Bridges Weekly Trade News Digest / ICTSD
June 24, 2009

In May, the US and the EU struck a deal promising to end a long-standing feud over trade in beef. But that agreement came under fire last week, when several other beef-producing countries said that the deal would unfairly discriminate against their exports.

Under the memorandum of understanding that Washington and Brussels agreed ‘in principle’ last month, the EU would get to maintain its ban on imports of beef from cows treated with growth hormones. But the 27-nation bloc would also create a new tariff-free import quota for high-quality hormone-free beef, providing increased commercial opportunities for American ranchers. Meanwhile, the US would limit and possibly reduce retaliatory duties levied on EU exports after WTO dispute panels ruled against Brussels’ import ban.

Officials in the administration of US President Barack Obama have described the deal as an example of a “practical, problem-solving approach to trade barriers.”

Uruguay, Argentina, Australia, Brazil, and some other WTO Members disagree.

These countries, most of them beef exporters, fear that the US-EU memorandum of understanding deliberately defines ‘high-quality’ beef in a way that privileges the kind of meat produced in the US at the expense of that produced elsewhere. Grain-fed beef would qualify for the new import quota, while grass-fed beef would not.

They voiced their concerns at a 19 June meeting of the Dispute Settlement Body, seeking confirmation that the EU’s new tariff rate quota (TRQ) would truly provide equal access for all beef exporters.

Guillermo Valles Galmes, Uruguay’s ambassador to the WTO, said that the EU-US agreement “defined as high-quality meat only that of the type exported by the US,” without any justification for doing so.

He claimed that the agreement could potentially cause the US’ share in EU imports of high-quality beef rise from 19 percent to 54 percent. Other exporters, including Uruguay, would continue to face the 20 percent in-quota tariff within the existing TRQ, and would be displaced.

The Uruguayan ambassador also criticised the notion that the US and EU could bilaterally agree on compensation without taking into account the interests of others. “Accepting such an approach,” he said, “would definitely hurt the principle of non discrimination.” He stressed that compensation should be temporary, and should not “nullify or impair” others’ rights. WTO dispute rules state that the implementation of panel rulings is preferable to sanctions or alternative compensation.

EU-US agreement

The memorandum of understanding signed by the US and the EU in May provides for a potential multi-phase expansion in EU market access for high-quality beef, accompanied by reductions in retaliatory duties levied by Washington on certain EU exports.

In the first phase, the EU would open a new, tariff-free import quota of 20,000 tonnes by 3 August. The US would refrain from applying increased retaliatory duties it announced in January.

In early 2011, the two governments would have the option of proceeding to a second phase, under which the EU would expand the new quota to 45,000 tonnes, and the US would suspend all retaliatory duties related to the beef hormones dispute. Under a potential third phase, the EU would maintain the larger quota level, and the US would formally cease the increased duties.

At the centre of the controversy lies the memorandum’s definition of “high quality beef”: “Beef cuts obtained from carcasses of heifers and steers less than 30 months of age which have only been fed a diet, for at least the last 100 days before slaughter, containing not less than 62 percent of concentrates and/or feed grain co-products on a dietary dry matter basis that meet or exceed a metabolisable energy (ME) content greater than 12.26 megajoules (MJ) per one kilogram of dry matter. The heifers and steers fed this diet shall be fed, on average, not less than 1.4 percent of live body weight per day on a dry matter basis.”

Current EU practice: different rules for different exporters

The EU’s WTO obligations, dating back to 1995, explicitly divide its import quota for high-quality beef among Argentina, the US and Canada, Australia, and Uruguay. The in-quota duty is 20 percent; the over-quota tariff is 100 percent.

Under current legislation, introduced in August 2008, the European Commission sets out different rules for beef from different exporters to qualify as “high-quality.”

Beef from the US and Canada must be mostly grain-fed: “Carcasses or any cuts obtained from bovine animals not over 30 months of age which have been fed for 100 days or more on nutritionally balanced, high-energy-content rations containing not less than 70 percent grain and comprising at least 20 pounds total feed per day.”

Beef from Argentina, Uruguay, Brazil, New Zealand, and Paraguay, on the other hand, has to be grass-fed – “exclusively fed through pasture grazing” – to qualify as “high-quality” for their separate quota shares. Cattle in these countries are primarily grass-fed (while that in the US and Canada is primarily grain-fed).

Asked by Bridges about the similarity of the US/Canada-specific rules to the definition of high-quality beef in the recent EU-US memorandum of understanding, Lutz Guellner, European Commission Spokesman for Trade, said: “The new TRQ for high-quality hormone-free beef will be non-discriminatory, open to any country that can meet the requirements. It is true that the definition in the new TRQ will be different from those in existing EU quotas, but the legislation creating this TRQ is not due to be adopted until August.”

At the DSB meeting, the EU countered the criticism that countries benefiting from its existing beef TRQ would continue to do so. The new quota, it insisted, would be “non-discriminatory” and “origin-neutral,” with any country producing beef that met the definition qualifying for import licenses under the new quota.

Sources report that the EU declined to respond to Uruguay’s question about how a single definition for high-quality beef could take the place of the multiple definitions currently applied.

The US, for its part, “confirmed the EU’s statement that the [memorandum of understanding] provides for the establishment of a tariff rate quota for beef that meets a definition that is origin-neutral.” The “pragmatic” agreement with the EU was “a better way forward” than further litigation, it said. The US also reiterated its belief in the safety of hormone-treated beef for consumers.

ICTSD reporting.

Bridges Weekly Trade News Digest • Volume 13 • Number 23 • 24th June 2009