Technical Issues Affecting Trade in Agricultural Products A report for the Rural Industries Research and Development Corporation by David Harris D.N. Harris & Associates February 2007 RIRDC Publication No 07/032 RIRDC Project No DAH-2A

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© 2007 Rural Industries Research and Development Corporation. All rights reserved. ISBN 1 74151 439 2 ISSN 1440-6845 Publication No.07/032 Project No. DAH-2A The information contained in this publication is intended for general use to assist public knowledge and discussion and to help improve the development of sustainable industries. The information should not be relied upon for the purpose of a particular matter. Specialist and/or appropriate legal advice should be obtained before any action or decision is taken on the basis of any material in this document. The Commonwealth of Australia, Rural Industries Research and Development Corporation, the authors or contributors do not assume liability of any kind whatsoever resulting from any person's use or reliance upon the content of this document. This publication is copyright. However, RIRDC encourages wide dissemination of its research, providing the Corporation is clearly acknowledged. For any other enquiries concerning reproduction, contact the Publications Manager on phone 02 6272 3186. Researcher Contact Details Mr David Harris D. N. Harris & Associates 8 Irvine Street Glen Iris VIC 3146 Phone: 03) 9889 9879 Email: dnharris@hotkey.net.au

In submitting this report, the researcher has agreed to RIRDC publishing this material in its edited form. RIRDC Contact Details Rural Industries Research and Development Corporation Level 2 15 National Circuit BARTON ACT 2600 PO Box 4776 KINGSTON ACT 2604 Phone: 02 6272 4819 Fax: 02 6272 5877 Email: rirdc@rirdc.gov.au Web: http://www.rirdc.gov.au Published in February 2006 Printed on environmentally friendly paper by Canprint

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Foreword Non-tariff impediments to trade have become an increasingly important area of trade policy in recent times. Australian exporters have concerns with various non-tariff measures (NTMs) which appear to restrict the commercial opportunities for trade. These concerns are addressed through bilateral representations and multilateral forums such as the Doha Round of WTO trade negotiations. Industry efforts to liberalise trade primarily focus on improving market access conditions through tariff reductions and tariff-rate quota (TRQ) expansions. But NTMs could limit the gains that can be achieved in these areas. This means efforts to liberalise trade should also consider the technical requirements that can affect the market access for imports. Government and industry groups have limited resources to devote to issues of agricultural trade policy. It can be a lengthy process to address concerns about an NTM that is affecting bilateral trade for a specific product. So it is important to focus attention on the non-tariff barriers that offer the greatest opportunity for trade growth. This requires judgements about the trade impact of the different issues. This study was undertaken to raise awareness of the trade restrictions imposed by non-tariff measures. It will help to identify some of the issues that warrant further investigation of their impact on trade. It should also provide some guidance for government representations on technical trade issues and on possible areas of reform in the Doha trade negotiations. The project is funded from RIRDC core funds which are provided by the Australian Government. It forms part of our Global Competitiveness R&D sub-program. This program aims to identify impediments to the development of a globally competitive Australian agricultural sector. It supports research that will lead to options and strategies that will remove these impediments. This report is an addition to RIRDC’s diverse range of over 1600 research publications. Most of our publications are available for viewing, downloading or purchasing online through our website: • downloads at www.rirdc.gov.au/fullreports/index.html • purchases at www.rirdc.gov.au/eshop Peter O’Brien Managing Director Rural Industries Research and Development Corporation

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Acknowledgements The author has been involved in economic research on the effects of trade related policy reforms on rural industries for many years. He has an extensive background in quantitative analysis of the effects of trade restrictions on world markets for agricultural commodities. This work experience was developed during periods of employment at the Australian Bureau of Agricultural and Resource Economics (ABARE), the Centre for International Economics (CIE) and the OECD Secretariat in Paris. Financial support provided by the Rural Industries Research and Development Corporation (RIRDC) is gratefully acknowledged. The support, encouragement and advice of Jeff Davis (RIRDC) and Ian Shaw (ABARE) in undertaking this project were greatly appreciated.

