Economic impacts for Scottish and UK seafood industries post-Brexit: report

Appendix B: International Trade Issues

B.1 Tariffs

A tariff is a tax on imports or exports, this can either be levied as a fixed fee per item, or as ad valorem, based on a percentage of the value of the goods being traded. Tariffs are used to raise government revenue, and to protect domestic industries from cheaper imports from other countries, by effectively increasing the cost of imports. The level of applicable tariff depends on the type of good being traded, often with higher tariffs on more processed products. This can facilitate the import of raw material at low tariff rates to supply the processing industry in the country. Higher tariffs on more processed goods protect the domestic processing industry and have the effect of discouraging value addition in the source countries. This is often seen in fish and fishery tariffs, for example unprocessed tuna has low tariffs to import to the EU, in order to supply raw material for the French and Spanish processing industries, with canned tuna attracting a tariff of 24%.

Tariffs discourage international trade and raise prices for consumers, and there have been international efforts to reduce trade barriers and promote international trade. The General Agreement on Tariffs and Trade ( GATT) was a legal agreement with the aim of promoting international trade by the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis." Various negotiating rounds have taken place, with the creation of the World Trade Organization ( WTO) in 1994 as part of the Uruguay Round.

Under the WTO agreements, countries cannot normally discriminate between their trading partners. The principle of Most-Favoured Nation ( MFN) treatment requires that a country must provide its lowest customs duty rate for all WTO members. However, there are exceptions – lower tariffs are permitted for Free Trade Agreements ( FTAs) that applies only to goods traded within the group of member countries; and developing countries can be granted preferential access.

Bound tariffs are specific commitments made by individual WTO member governments, as the maximum MFN tariff level that will be applied for a given commodity line. However, members have the flexibility to decrease their tariffs (on a non-discriminatory basis) below the bound level.

MFN tariffs are what countries promise to impose on imports from other members of the WTO, unless the exporting country is part of a preferential trade agreement (such as a free trade area or customs union). This means that, in practice, MFN rates are the highest (most restrictive) that WTO members charge one another.

Due to the existence of various preferential trade agreements, the Effectively Applied ( AHS) tariff is often below the MFN rate. Effectively applied tariff is the lowest available tariff for a good traded between two specific countries.

B.2 Non-tariff measures

Non-tariff measures ( NTMs) are measures applied at the border, which have the potential to change the quantity of imports (positively or negatively) of specific goods from some or all origins, and which are not tariffs. They are not necessarily set up to exclude imports and in some cases compliance with these measures may increase trade. The United Nations Conference on Trade and Development ( UNCTAD) has produced a standard classification for NTM (Table B.1).

While various trade round agreements since 1948 have led to a substantial reduction in tariffs - which were seen as the major barrier to trade - non-tariff measures have the potential to be used as a form of protection and to act as barriers to trade. In an effort to reduce the trade-restricting aspects of these regulations, two agreements were reached under the Uruguay Round negotiations and adopted by WTO members in 1995:

• Application of Sanitary and Phytosanitary Measures (the SPS Agreement); and
• Agreement on Technical Barriers to Trade ( TBT).

Details on these are explored further in the sections below.

Table B.1. UNCTAD Classification of NTM (2012)

Imports
Technical Measures	A	Sanitary and Phytosanitary Measures ( SPS)
	B	Technical Barriers to Trade ( TBT)
	C	Pre-shipment inspection and other formalities
Non-Technical Measures	D	Contingent trade-protective measures
	E	Non-automatic licensing, quotas, prohibitions and quantity-control measures other than for SPS or TBT reasons
	F	Price-control measures, including additional taxes and charges
	G	Finance measures
	H	Measures affecting competition
	I	Trade-related investment measures
	J	Distribution restrictions
	K	Restrictions on post-sales services
	L	Subsidies (excluding export subsidies under P7)
	M	Government procurement restrictions
	N	Intellectual property
	O	Rules of Origin
Exports
	P	Export-related measures

