thiamethoxam) was prohibited for most outdoor uses based on the scientific evidence of their negative impact on bees. In 2018 the Commission following a further EFSA assessment banned the use of these insecticides for all outdoor uses, though Member States can apply for derogations on specified grounds. Following the adoption of these restrictions, all applications for the renewal of the approval of the active substances clothianidin and thiamethoxam were withdrawn. Therefore, the approval of clothianidin expired on 31 January 2019 and the approval of thiamethoxam expired on 30 April 2019. Approval for thiacloprid was withdrawn by the Commission in 2020 in the light of another EFSA assessment. For acetamiprid, the EFSA risk assessment established a low risk to bees, which was insufficient to justify restrictions, so only acetamiprid has been re-approved for use until 2033. A Dutch consultancy firm CLM has provided a review of the uses of neonics in EU agriculture prior to these bans.

How the EU justifies the new MRLs

The EU argues, in the preamble to its proposed Regulation, that “there is a substantial body of evidence showing that active substances which are neonicotinoids, such as clothianidin and thiamethoxam, play an important role in the decline of bees and other pollinators worldwide”.

The preamble goes on to note that “There is growing worldwide concern that the decline of pollinators is a serious threat to global biodiversity, the environment and sustainable development, as well as to maintaining agricultural productivity and food security”.

This leads to the conclusion (Recital 11):

As the decline in pollinators is an issue of international concern, Union measures need to be adopted to protect pollinator populations worldwide, including bees, from the risks of active substances, such as the neonicotinoids clothianidin and thiamethoxam. Preserving the pollinator population within the Union only would be insufficient to reverse the worldwide decline of pollinator populations and its effects on biodiversity, agricultural production and food security, also in the Union.

A separate issue for legal scholars is the legal basis for the EU decision. Regulation 396/2005 (the MRL Regulation) controls pesticide residues and sets out the framework for setting MRLs in food and feed. Unlike approval for an active substance which requires environmental risks to be considered, MRLs are established solely on health grounds (‘to protect vulnerable consumers’) and do not consider environmental risks. The Commission had previously raised a question whether this Regulation would need to be amended to allow environmental risks to be assessed.

An MRL is defined (Article 3d) as:

(d) ‘maximum residue level’ (MRL) means the upper legal level of a concentration for a pesticide residue in or on food or feed … based on good agricultural practice and the lowest consumer exposure necessary to protect vulnerable consumers;

In turn, Article 1 of the MRL Regulation sets down that “This Regulation establishes, in accordance with the general principles laid down in Regulation (EC) No 178/2002, in particular the need to ensure a high level of consumer protection and harmonised Community provisions relating to maximum levels of pesticide residues in or on food and feed of plant and animal origin.”

The Commission appears to be using this link with the General Food Law Regulation (EC) No 178/2002 to allow the determination of MRLs to also include environmental considerations. It notes that, in accordance with Article 5(1) of the latter Regulation, food law shall pursue one or more of the general objectives of a high level of protection of human life and health and the protection of consumers’ interests, including fair practices in food trade, taking into account, where appropriate, the protection of animal health and welfare, plant health and the environment.

It is now arguing that the GAPs used in the past as a basis for setting MRLs did not ensure a sufficient protection of the environment, based on current knowledge.

GAPs involving outdoor uses of clothianidin and thiamethoxam are not acceptable, in light of current scientific and technical knowledge, due to their effects on bees. Given the global nature of pollinator decline, there is a need to ensure that also commodities imported into the Union do not contain residues resulting from GAPs based on outdoor uses of clothianidin and/or thiamethoxam, in order to avoid the transfer of adverse effects on bees from food production in the Union to production of food in other parts of the world that is then imported into the Union”.

This is appropriate to ensure that all products produced or consumed in the Union are free from clothianidin and thiamethoxam and the production is not associated with pollinator mortality. In view of this, CXLs based on GAPs that do not achieve the appropriate level of protection of the Union should no longer be provided for as MRLs pursuant to Regulation (EC) No 396/2005.

Conclusion

It seems highly unlikely that exporting countries will accept these arguments at face value, though we must wait for the 60 days to see their immediate reactions. Given the precedent that this unilateral EU decision would set, it seems highly probable that it will be challenged under the WTO’s dispute settlement procedures. The findings of any panel set up to adjudicate such a dispute would have enormous significance for the way trade rules can be used to pursue environmental objectives. We are only at the beginning of a really important journey.

This post was written by Alan Matthews.

Photo credit: Rawpixels, used under a CC0 1.0 Universal (CC0 1.0) licence.

