25/02/2005
Trade and competitiveness
Preliminary CIAA position on trade and competitiveness

1. Introduction

It is of critical importance for the competitiveness of the EU food and drink industry sector to achieve sustained growth and market share in both EU and third country markets. The ability to compete in foreign food and drink markets depends on a number of factors, on costs and quantities, but also on transport costs, management and logistics. Overall, the ability to compete internationally is determined by the entire food chain, including the interaction between these various elements.

The rapid rise of emerging economies in Latin America and Asia are considerably influencing the global market place and increasing international competition. Number of multilateral, regional and bilateral trade agreements determine the framework in which trade is taking place. Faced with a certain complexity in trade relations, it is vital that EU companies compete with companies from third countries on similar terms. EU companies must be able to build on their strong food traditions using their know-how and take advantage of increased demand on global markets.

2. Trade performance of EU food and drink products

According to WTO World trade report 2004, the world trade in agriculture, food and drink products increased to 468 billion US $ in 2002. The EU is the number 1 importer of agriculture, food and drink products and the number 2 exporter with 11 % of the total world exports in value terms. World agriculture, food and drink exports increased by 39% during the period 1993-2002, with the category of processed goods being the most dynamic segment of world agricultural trade. During the same period EU agriculture, food and drink exports increased by 26%, implying a reduction of its overall share in world trade in these products.

In 2003, EU exports in food and drink products reached 44.5 billion euro which represent a 3.8% decline compared to 2002 and this negative trend continued during 2004. The USA remains the largest export destination, followed by Japan, and by neighbouring countries and regions. Further, the EU imports large quantities of mostly unprocessed agricultural products that originate notably from Brazil, Argentina, USA and also Asia.

3. Internal EU policies must be scrutinised in the light of competitiveness

European companies are ready to take on the challenge of increasing competition in an open global market, but the EU needs to assess its internal policies and its trade policy with regard to their direct or indirect influence on the EU’s ability to invest, to trade and to maintain a competitive edge.

a. The Common Agricultural Policy needs to consider the competitive position of the European industries. CIAA supports the development of agricultural production towards an environment more open to market forces through reform processes that need to be both balanced and coherent. Agricultural raw materials that can represent a large proportion of the value of the end product need to be available at competitive prices. Otherwise, and with the outlook of dismantled export refunds, EU industry will no longer be able to compete on international markets and, with further increase in market access provided both in a bilateral and multilateral context, risks also to encountering difficulties on the EU market.

b. The development of EU food legislation over the last 15 years with a view to respond to growing concerns as regards food safety, information, and fair market conditions has led to an excessive amount of prescriptive legal texts that have considerably increased administrative burdens and costs of compliance. This situation is putting EU industry at a disadvantage compared to its major competitors. EU biotechnology or health claims legislations are examples of EU legal texts that have lasting consequences on industries’ ability to invest in innovation.

c. Customs rules and rules of origin should be reviewed in the light of a trade facilitation objectives and the restructuring needs of EU industries.

d. EU trade policy, including Generalised System of Preferences, need to consider the competitive position of the European industries as well as the overall impact of these policies on EU trade negotiations.

4. The multilateral approach: creating a level playing field

For CIAA, the WTO scene is the preferred place to negotiate continued and comprehensive trade reforms. CIAA is a strong supporter of the multilateral approach to trade and gives the Doha Development Agenda (DDA) priority. This commitment stems from the EU food and drink industries’ ambition to improve market access and its capacity to compete with third country products. Hence, rapid WTO integration of candidate countries is desirable.