Abbreviations Doha Refers to WTO negotiations held in Doha, Qatar EU European Union NTM Non-tariff measures SPS Sanitary and phytosanitary measures TBT Technical barriers to trade TM Tariff measure TRQ Tariff-rate quota WTO World Trade Organisation

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Contents Foreword ........................................................................................................................... iii Acknowledgements ........................................................................................................... iiv Abbreviations ............................................................................................................ iv Executive summary ........................................................................................................ vii 1. Introduction .................................................................................................................. 1

Commercial concerns with non-tariff barriers ..................................................... 1 WTO agreements on non-tariff measures ............................................................ 2 Aim of the study ................................................................................................... 3

2. Technical requirements in TRQs ............................................................................. 4

WTO notifications of TRQs ................................................................................. 4 TRQ fill rates and market demand ....................................................................... 5 Utilisation of TRQs in Japan ................................................................................ 6 Utilisation of TRQs in the EU ............................................................................. 7 Utilisation of TRQs in Canada ........................................................................... 11 Utilisation of TRQs in the United States ........................................................... 12 Non-tariff measures affecting TRQ access ........................................................ 14

3. TRQ management issues ........................................................................................... 16

Administration of TRQ import permits ............................................................... 16 TRQ allocation mechanisms ................................................................................ 17 Eligibility and allocation rules for TRQs .............................................................. 18 Technical issues in TRQ management ................................................................. 21

4. General requirements for import approval .......................................................... 23

Import certifications ............................................................................................. 24 Processing methods and product composition ..................................................... 25 Labelling requirements ........................................................................................ 26 Packaging and distribution ................................................................................... 27 Non-tariff measures and import competing industries ......................................... 27

5. Concluding comments ................................................................................................ 29

Appendix A: TRQ structure and product specification restrictions ....................... 31

Appendix B: TRQ administration procedures .......................................................... 34

Appendix C: TRQ eligibility and allocations ............................................................ 38 References .......................................................................................................................... 42

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Tables – main text 1 Use of TRQs by WTO members ......................................................................... 4 2 TRQ fill rates for selected products – Japan ....................................................... 6 3 World price differentials for selected Japanese commodities .............................. 7 4 TRQ fill rates for selected products – the European Union ................................. 8 5 World price differentials for selected EU commodities ..................................... 10 6 TRQ fill rates for selected products – Canada ................................................... 11 7 World price differentials for selected Canadian commodities ............................ 12 8 TRQ fill rates for selected products – USA ........................................................ 13 9 World price differentials for selected US commodities ..................................... 14 10 TRQ allocation mechanisms by WTO members ................................................ 18 11 Technical requirements affecting agricultural trade ............................................ 24 Tables – appendixes 12 Unused access for EU product specific cheese TRQs ........................................ 31 13 Unused access for US product specific cheese TRQs ........................................ 32 14 Restriction on product specifications for EU meat TRQs ................................. 33 15 Administration of selected TRQs – Japan ......................................................... 34 16 Administration of selected TRQs – the European Union .................................. 35 17 Administration of selected TRQs – Canada ....................................................... 36 18 Administration of selected TRQs – USA ........................................................... 37 19 Eligibility and allocation rules for selected TRQs – Japan ................................ 38 20 Eligibility and allocation rules for selected TRQs – the European Union ......... 39 21 Eligibility and allocation rules for selected TRQs – Canada ............................. 40 22 Eligibility and allocation rules for selected TRQs – USA ................................. 41