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The EU-UK Trade and Cooperation Agreement

Let us be clear at the outset. Brexit was always going to be a lose-lose situation for both the UK and the EU. Having said that, the Trade and Cooperation Agreement (TCA) agreed on Christmas Eve between the UK and the EU which provisionally entered into force on 1 January this year was a very significant achievement for the two negotiating teams.

It represents a significant improvement over the ‘no deal’ Brexit that had threatened in the previous weeks. Critically, it prevents the imposition of tariffs on UK-EU trade, although subject to rules of origin to determine eligibility for the zero-tariff preferences. As important, it provides an agreed basis on which to develop the longer-term relationship between the two parties. This is far preferable to the outcome we would have faced if there had been a bad-tempered break-up followed by a debilitating blame game.

The Agreement respects the red lines of both parties. It allows the UK to enter its own trade deals, establish its own regulatory standards, regain control of its fisheries (after a transition period of five and a half years), and removes any role for the European Court of Justice. This requires that it leaves both the customs union and the single market. On the EU side, it minimises the economic damage by establishing a largely goods-only free trade agreement while preventing significant cherry-picking of the benefits of the single market. The EU was negotiating while looking over its shoulder at the precedents it might set for other countries (for example, Norway) that might see advantages in a Brexit-style trade deal.

The Agreement is only provisionally applied and is not yet home and dry. It has been adopted by the UK Parliament but has yet to be approved by the European Parliament. It will also require unanimous approval in the EU Council. Both steps are expected to happen by the end of February, although this date can be postponed. Although in EU legal terms the TCA is an association agreement, Member States will not be parties to it and it will not require ratification by the individual Member States in their own right. My view is that the UK deal is a high-water mark, given the size of the UK economy, and that other countries wishing to leave the single market would struggle to replicate its provisions.

However, ratification of the agreement is unlikely to end the Brexit saga. Negotiations are likely to continue on different issues. First, there are no provisions on mutual recognition of product testing (so-called ‘conformity assessment’), although the EU has such arrangements with various countries, including Canada, Japan, US and Switzerland. Second, there is no process for recognising equivalence of food safety measures, such as the EU has agreed with Canada. Third, there is no framework for mutual recognition of professional qualifications (although the qualifications of Union and UK professionals recognised prior to the end of the transition period will continue to be recognised in the other party under the Withdrawal Agreement).

Perhaps more important are the frequent opportunities for review and termination of the Agreement itself. The Agreement will be reviewed every five years (FINPROV.3). Either side can give notice to terminate the agreement without giving reason and it will end 12 months later (FINPROV.8). There are also many provisions on the termination or suspension of specific parts of the treaty. A review of the Agreement can also be triggered if a Party considers that the “rebalancing mechanism” (discussed in the following post) has been used frequently or if a measure which has a material impact on trade or investment has been in place for more than 12 months. If the Parties cannot agree on amendments to the Agreement, either Party may terminate the trade part of the Agreement which would also terminate the road transport part and, in certain circumstances, the aviation part. In addition, the Northern Ireland Protocol (part of the Withdrawal Agreement, not the TCA) rests on periodic consent by the Northern Irish Assembly, which must approve its continuation for the first time in 2024. At that point, the relationship with Europe might be back on the table.

This post reviews the early experience of implementing the Agreement focusing on tariff and non-tariff issues, It does not discuss the special provisions of the Northern Ireland Protocol which is governed by the Withdrawal Agreement even though it also entered into force on 1 January 2021. One of the major sticking points in negotiating the Agreement in the final stages was how to ensure a level playing field with respect to taxation, state aids, competition policy, labour and environmental standards. We look at the level playing field issues in a separate post tomorrow.

Tariff provisions

The Agreement provides for zero tariffs and quotas on trade in goods between the two parties, the first time the EU has agreed full liberalisation in a trade agreement. However, this is not as unrestricted as it sounds. Any free trade agreement (as distinct from a customs union) comes with a set of rules of origin.

These rules determine whether a particular product originates in the partner country and thus can benefit from tariff-free access. They are designed to avoid ‘tariff-hopping’ where a third country transships its goods through the United Kingdom to avail of the zero tariff preferences that the Agreement offers.

Rules of origin lay down the minimum amount of processing that must take place in the exporting country to claim ‘origin’ and thus the right to benefit from the tariff preference. For example, for electric cars exported between the UK and the EU after 2027, at least 55pc of the content must be of UK or EU origin if the car is to benefit from the zero tariff preference.

Rules of origin are also relevant to trade in food particularly for composite food products where some ingredients, such as sugar, cereals, coffee or cocoa, are sourced from third countries. Rules of origin create an incentive to use locally-produced inputs in the production of food and drink for export to ensure eligibility for the zero tariff preference.

