APPENDIX 15
Memorandum submitted by the Food and Drink
Federation (S 23)
The introduction of GM crops and food ingredients
has caused considerable problems in the marketplace. The EU regulatory
system has consistently lagged behind market developments and
has not carried with it the necessary consumer confidence and
support. The regulatory system must be seen to be transparent
and adaptable to changing circumstances.
The EU must make further urgent reform to develop
a more market orientated CAP that will allow the EU to meet the
challenges of the next WTO round and even more importantly the
last GATT round.
INTRODUCTION
The Food and Drink Federation (FDF) welcomes
that the terms of reference of this inquiry which referred specifically
to agriculture have been extended by the Committee. The scope
of the inquiry now includes the food industry which is clearly
affected by the WTO process.
FDF has limited itself to comment on restrictions
on trade in GM foodstuffs within the committee's original terms
of reference. FDF has also taken the opportunity to raise the
issue of export refunds and to ensure that the committee is aware
of FDF's priorities for the upcoming WTO negotiations.
Our Federation represents the interests of UK
food and drink manufacturers, the UK's largest manufacturing sector
(employing 11 per cent of manufacturing employees). As agriculture
(together with services) remains firmly on the WTO negotiating
agenda our sector has a significant interest in the upcoming WTO
negotiations not least as our members buy 70 per cent of the UK's
agricultural produce.
We were disappointed by the failure of the Seattle
Ministerial. We believe that it is essential that progress towards
the re-start of a WTO round of negotiations begins urgently. Whilst
we still hope that the mandated negotiations on agriculture and
services will start soon as scheduled, without an agreed scope
or timetable we believe little progress can be expected without
agriculture being encompassed in a wider agenda that allows trade-offs
in unrelated sectors. (Our position paper for the WTO negotiations
is attached.)
RESTRICTIONS ON
TRADE IN
GMO FOODSTUFFS(i) The market
and GMOs
The introduction of GM crops and food ingredients
has caused considerable problems in the marketplace. The EU regulatory
system has consistently lagged behind market developments and
has not carried with it the necessary consumer confidence and
support.
The regulatory system must be seen to be transparent
and adaptable to changing circumstances. Restrictions on trade
in GMOs, other than in advance of authorisation, risk depriving
the market of a valuable set of raw materials. FDF welcomes measures
to streamline the authorisation process between the US and the
EU.
Any restrictions on trade in GMO foods should
be on safety grounds only: all such foods or crops should go through
a rigorous and transparent authorisation process which examines
all potential safety issues, based on the latest scientific advice.
Once crops or food ingredients are authorised the market will
determine whether there is demand for them or not. Where customers
do not want GMO crops or food ingredients where these are present
as part of the normal commodity stream, the market can implement
identity-preserved streams of product, although not without incurring
additional costs. Consumers will be informed of their presence
via labelling requirements.
While members of FDF are fully aware of consumer
antagonism to GMO crops at present, FDF sees no long-term reason
to permanently raise the costs of the UK industry compared with
counterparts elsewhere. Consumer choice is a changing expression
and the market can adapt far quicker than the regulatory system.
(ii) Costs of separate supply streams
Within the UK, where there is concern over GM
foods, absence of GM material in the final product is sought by
the material being non-GM in origin, ie from an identity preserved
supply, with a view to obviating any risk of contact with GM foods
within the supply chain.
The risk for EU and UK agriculture is that because
it is easier to monitor the supply chain within Europe than throughout
the world, it has to invest in the full cost of production, segregation
and control necessary to ensure origin and identity preservation,
whilst other competing countries may not. This cost can be very
significant, especially where the requirement for non-GM material
is small relative to the total market for the material and where
separate transport, storage and processing facilities have to
be provided.
The consulting firm KPMG recently conducted
a study of the costs of ensuring traceability between GMO and
non-GMO food ingredients on the Australian market. They advised
that it could increase costs to the food industry on an ongoing
basis by 3 per cent of revenues, and increase costs to the government
and therefore taxpayers by anything between $14 and $150 million
depending on the level of auditing undertaken. Price risks of
around 10-15 per cent for major ingredients were estimated. It
also estimated that the food industry would find it difficult
to absorb such costs.
No such study has been carried out in the UK.
However the figures suggest there are significant costs associated
with separating the supply chain and that they increase the further
you go towards full traceability. Such costs do impact the competitiveness
of the UK food industry in particular versus counterparts where
there is no requirement to have separate supply streams.
(iii) Biosafety Protocol
The recently negotiated Biosafety Protocol (BSP)
has no immediate impact on the process of authorisation of imports
in the UK or EU, since any country already has the right to licence
imports after appropriate investigation. The BSP did however increase
uncertainties, as we now do not know whether trade disputes concerning
GMO crops will come under the BSP or the WTO. In general we think
it would be better for trade issues to be handled by the WTO.
The BSP also generalised an EU labelling rule
whereby imported commodities containing GMO crops will in future
be required to be labelled "may contain GMOs". To the
extent that this levels the playing field for users around the
world this is useful. But there were some moves to require the
individual seed varieties and events within each commodity shipment
to be labelled. These were put aside for reconsideration at a
later date. Such a move would add expensive testing and auditing
to all shipments of main commodities coming from North and South
America and in effect end the commodity trade in favour of individually-identified-according-to-GMO
shipments.
This would substantially increase costs, even
for those who are willing to accept GMO commodity crops as long
as the individual GMO varieties are authorised. Such labelling
would be of doubtful benefit as customer antagonism to GMO content
in foods is based on general concerns around all GMO products
rather than concern over specific GMO events. Dividing inputs
into GMO and non-GMO (or GMO free) is the sensible way forward,
not subdividing each shipment into its genetic components.