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Executive summary What the report is about World trade in agricultural products is affected by various policy interventions that constrain sales of imported products. Governments impose tariffs and a range of non-tariff measures (NTMs) as conditions of market access. These trade policies reduce the competitiveness of imports and provide support for domestic producers. The economic effect of a tariff is straight forward. It is a tax that raises the landed cost of imports which leads to higher prices for food manufacturers and consumers. The effects of NTMs are less obvious and, in many cases, difficult to measure. In broad terms it refers to the technical regulations and standards that are market entry conditions for imports. In recent times NTMs have been subjected to greater scrutiny as individual countries seek to maximise the gains from negotiated access improvements. Some NTMs are imposed for domestic policy reasons such as public health requirements or protecting the environment. In general the regulations are justified on the need to ensure consumer confidence in products of foreign origin. In most cases they do not discriminate against imports as they apply equally to products of domestic origin. In some cases import specific requirements are imposed for particular food safety concerns – for example, some countries have specific requirements for beef imports from countries where the BSE disease has been detected. There are other technical requirements that apply to imported products which provide an element of protection for the domestic industry. In some cases the compliance costs increase the costs of doing business and affect the competitive position of imports. In other cases they act as non-tariff trade barriers (NTBs) that restrict the volume of trade. Industry efforts to liberalise trade primarily focus on improving market access conditions through tariff reductions and tariff-rate quota (TRQ) expansions. But NTMs could limit the gains that can be achieved in these areas. This means efforts to liberalise trade should also consider the technical requirements that can affect the market access for imports.

Who is the report targeted at? This report highlights some issues concerning constraints imposed by non-tariff barriers that should be considered in Doha trade negotiations. There are several TRQ administration issues and some general technical requirements that should be investigated and their trade impact quantified. This would provide some guidance for future government representations on technical trade issues.

Background Improvements in market access are an important issue for Australian export industries in the WTO trade negotiations. Changes in tariffs and tariff-rate quota (TRQ) access will be a key aspect of the discussions. Another area of discussion that could generate some trade benefits is the non-tariff measures (NTMs) that affect market access conditions. NTMs are the technical requirements and standards that set the market entry conditions for imports. Australian exporters have raised concerns about various NTMs that appear to be arbitrary trade impediments. The Doha trade negotiations provide an opportunity to address some of these concerns. NTMs can limit the trade gains from tariff cuts or TRQ expansions associated

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with future agreements to liberalise trade. But it will be important to focus attention on the non-tariff barriers that offer the greatest potential for future trade growth. Expansions in concessionary access are one way the Doha negotiations can achieve further gains in trade liberalisation. An issue that tends to be over-looked is the way NTMs affect TRQ fill rates. In some markets there are restrictions imposed by the structure of TRQ access. In other markets there are technical requirements that restrict the demand for import permits which can lead to an under-utilisation of the access concessions. Some countries point to the under-fill of existing TRQs as a reason for not offering further access concessions. But in many cases the TRQ under-fill is inconsistent with market pricing conditions. It appears to be caused by technical requirements that restrict the commercial value of the access concessions. The NTMs that are applied to new and existing TRQ access concessions should be closely scrutinised. Maximising trade through the existing TRQ access is a worthwhile objective for exporting countries like Australia. Initial discussions on the Doha negotiation framework canvassed the option of reducing in-quota tariffs as a way of improving market access. In some instances this could help to improve TRQs fill-rates in particular markets. But there may be greater gains from liberalising the technical restrictions on TRQs: • liberalisation of the NTMs on existing concessionary access could yield significant trade

benefits • if proposals to reduce TRQ in-quota tariffs are part of the Doha negotiations they should

also consider reforms to TRQ administration requirements. The implications of various NTM attributes need consideration, including: • TRQ fill rates • the effect of non-tariff measures on TRQ fill rates • some technical issues in TRQ management.

Aims/Objectives The aim of this report is to provide an overview of the technical issues affecting Australian trade. It is a preliminary investigation of the non-tariff conditions attached to market access. The intention is to review the concerns typically raised by exporters and high light the NTMs that warrant further investigation.