Source: Fugazza, 2017

Currently UK firms face only minimal NTM when exporting to the EU27 as the UK is a full member of the EU. In particular UK goods are not subject to Sanitary and Phytosanitary ( SPS) or Technical Barriers to Trade ( TBT) conformity checks or contingent protection, as a result of the direct effect of EU law on standards ( SPS and TBT), membership of the Common Commercial Policy (Contingent protection) and the Customs Union (Rules of Origin, RoO). Categories C, E-N and P are covered in whole or part by Single Market rules and do not attract measures in intra- EU trade, or if they do UK goods will attract similar measures after Brexit.

B.2.1 Sanitary and phytosanitary measures

As a result of concerns over food safety there are increasingly complex requirements for food safety assurance and traceability, both in developed and developing countries. Major markets impose complex food safety assurance and traceability requirements, especially the EU and USA. These requirements present a threat to existing exporters and a ‘barrier’ to new entrants. Strict quality standards create a bias in favour of countries with a highly developed infrastructure and larger suppliers with greater resources.

The SPS Agreement applies only to measures covering food safety, animal and plant life and human health. Other technical measures outside this area come within the scope of the TBT Agreement. The SPS and TBT Agreements are thus complementary and mutually reinforcing.

These agreements have given a new direction to the international food trade, including fisheries products. The agreements are intended to ensure that requirements such as food quality, labelling and methods of analysis applied to internationally-traded goods do not mislead the consumer or discriminate in favour of domestic producers or goods of different origin. They also try to ensure a balance between the trade-facilitating aspects of standards and their trade-distorting potential.

Some key principles of the SPS Agreement include:

• The sovereign right of a country to put protective measures in place, but these measures should not be more restrictive than necessary to achieve the appropriate level of protection.
• The Agreement stresses that SPS measures should be scientifically based as well as the importance of risk assessment in determining the appropriate levels of SPS measures.
• Of crucial importance are transparency in the development and implementation of measures and the adoption of international standards.
• The SPS Agreement gives status and legal force to the standards set by the Codex Alimentarius Commission. The Codex Alimentarius - or food code - was created in 1963 by FAO and WHO and has become a global reference point for consumers, food producers and processors, national food control agencies and the international food trade.

B.2.2 Technical barriers to trade

The WTO Agreement on Technical Barriers to Trade ( TBT) seeks to ensure that:

• Technical standards and regulations do not create unnecessary obstacles to trade;
• Code of good practice is used;
• Procedures for testing should be fair and equitable;
• There is no unfair advantage for domestic products as a result of standards; and
• There is transparency (i.e. notifications).

Examples of technical import requirements may include restrictions on fish (e.g. size, presentation); the catch method (e.g. use of turtle excluder devices in shrimp fisheries; dolphin-safe tuna fishing), and labelling (e.g. origin of the catch, generic marketing names) including the use of eco-labels. In this context, findings from research in India show that SPS measures introduced in the 1990s had far more impact at the macro-level than TBT measures related to the turtle/shrimp dispute with the USA. Nevertheless, at the micro-level the latter also had some negative impacts on the livelihoods of poor fishing communities (Salagrama and Koriya, 2006).

B.2.3 Trade defence measures

Trade defence measures are considered a legitimate means to defend producers against unfairly traded or subsidised imports, if applied using WTO rules. There are three types:

• Anti-dumping measures: the addition of customs duties to products where it can be shown that goods are being traded internationally at below the ‘normal value’ in their domestic market, or below the cost of production. Anti-dumping measures have been applied within the European Economic Area ( EEA) agreement, when the EU imposed additional duty on Norwegian salmon;
• Anti-subsidy (countervailing) measures: the addition of customs duties on products that have been produced with financial assistance (subsidy) from the government, resulting in trade-distorting effects; and
• Safeguard measures: short-term measures to regulate a sharp increase in imports of a certain product that means that domestic producers cannot adapt immediately to the change in the trade situation.