CIAA’s objective as regards the multilateral negotiation process covers following elements:

a. Negotiations in agriculture must lead to both improved rules and to enhanced access to third country markets, notably for food and drink industry products; this will require an ambitious and balanced WTO agreement, initiating reforms that must be continued at a pace allowing sectors to restructure and companies to adapt to a more competitive environment. This will also imply preparing for the dismantling of export refunds, decided at WTO level, as they are essential to bridge current price differences in agricultural products and to ensure food and drink industry products are competing on an equal footing with third country competitors.

b. An agreement on trade facilitation should lead to notable improvements, in terms of transparency, rapidity of customs procedures and hence time and cost reduction.

c. Continued negotiations within the WTO TRIPS Committee should aim at promoting a better protection of geographical indications.

d. CIAA considers that the dispute settlement procedures need to be improved such as to ensure fair implementation, compliance and enforcement of the rules by all WTO Members. The current system where disputes lead to sanctions targeting industries that have no link with the sectors at the origin of the problem creates trade disruption and is not satisfactory.

5. Bilateral trade strategy: targeted improvements

CIAA continues to consider bilateral agreements as necessary supplements to the multilateral process to provide targeted market access improvement. The EU should focus its bilateral trade strategy on the following objectives:

a. Achieve further improvements in market access of important trade partners – including the leading emerging countries which need to reduce their tariffs on processed food and drink products, remove non-tariff barriers and abide by their multilateral trade commitments;

b. Some trade distorting practices, such as export taxes and differential export taxes, are used by third countries to starve EU companies of much needed agricultural raw material resources while providing their own industries with secure supplies at lower prices. If the aim of improving the relevant rules within the agriculture negotiation does not lead to satisfactory results, new bilateral rules should be developed.

c. Capacity building should be part of a bilateral strategy aimed at assisting and supporting developing country adjustments to meet EU standards.

d. The EU should aim to strengthen regulatory cooperation, with a particular focus on matters related to sanitary, phyto-sanitary and food regulatory issues.

e. Promote deeper regional integration through trade negotiations with regional blocks (e.g. Mercosur, Mediterranean countries, EPAs).

f. Further economic integration with neighbouring countries (New Independent States, Russia and Mediterranean countries) presents a challenge as alternative locations for investments, but in the long term can increase international competitiveness. This policy would not necessarily aim at further EU enlargement, but at a close cooperation on decisions regarding the Single market rules in a step-by-step move towards an Integrated Economic Region.

6. Overcome specific trade issues

Increasingly, European companies are facing complex trade situations in third countries that are seriously undermining their competitiveness but are not necessarily covered by international trade agreements. Regulatory barriers have increased and strategies or develop innovative approaches to address these challenges.

a. EU active participation in international standard setting bodies must be continued as it is an important element in support of international trade through the increase in the convergence of standards; in turn, it is equally important that the EU’s own rulemaking does not diverge more than absolutely necessary from International Standards, otherwise this has serious implications on the competitive position of EU companies and in addition, it is strongly criticised by developing countries as protectionist behaviour.

b. Considering the increased trade problems linked to SPS and TBT related issues, despite existing WTO agreements in this area, particular attention needs to be given to setting up and implementing mutual recognition agreements in the sanitary and phyto-sanitary area and explore the possibility to address also food regulatory areas through regulatory cooperation;

c. The role of the Commission in coordinating with Member States the assessment, the various actions required to address and solve specific trade barriers vis-à-vis third country partners needs to be strengthened; the sanitary and phyto-sanitary area offer particularly flagrant examples of problems which could be prevented with a higher Commission involvement, anticipation and coordination.

d. CIAA supports fight against piracy and counterfeiting, which cost EU companies important losses every year; the EU should also resist attempts to weaken intellectual property rights worldwide.

e. The EU should also systematically resist extra-territorial measures imposed on EU companies and security measures that affect trade and investment should be proportionate to risk and as trade-friendly as possible.

f. Export promotion has in certain sectors proven its ability to be an essential support in the success of an export strategy that requires important means and investments, particular sensitive to small and medium sized companies.

7. Conclusion
The challenges in the years to come will be for the food and drink industries to develop their markets and to consider the EU as an appropriate place to invest with a view to supply EU and other markets. For some others, this may also mean trying to stay an active player in growing processed foods export markets. Supporting trade and internal policies will be key to make the best use of the EU and its food and drink industry’s assets.