Methods used The scope of the review has been restricted because of the large number of specific issues associated with individual products and importing countries. Instead the study focused on the NTMs affecting trade in the major commodities – meat, cereal and dairy products. It was also limited to a review of the measures affecting trade with the major developed economies of the United States, the EU, Canada and Japan. Many of the technical issues affecting trade with these markets are applicable in other countries. The review has adopted a broad definition of technical trade issues. It was important to examine any non-tariff measure that could affect the volume and cost competitiveness of exports. However, the review did not extend to SPS issues associated with quarantine trade restrictions. SPS issues have received considerable attention in recent years and there is a large body of research already available. Instead this review has focused on other issues – TRQ access conditions and the technical requirements for import approvals.

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Results/Key findings Liberalisation of TRQ access conditions could yield significant trade benefits. The gains from reforms to other NTMs may not be as big but they are still important. The most commonly cited trade impediments are technical requirements on: • product testing and import certification approval • processing methods and product composition (i.e. food standards) • labelling • packaging and distribution. Some of these technical requirements are not trade barriers imposed to protect the domestic industry. They reflect differences in business practices and regulatory standards that translate into border requirements imposed on imports. If the requirements do not discriminate against imports they will generally reflect the cost of doing business in a foreign country. However, there are other measures that appear to be excessively detailed and unnecessarily impede trade. Efforts to reform these regulatory requirements are important as they can improve the competitiveness of imports and enhance the opportunities for trade. For example, import certification requirements are a one-off cost that can be a short term trade impediment. The principle of mutual recognition could be applied to reduce the costs of certification especially where import approvals have been obtained from a third country with higher standards. There are also technical requirements that relate to food and hygiene standards. They are not necessarily a trade barrier if they are based on scientific principles and applied uniformly to domestic and imported products. CODEX standards provide an international reference point on food standards, additives and chemical residues. It is important to persist with efforts to encourage importing countries to align their regulations to the CODEX standards. Labelling rules are another potential trade impediment because it leads to higher distribution costs. The costs are multiplied if labels are changed for different markets. It requires separate stock keeping units for each market which means higher inventory management costs. It is important to maintain a strong interest in these issues through the TBT Agreement.

Implications for relevant stakeholders There is a strong focus on improving global market access conditions for agricultural products through tariff reductions and expansion in TRQ access. But non-tariff measures can limit the gains from these improvements in market access. The Doha trade negotiations provide an opportunity to address some of these trade impediments. Australian exporters have concerns about various NTMs that restrict the opportunities for trade. Some of these concerns need to be addressed although it is important to remain focused on the market access issues that offer the largest trade benefits. Government resources are limited so attention should centre on the non-tariff barriers that offer the greatest opportunity for trade growth. A review of TRQ fill rates examined pricing conditions and the effect of in-quota tariffs. There were instances where low fill rates were inconsistent with the tariff adjusted world price differential. It indicates other technical requirements are affecting TRQ trade outcomes. The Doha negotiations provide an opportunity to address these issues.

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Recommendations TRQ access conditions are not the only source of NTMs affecting trade. Market access is conditional on compliance with the general requirements for import approvals. These rules can delay or disrupt the supply of imports to the market. They can also increase marketing and distribution costs which reduces the price competitiveness of imports. Liberalising some of the restrictive technical requirements attached to existing TRQs could provide significant trade benefits for exporting countries like Australia. The gains will come from importing countries meeting their existing obligations to provide concessionary access for highly protected commodities. These NTMs should also be considered if new TRQs are provided with the adoption of the ‘sensitive product’ concept. In some markets there are technical issues in the way TRQ commodity access is structured and restricted by product specifications. There are also technical restrictions associated with the management of TRQs that reduce competition and limit the opportunity to maximise fill-rates. These issues relate to eligibility requirements for firms to participate in the TRQ and the associated allocation mechanisms: • addressing these issues in the Doha trade negotiations could be more important than