Another instance concerns distribution channels where goods are exported from an EU country to a supermarket distribution centre in the UK. Some of these goods may be sent further to the supermarket’s stores in another EU country. Even though the product originated in the EU, it appears such transshipped goods may not qualify for zero-tariff preferences under current EU rules. The EU’s position appears to be that the UK should not expect to act as a distribution centre for goods moving within the EU in the future.

Non-tariff barriers

Even if trade is in principle free of tariffs, the TCA does not avoid the introduction of additional trade costs due to customs procedures, additional physical inspections when goods enter the UK or the EU, the need for health certificates for specific food products, changes in the treatment of VAT, and time and transport delays. In the longer term, if standards diverge, producers wishing to cater to both markets must meet both sets of standards and fulfil all applicable compliance checks by the appropriate bodies. These are an inevitable consequence of the UK leaving the EU customs union and single market.

Of importance for agriculture and food trade are the provisions for cooperation on sanitary and phytosanitary (SPS) measures. These are set out in Chapter 3 of the GOODS Title that also lays down separate provisions regarding cooperation on animal welfare, antimicrobial resistance and sustainable food systems. The SPS provisions do not go beyond WTO rules. As far as the EU is concerned, standard EU rules applicable to imports from third countries will apply to UK imports, and UK rules will apply to imports from the EU. For example, there is no provision for a reduced rate of inspections of animal products. Both parties have agreed to recognise each other’s organic certification.

The provisions for geographical indications acknowledge the status quo as set out in the Withdrawal Agreement. All EU geographical indications including for wines and spirits already registered in the EU by end December 2020 (the “stock”) will be protected in the UK by virtue of the Withdrawal Agreement. However, the UK refused to agree to protection of geographical indications that the EU could register in the future. Here it clearly wanted to keep open its options if negotiating free trade agreements with countries such as the US and others that take a different view to the EU with respect to geographical indications protection.  

The full implications of these additional trade costs may have been masked in the first two weeks of the TCA as traffic volumes have been considerably lower than normal, due to pre-Christmas stockpiling, COVID restrictions, and because exporters are taking a wait-and-see attitude to how the new regulations will be implemented. Also, although the EU has applied full third country controls since 1 January, the UK is phasing in its controls over a six-month period. Pre-notification of products of animal origin and regulated plants and plant products will not be introduced until April 2021 and full customs declarations as well as physical checks and the taking of samples in relation to plants, animals and their products at Border Control Posts are delayed until July 2021.

Still, there have been many reports of disruption to trade over the past two weeks. Many of those affected are small companies that are not used to handling the requirements for exporting to third countries. Larger companies that handle the great majority of agri-food exports will have such systems in place and are likely to be less affected. Many of these problems are teething problems as importers and exporters learn to navigate the new procedures and will be resolved fairly quickly. The real impact of these additional trade frictions will take time to become apparent.

The TCA provides for arrangements such as mutual recognition of trusted traders programmes to ensure lighter customs formalities and smoother flow of goods. It also allows the possibility that Member States can enter into bilateral agreements with the UK concerning administrative cooperation in the field of customs and VAT, subject to Commission consent. For countries such as Ireland with significant trade with the UK, it would make sense to explore this option to increase co-operation with the UK authorities and to minimise the cost of these new trade arrangements.

Conclusions

The Trade and Cooperation Agreement between the UK and the EU is now in place. It is a bare-bones agreement, with the potential to evolve over time. A Partnership Council will supervise the operation of the Agreement at a political level, providing strategic direction. Any decisions made will be by mutual consent. The Partnership Council will be supported by a network of other committees, including on trade. The Commission will represent the EU in the Partnership Council, acting under the guidance of the EU Council. Each Member State will also be represented in the EU delegation on the Partnership Council and other joint bodies. These governance arrangements remain untested at this point. Also, compared to other EU free trade agreements, the TCA is potentially quite unstable, with many opportunities for review and termination in the coming years.

The immediate focus in the next two months will be on the ratification procedures in the EU and, in particular, the consent of the European Parliament. The Parliament only has an up-down vote, it cannot amend the Agreement. However, it is likely to want to strengthen its role in some of the procedures on the EU side in implementing the Agreement, for example, in monitoring implementation and Commission initiatives in raising issues in the Partnership Council. Brexit may be formally over, but post-Brexit life is only beginning.

This post was written by Alan Matthews

Image credit: Image by Conolan used under a Pixabay licence.

A shorter version of this post appeared in the Farming Independent, 12 January 2021.