B.2.4 Rules of origin

Rules of Origin (RoO) specify the tariff applicable to products originating from different places and are required to ensure accurate tariff assessment ( OECD, 2003). They are important because only fish that is considered to ‘originate’ from a country can be exported at preferential tariff rates under Free Trade Agreements. Given that fish are caught in many parts of the world and are traded in different forms (e.g. raw, semi-processed and processed) rules of origin present a particular challenge. As a consequence, the proper use and interpretation of rules of origin enhances the predictability and transparency in international fisheries trade. At the same time, from the point of view of exporters, rules of origin can be viewed as a trade impediment.

In general, to obtain duty-free access to the EU market, fishery products must be ‘wholly obtained’ in the State concerned. The main criteria for defining ‘originating products’ are registration and flag, ownership and crewing arrangements on the fishing vessels and factory ships, which must be either of the State concerned or European.

There is often a value tolerance (i.e. derogation) to the RoO, in that the value of non-originating fish can be up to a certain percentage of the ex-works price of the product (on a per shipment basis). In the case of African, Caribbean and Pacific ( ACP) countries exporting to the EU, this value is 15% (Campling, 2006).

B.2.5 Certification and accreditation

The implementation of product standards requires the verification that such standards have been met. Where countries have their own testing arrangements for ensuring that products meet mandatory standards, but do not recognise each other’s arrangements for ensuring compliance, trade barriers continue to exist and there are increased costs (and potential delays) for customs clearance whilst good are checked to verify conformity with the standards. These checks can range from inspections at the border to the testing of samples to ensure compliance.

Certification and accreditation are means of facilitating recognition of systems for testing and ensuring products meet the relevant standards, reducing border delays. Accredited certification bodies in the country of origin may be recognised by the importer as providing effective assurance that goods have been produced in line with the required product standards. If so, a certificate of compliance from an accredited certification body is sufficient to demonstrate that the goods meet the importer’s standards and further border checks can be minimised.

Within the EU and the wider EEA, there is mutual recognition of conformity assessment procedures, and standards are harmonised across member states. All EU and EEA member states must have an EU-accredited competent body to guarantee testing and certification processes. This means that there is no need for any further customs checks to ensure conformity with standards, and the relevant certification and accreditation bodies (and the outcome of their inspection procedures) in member states are automatically recognised by other member states.

B.2.6 Catch certificates

Catch certificates are not trade measures but are used to certify the origin of fish to confirm that it has been caught in line with the relevant regulations. The EU’s Regulation on preventing illegal, unreported and unregulated ( IUU) fishing ( EC 1005/2008) requires that fish landed to or exported to the EU from third countries is accompanied by a catch certificate, issued by the flag state’s Competent Authority, that certifies that the catches were made with the relevant permissions (i.e. from an area for which the vessel has a valid fishing authorisation, within relevant quota limits and in compliance with technical management measures) ^[26] . As a third country, the UK will need to comply with this requirement to export fish to the EU, as Norway is required to ^[27] . This is unlikely to represent a significant burden, but represents additional administration that will be required in order to land in or export to the EU.

B.3 References

Campling, L. (2006). Economic Partnership Agreements ( EPAs) and Pacific Fisheries, Revised paper prepared for the Joint Pacific ACP Trade and Fisheries Officials Meeting (PACPTOM / PACPFOM) and the Joint Pacific ACP Trade and Fisheries Ministers Meeting (PACPTMM / PACPFMM); Port Vila, Vanuatu, 13-14 November 2006.

Fugazza, M., (2017). Fish Trade and Policy: A Primer on Non Tariff Measures, UNCTAD Research Paper No 7.

OECD (2003). Liberalising fisheries markets: scope and effects. Organisation for Economic Cooperation and Development, Paris.

Salagrama, V. and Koriya, T. (2006) Sustainability Impact Assessment of the Proposed WTO Negotiations – India Fisheries case study; available at http://www.sia-trade.org; Integrated Coastal Management, Kakinada, India.