reducing in-quota tariff rates. Technical restrictions attached to TRQs interfere with the development of commercial trading relationships. In some cases they can distort the product composition of the trade. These trade impediments can cause the TRQ access to be under-utilised which provides extra protection for producers in the importing country. Fill rates are likely to improve if there are reforms in areas such as: • treating the market access concessions as a commodity issue rather than a collection of

small, specialised product TRQs with specification restrictions • removing arbitrary, highly specialised product specifications • changing eligibility rules to obtain a larger, competitive pool of TRQ users • making provision for new entrants to participate in TRQs • requiring TRQs to have a re-allocation mechanism for unused access. Increased TRQ access is the most effective way of liberalising trade in the highly protected commodities. Realising the benefits will depend on the structure and regulatory conditions of the TRQ access concessions. The NTMs on TRQ access should be a key focus for efforts to liberalise trade. Other NTMs affecting the general requirements for import approvals are also important but should perhaps have a lower priority. Concerns are often raised about the compliance costs for regulations on import certifications, packaging and distribution requirements and labelling rules. In general these issues warrant some attention through the TBT Agreement. The removal of arbitrary labelling requirements and import approval procedures would improve the competitiveness of imports and increase trade opportunities. Addressing these NTMs is important but some further work needs to be done to assess the potential size of the benefits. Some of the technical issues in TRQ administration appear to offer a higher immediate pay-off. There are also some NTMs that can impose significant costs on exporters on both TRQ and non-TRQ product. They could become more important trade impediments in the future. These include: • product standards and composition • hygiene standards and plant inspection requirements • product traceability rules.

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1. Introduction World trade in agricultural products is affected by various policy interventions that constrain sales of imported products. Governments impose tariffs and a range of non-tariff measures (NTMs) as conditions of market access. These trade policies reduce the competitiveness of imports and provide support for domestic producers. The economic effect of a tariff is straight forward. It is a tax that raises the landed cost of imports which leads to higher prices for food manufacturers and consumers. The effects of NTMs are less obvious and, in many cases, difficult to measure. In broad terms it refers to the technical regulations and standards that are market entry conditions for imports. In recent times NTMs have been subjected to greater scrutiny as individual countries seek to maximise the gains from negotiated access improvements. Some NTMs are imposed for domestic policy reasons such as public health requirements or protecting the environment. In general the regulations are justified on the need to ensure consumer confidence in products of foreign origin: • in most cases they do not discriminate against imports as they apply equally to products of

domestic origin • in some cases import specific requirements are imposed for particular food safety

concerns – for example, some countries have specific requirements for beef imports from countries where the BSE disease has been detected.

There are other technical requirements that apply to imported products which provide an element of protection for the domestic industry. In some cases the compliance costs increase the costs of doing business and affect the competitive position of imports. In other cases they act as non-tariff trade barriers (NTBs) that restrict the volume of trade.

Commercial concerns with non-tariff barriers Australian exporters have concerns about a variety of NTMs which are considered to be trade impediments. Many issues are product specific market access requirements that are addressed through bilateral representations. They often involve what appear to be arbitrary regulations for import approval. The Doha trade negotiations are another avenue for addressing concerns with NTMs especially in the management of tariff-rate quotas (TRQs). Improving market access conditions is an important issue for Australia’s rural industries. But the government has limited resources and it can be a lengthy process to address a specific industry concern affecting a bilateral trading relationship. So it is important to focus attention on reforming the NTBs that offer the greatest potential for enhancing trade growth: • this requires judgements by policy advisors and trade negotiators about the likely pay-offs

from resolving particular issues. There is a tendency for commercial players to view all the technical requirements imposed by importing countries as trade barriers. This is not always the case as some regulations simply reflect the commercial aspects of selling a product in a foreign market. The requirements may differ from the regulatory conditions in Australia. But it is difficult to argue they are a trade barrier if they are non-discriminatory requirements that apply equally to domestic producers in the importing country.