(iv) "Precautionary Principle
There is also a concern to all in the international
food business about the role of the "precautionary"
principle. In reality this allows a larger measure of political
intervention in trade as the definition of precautionary is very
unclear. There is a danger that trade barriers could be re-created
in this way.
We also now have the Commission Communication
of the Precautionary Principle, which is welcome as far as it
goes, not least as the clear intent is to avoid protectionism.
It will be vital in applying such a concept that due recognition
is given "to degree of uncertainty attached to the results
of any evaluation of the available scientific information".
Certain of our trading partners outside Europe
see this development as extremely negative, and if the Precautionary
Principle is to be extended to CODEX as Commissioner Byrne recently
suggested whilst in the US, it is feared that this could lead
in time to both the emasculation of the SPS Agreement and increasingly
to a zero risk approach.
EXPORT REFUNDS
(i) The CAP and competitiveness
FDF believes that the EU's Common Agricultural
Policy (CAP) as currently constituted, remains a fundamental impediment
to the EU's ability to negotiate a satisfactory trade agreement
in the agriculture sector. The EU must make further urgent reform
to develop a more market orientated CAP that will allow the EU
to meet the challenges of the next WTO round and even more importantly
the last GATT round.
Meeting the on-going challenges of GATT implementation
is, for our industry, extremely pressing. Due to the complicated
"carry-over" rules for implementing the 1995 GATT agreement,
export refunds, essential as compensation to allow exports of
processed foodstuffs made of CAP ingredients (also called Non-Annex
I goods), will be severely restricted from October 2000 and only
cover about two thirds of industry's requirement. Without urgent
real CAP reform, exports will decline and investment and jobs
will be lost from the EU, to countries where manufacturers can
buy their ingredients at world prices.
Although FDF continues to support equitable
liberalisation of world trade, there needs to be close relationships
between raw materials (from either inside or outside the EU) and
value added food products, thus ensuring that the EU food industry
remains competitive both inside the EU and out. This is a particularly
important issue for primary processors. So long as EU prices for
agricultural commodities remain above the world level, restitutions
are essential to achieve competitively priced exports. The EU
cannot therefore afford to accept any further WTO commitment to
cut export refund expenditure for Non-Annex I products, either
before there is a significant CAP reform or a corresponding adjustment
in external world prices.
As a result of the watered down CAP reform agreed
in Berlin in March 1999 it is now more important than ever before
that we maintain the principle of export refunds, and at the necessary
level to bridge the difference between EU and world prices. It
is also important that other export aids such as the US export
credit programme are treated similarly during the upcoming WTO
negotiations.
(ii) The importance of processed, value-added,
food products
Processed, value-added, food products are potentially
the EU's fastest growing exports.
According to the Commission, between 1988 and
1997, the value of EU exports (from the then 12 member states
to third countries) grew:
— In agriculture commodities, by some
70 per cent.
— For processed food products, by some
140 per cent. This is now worth roughly some £20 billion
per annum.
The OECD estimates that by the end of this year,
the increased trade in value added processed food is expected
to reach 75 per cent of global agricultural trade.
Furthermore the OECD also tells us that in the
decade to 1996, the global market for value added food and drink
products grew because an additional 500 million people moved up
to enjoy disposable income, that is 500 million people no longer
having to live at subsistence levels, but beginning to enjoy a
choice and a diversity in the food and drink they consume.
Since 1996 crises in Asia, as in Russia, have
held back this increase in those beginning to enjoy disposable
income: but this is already proving to be temporary.
Standards of living are rising for very many
people in countries like China, India and Brazil.
Since the Uruguay Round, world trade has grown
by some 20-25 per cent: the UK, and the EU as a whole must benefit
as much as possible from this growth.
Berlin and failure of the Seattle Ministerial
to launch a new WTO round were so disappointing because they applied
the brakes to this trend. If, as a consequence, we lose our potential
market gain, or worse still our existing markets as a result of
unilateral cuts in export refunds, that is not just a problem
for the industry, it is very bad news for farmers too! Surely
not a welcome message at this time of agricultural hardship.
FDF stresses that for the next Round, and we
still look to a wider Round in due course, a key objective should
be further reductions in tariff protection for value added food
products in tandem with raw materials. The effect of reducing
barriers to exports to third country markets will of course be
to reduce the barriers against imports from third countries. The
outcome must ensure that the incentive to process food and therefore
add value within the EU is maintained and the existing fast growth
in EU exports of processed/value-added foods enhanced.
(iii) Cuts in export refunds
FDF views with particular concern the current
4.5 per cent across the board cut in Non-Annex I export refunds.
This sets a precedent which, carried to its logical conclusion,
would destroy added value food exports from the European Union.
It has also sent a signal that the Community has little regard
for the interests of the value added sector and this has created
considerable worry and uncertainty amongst our members. That is
why FDF has opposed the cut so strongly and why we feel so let
down that the December Agriculture Council did not lift it.
It is essential that creative solutions are
found that will ensure the competitiveness of our manufacturers
on very demanding world markets, whilst maintaining preference
for EU produced raw materials. We are extremely concerned that
Inward Processing Relief (IPR), for example, the only alternative
currently on the table to refunds could be translated into a cumbersome,
bureaucratic and therefore unworkable system.
The alternative is that companies will increasingly
transfer the production of value added exports away from the Community,
into Eastern Europe and further afield.
14 February 2000
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