News and Analysis • Volume 13 • Number 2 • June 2009

11 - Truce Declared in Beef Hormones Dispute

On 13 May, US Trade Representative Ron Kirk and EU Trade Commissioner Catherine Ashton signed a Memorandum of Understanding, suspending WTO litigation while the parties explore the possibility of settling the long-running dispute through a market opening deal.

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The agreement does not affect the EU’s decades-old import ban on beef produced with growth-enhancing hormones. Instead, it sets up a four-year process that could resolve the conflict through more market access for high-quality US beef raised without growth hormones. USTR Kirk and Commissioner Ashton called the agreement a ‘pragmatic way forward’ in the long-running dispute, but not all beef growers are convinced.

In the US, a number of producers have complained that the ultimate 45,000 metric tonne duty-free quota is not large enough to make raising cattle without artificial growth enhancers commercially attractive. Instead, they say, the administration should have used the bargaining chip of hitting new EU products with retaliatory tariffs as leverage to get the ban lifted. Critics also argue that the EU’s prohibition of antimicrobial washes in cleaning beef, a common practice in the US, is likely to result in under-fill of the new quota. However, Philip Seng, President of the US Meat Export Federation, said the agreement was preferable to new sanctions since an “actual increase in trade is much more beneficial to US interests.”

Pekka Pesonen, Secretary-General of the European farmers’ organisation Copa-Cogeca, called the deal ‘another blow’ for already struggling EU farmers. The agreement was ‘highly unbalanced’, he said, since the EU would be offering “upwards of €400 million worth of market access over four years but still [have] to ‘pay’ an additional €110 million in sanctions.”

Currently, the US and Canada share an import quota 11,500 metric tonnes of hormone-free beef at a 20-percent ad valorem tariff. Depending on the type of cut or product, out-of-quota imports face specific duties ranging from €176.8 to €303.4 per 100 kilogrammes in addition to the 20-percent ad valorem rate.

The Deal in Detail

The May 2009 agreement is set to be implemented in three stages.

Phase 1 consists of two commitments spanning three years:

- As of 3 August 2009 at the latest, the EU will open a new duty-free quota of 20,000 metric tonnes for hormone-free US beef.

- The United States will not change the scope or the amount of trade sanctions in force on 23 March 2009. That was when the US dropped ten EU products from its original retaliation list, bringing the total amount of annual sanctions down from US$116.8 million to US$37.8 million in order to facilitate a negotiated solution to the conflict.

Without the deal, the original list was set be modified so as affect 45 new European export products, including a 300-percent tariff on French Roquefort cheese.

Phase 2, if the parties agree to launch it, would last a year and involve:

- the EU increasing the duty-free quota to 45,000 tonnes; and

- the US suspending its trade sanctions.

Alluding to the unresolved issue of cleaning methods, Mr Kirk said that the US’s decision on whether to move on to phase 2 would “depend on the existence of conditions at the end of phase 1 that would allow the US beef industry to make full use of the additional quota.”

Phase 3 could lead to a final solution of the conflict if the parties agree that the arrangement is working to their mutual satisfaction. Should that be the case,

- the EU would make permanent the 45,000 mt import quota; and

- the US would definitively scrap all retaliatory duties.

WTO Case Suspended

The deal delays further WTO litigation for 18 months from the date the EU establishes the 20,000 mt duty-free quota. As of February 2011, either side can request a dispute settlement panel, but the parties have agreed that no interim report will be issued until the fourth year of agreement. Interim reports are in principle confidential, but in practice their contents are often leaked to the press.

Background

In the 1980s, the European Union banned the use of six growth-enhancing hormones in beef production across its territory. Imports of hormone-treated beef were also banned. The US and Canada challenged embargo at the WTO, and in 1998 the Appellate Body ruled that it was not based on adequate risk assessments as required by the Agreement on Sanitary and Phytosanitory Measures. The complainants subsequently imposed retaliatory tariffs on a range of European goods, respectively worth US$116.8 million and C$11.3 million.

In 2003, the EU notified to the WTO its new directive (2003/74/EC) on the use of growth hormones in stockfarming. The directive was fully WTO-compatible, the EU asserted, since it was based on new scientific evidence showing that health risks warranted a definitive ban on one of the hormones, as well as a prolonged prohibition of the other five on precautionary grounds. The US and Canada, however, kept the sanctions in place, prompting yet another dispute.

The Appellate Body confirmed in October 2008 that the sanctions were legal, but urged the parties to initiate compliance proceedings so as to definitively clarify the scientific basis for Directive E2003/74/EC. In December 2008, the EU requested dispute settlement consultations with the two complainants over the matter. The highly unusual move in essence amounted to a complainant asking the WTO to scrutinise its own legislation rather than challenging measures taken by the defendants (Bridges Year 12 No.6 page 17).