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On the other hand, highly prescriptive import approval regulations can be a trade impediment in some situations. Opportunities for trade would be expected to increase with market access improvements from tariff reductions and expanded TRQs. But these gains may not be fully realised if the compliance costs in meeting technical requirements erodes the competitiveness of imports: • the effect of regulatory requirements to obtain and maintain an import approval

certification can be equivalent to an additional tax on imports. The NTMs that typically affect agricultural trade may be divided into three groups. There are measures that provide trade protection to a particular group in the importing country. They are non-tariff barriers that will limit the gains from negotiated access improvements. Examples include the management of TRQs, highly restrictive import licensing conditions and arbitrary rules on product specifications, composition and packaging. Another group of NTMs are those where the intent is to regulate the technical specifications of the imported product and the manufacturing process. These requirements may go beyond those imposed on an equivalent product supplied by domestic producers. In some cases these measures can be a significant trade impediment. Examples include product traceability rules, arbitrary labelling issues and processing plant inspections. There is a third group of NTMs where the basis for justifying the requirement is a contentious issue. An example would be the use of a State Trading Enterprise (STE) with monopoly control of marketing the imported product. Another example is the sanitary and phytosanitary (SPS) trade restrictions on meat products that relate to animal and human health concerns (Josling, Orden and Roberts 2001).

WTO agreements on non-tariff measures The WTO has two agreements that are relevant to the issue of NTMs. There is the Agreement on Technical Barriers to Trade (TBT Agreement) which focuses on the regulations, standards and certification procedures that affect trade. It was established as a forum for raising issues about the legitimacy of technical specifications on imported products: • technical trade requirements have to be transparent, justified by legitimate policy

objectives and should not be unnecessary obstacles to trade • importing countries can pursue domestic policy objectives through technical trade

requirements but they have to use international standards where they are available. The Agreement on Sanitary and Phytosanitary Measures (SPS Agreement) cover issues that relate to protection against disease risks to animal, plant and human health. It was established as a forum for raising issues about the justification for import restrictions based on an assessment of the disease risks: • SPS trade requirements have to be scientifically justified and based on a formal

assessment of the disease risk • importing countries can determine access conditions but they must take account of the

standards set by the relevant international organisations. These Agreements provide a mechanism for enhancing Australian export opportunities by liberalising the technical conditions attached to market access. Quarantine restrictions can be challenged through the SPS Agreement. Technical requirements such as product standards and compositional restrictions can be challenged under the TBT agreement.

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They have imposed some discipline on the non-tariff barriers used by importing countries. If an NTM is challenged by an exporting country, a WTO dispute settlement panel will arbitrate on the issue. But opportunities remain for importing countries to impose standards that may be more stringent than those imposed on a competing domestic product: • a lack of equivalence in the treatment of imports can provide an element of trade

protection for the domestic industry. The content of these two Agreements also affects import competing industries in Australia. There is an obligation for the Australian government to justify the quarantine controls and technical requirements imposed on imports. A related issue is the alignment of compliance with Australian regulations to the requirements imposed on foreign sourced products. Domestic producers have to comply with Australian regulations on issues such as product composition, plant inspections, labelling and product traceability. These requirements can impose significant compliance costs. If the same standards are not imposed on imports it could place the domestic product at a competitive disadvantage.

Aim of the study An economic evaluation of the NTMs that are often cited as trade impediments would be a useful exercise. It would help government and industry representatives to gauge the value of pursing particular reforms. However, a detailed analysis would be a large project because there are numerous product and country specific issues. The aim of this report is to provide an overview of the technical issues affecting Australian trade. It is a preliminary investigation of the non-tariff conditions attached to market access. The intention is to review the concerns typically raised by exporters and highlight the NTMs that warrant further investigation. The scope of the review has been restricted because of the large number of specific issues associated with individual products and importing countries. Instead the study focused on the NTMs affecting trade in the major commodities – meat, cereal and dairy products. It was also limited to a review of the measures affecting trade with the major developed economies of the United States, the EU, Canada and Japan: • many of the technical issues affecting trade with these markets are applicable in other

countries. The review has adopted a broad definition of technical trade issues. It was important to examine any non-tariff measure that could affect the volume and cost competitiveness of exports. However, the review did not extend to SPS issues associated with quarantine trade restrictions: • SPS issues have received considerable attention in recent years and there is a large body

of research already available • instead this review has focused on other issues – TRQ access conditions and the technical

requirements for import approvals.

