This the latest chapter in a 13 year dispute about science-based import restrictions under the Agreement on Sanitary and Phytosanitary Measures (SPS) of the WTO that allows such bans only if they can be scientifically justified. A WTO panel ruled in 1998 on a case brought by the U.S. and Canada in 1996 that the EU had not met that test. In 1999 the WTO authorized the U.S. to increase tariffs on selected EU exports to the U.S. valued at $116.8 million per year. In January of 2009 the outgoing Bush Administration announced a new schedule of items that would have increased tariffs to take effect on March 23. Those new tariffs were twice delayed as negotiations continued.
The agreement will need to be approved by the EU member governments and the U.S. Congress. The EU will provide duty-free access for high quality, grain-fed beef from cattle that have not been treated with growth-promoting hormones – an additional 20,000 metric tons per years beyond the current quota of 11,500 metric tons per year in each of the first three years and 45,000 metric tons in the fourth year. The U.S. will maintain the current tariffs on U.S. imports from the EU and not impose new ones during the initial three-year period and eliminate the higher tariffs during the fourth year. Neither side will further litigate the issues at the WTO for at least 18 months. The 20,000 metric tons increase in quota would be 3.4 percent of the 597,000 metric tons of U.S. fresh and frozen beef and veal exported in 2008. The additional 45,000 metric tons in the fourth year would be 7.5 percent of current U.S. exports. While these numbers are not big, to the extent they help to open the EU market, higher quotas could be in the next agreement.
There are two key issues in this agreement – science and market access. The 1998 WTO ruling dealt with science as related to growth-promoting hormones and concluded that the trade restrictions were not consistent with the SPS agreement. Further rulings by the WTO have not changed that basic conclusion. Under the WTO rules any country, including the U.S., can choose to not comply with a WTO dispute settlement ruling and face the consequences of higher import tariffs on products based on WTO estimates of the damages to trade. That is what the EU chose to do in 1999 to fulfill its commitments under the WTO rules.
The U.S. being right on the science and the EU meeting its WTO commitments by accepting higher tariffs do not provide market access for U.S. beef in EU markets. It is a victory without a benefit in expanding trade. This process could go on for years with more litigation at the WTO with no changes in the science and no additional market access. This agreement in principle provides market access for at least some U.S. beef, but not the beef that is at the center of the dispute.
The WTO SPS agreement is critical to market access for all WTO countries. Disputes on science over biotech crops, production methods and processing systems will continue to expand. The most important part of the U.S.-EU agreement is that it does not erode the principle that barriers not based on science are not acceptable under WTO rules. If that position is maintained or strengthened, then the market access is a benefit worth gaining. If the science position is compromised, it is a bad agreement regardless of the market access.
The market access benefits are also clouded by the fact that the disagreement is over beef produced with growth-promoting hormones, but the market access is for hormone-free beef. A valid argument is that increased market access for U.S. beef is good news regardless of how it is produced and producers should respond to market demands. The other side is that we really do not know what consumers in the EU would demand; we only know what the special interest groups that control public policy in the EU have imposed on the market.
The other difficult part of the agreement is that a long-term agreement is yet to be negotiated sometime over the next four years. Since this agreement does not deal with the science issues, there is no reason to believe that the next one will. That means that this gray area will continue and may lead to other agreements that perpetuate the skirting of science issues that could weaken the SPS agreement.
The troubling parts of the agreement should not overshadow the good news that the U.S. and EU continue to work on thorny trade policy issues. U.S. Trade Representative Ron Kirk and EU Commissioner for Trade Catherine Ashton said in a joint statement, “Reaching an agreement on this issue will be a clear sign of our commitment to working through — and, where possible, resolving — the bilateral disputes in our trade relationship. We will continue our close cooperation on other outstanding issues in the future.” Not all trade policy issues can be resolved by the WTO dispute resolution process. The WTO agreement is a political document supported by governments of the member countries and some issues need political solutions outside the bounds of what is considered to be good trade policy.
The U.S. and the EU had economic and political reasons to support an agreement now. The EU was faced with higher tariffs on items whose producers were pressuring to stop. The EU beef industry may be changing enough that imports are less of a problem than a few years ago. The U.S. was stymied on market access and the EU was giving no indication that a science-based policy change was likely in the immediate years ahead. Also the Obama Administration and Mr. Kirk have the benefit of being new with the flexibility to choose a different approach.
Like most trade agreements, the details will determine the real strengths and weaknesses of the agreement in principle. The good news is that progress is being made at the political level on an issue that has not been resolved at a lower one.