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2. Technical requirements in TRQs A number of countries use tariff-rate quotas to restrict imports for particular products. TRQs are a non-tariff barrier that provides access for a limited volume of imports at a preferential tariff rate. Participation in the TRQ requires exporters and importers to comply with the non-tariff measures (NTMs) specified in the conditions of access. Trade can occur outside the TRQ but these imports usually face a substantially higher tariff rate. They may also face a different set of technical requirements that could be more or less restrictive than the TRQ access conditions. If the ‘over-quota’ tariff is prohibitive the TRQ effectively operates as an import quota: • theoretically non-TRQ imports can potentially occur at any time • but a very high (prohibitive) over-quota tariff can make non-TRQ imports an uneconomic

proposition (Joerin 2001). Expansions in TRQ access have been a key focus of trade negotiations. But the other issue that needs to be considered are the non-tariff conditions applied to the TRQ access. In WTO negotiations these requirements are referred to as tariff-quota administration issues.

WTO notifications of TRQs Notifications to the WTO indicate there were 1,376 TRQs registered in the year 2000 (WTO 2001). TRQs were used by 38 countries and just under half applied to meat, cereal and dairy products (table 1). The major developed economies use TRQs to limit trade in dairy products with the exception of Japanese cheese imports. TRQs are also used to limit trade in a selected meat and cereal products: • fruit and vegetable products account for about a quarter of all TRQ notifications. 1. Use of TRQs by WTO members #

TotalMeat Dairy Cereals Fruit & Sugar Other TRQs

vegetables

United States 1 24 .. 5 6 18 54Canada 4 11 4 .. .. 2 21Japan .. 12 4 1 .. 3 20Korea 7 5 15 20 2 15 64European Union - EU 15 28 12 15 25 3 4 87 - new members * 8 4 10 33 3 123 181Norway 32 14 37 116 2 31 232Other countries 166 100 134 157 36 124 717

Total 246 182 219 357 52 320 1 37618% 13% 16% 26% 4% 23% 100%

# Number of TRQs notified by WTO members in the year 2000. Source: WTO 2001a.* Includes TRQs for Poland, Czech Republic, Hungary, Slovak Republic, Slovenia, Latvia.

Product categories:

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TRQ fill rates and market demand In highly protected markets there is generally a strong financial incentive to fully utilise the available access. This is because importers and exporters can obtain quota rents (profits) on products traded through a TRQ. The size of the quota rents and corresponding incentive to use the access depends on several factors. In situations where imports and the domestic output are close substitutes there is often a strong underlying demand to use the TRQ access. This is especially the case if the access volume is relatively small in comparison to total consumption. It suggests the key factors affecting the incentive to utilise the TRQ access are: • the TRQ access volume • the substitutability of imports with domestic output • total consumption in the importing country. However, the most important consideration is the differential between the landed price of imports and the market price received in the importing country. The larger the differential the bigger the incentive to utilise the TRQ access. For many agricultural commodities the price of domestic output is a reasonable indicator of the price received for imports. As the landed price of imports varies with changes in exchange rates and world trading conditions, the size of the quota rents will vary with changes in: • internal market support arrangements • the price of domestic output • the landed (world) price of imports adjusted for the ‘in-quota’ tariff rate. If a TRQ is under- utilised it could indicate the demand for imports is fully satisfied and there is insufficient incentive to make full use of the opportunity for trade. But it could also suggest there are technical requirements impeding trade. Many of the TRQs that are used by the major developed economies have limited the preferential access to particular products within a commodity category: • in some cases there are conditions on how TRQ access is distributed to importers as well

as requirements on product composition and packaging • for example, TRQ access for beef may be restricted to specified cuts from an animal of a

certain age supplied in a frozen, boneless form. TRQ under-fill is not a definitive indicator that technical issues are impeding trade. The world price differential and the substitutability of imports and domestic output are important considerations. However, if market conditions suggest the TRQ should be filled it could mean the opportunities for trade are affected by: • specific access conditions on product characteristics • regulatory requirements that relate to import approvals. In considering this issue it is worthwhile examining TRQ fill rates for selected commodities in the major developed economies. Commodity markets with TRQ access constraints in Japan, the EU, the US and Canada are often associated with high rates of protection. There are often significant differentials between the world price and the price of domestic output which would encourage commercial players to fully utilise the TRQ.

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Utilisation of TRQs in Japan WTO notifications provide estimates of TRQ fill rates for the major developed economies. Japan uses TRQs to constrain import access for a number of dairy products (table 2). While cheese is a notable exception, most manufactured dairy products have TRQ access controls. There are no TRQs for meat products but TRQs are used for wheat, barley and rice. Over the past five years Japan has consistently achieved high fill rates for the TRQs on cereal products. In contrast, many of the dairy product TRQs have been consistently under-utilised. There are specialised TRQs for skim milk powder (SMP), whey powder and butter. Fill rates for these TRQs suggest there could be technical issues affecting trade. The under-utilisation of Japanese access for some dairy product TRQs could reflect market pricing conditions. An indicator of the strength of import demand can be inferred from the differential between the domestic price and the import price for a similar product. A relatively large differential would indicate a strong demand to fully utilise the access. Imported dairy commodities are highly substitutable with Japanese output. There are large differentials between the world price and the price of domestic output (ABARE 2001). In 2004 the world price differential was around 375% for butter and 145% for SMP (table 3). These estimates are a comparison of prices for the same product in different markets. Apart from transport and handling costs, in-quota tariffs will affect this sizeable commercial incentive to use the TRQ access. They reduce the price competitiveness of imports and the size of the world price differential. In-quota tariffs for butter, edible fat and milk powders used for food products are mostly in the 20-35% range: • there is no in-quota tariff applied to milk powders used for livestock feed. 2. TRQ fill rates for selected products - Japan

TRQaccess * 2000-01 2001-02 2002-03 2003-04 2004-05

Year ended March '000 tonnes % % % % %

Dairy productsEvaporated milk 1.6 92.7 85.4 94.5 92.2 83.8

SMP - school lunch 7.3 49.4 43.6 36.4 40.0 38.1

" - other purposes 85.9 39.3 44.5 41.4 41.2 36.1

Whey - feed purposes 45.0 53.3 56.2 50.9 50.6 69.7

" - infant formula 25.0 42.5 48.1 47.5 41.9 38.3

" - mineralised 14.0 25.4 37.1 32.2 26.6 25.5

Butter & butter oil 1.9 17.9 10.5 10.6 12.0 12.9

Prepared edible fat 19.0 98.5 99.8 99.5 99.6 97.7

Other dairy products ** 133.9 98.1 98.2 98.7 98.6 98.8

Designated dairy products ** 137.2 101.5 98.7 94.8 92.0 97.7

Cereal products Wheat ^ 5 740.0 102.7 99.7 87.6 98.6 98.1

Barley ^ 1 369.0 117.7 99.9 105.9 101.7 104.7

Rice ^ 682.2 99.7 99.6 99.7 98.8 99.5

* TRQ access for 2004-05. Source: WTO 2005b.** Expressed in whole milk equivalents.^ Expressed in whole grain equivalents. Includes grain, flour, meal, pellets, flakes, starch and food preparations.

TRQ fill rates

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3. World price differentials for selected Japanese commodities #

2000-01 2001-02 2002-03 2003-04 2004-05% % % % %

Butter * 545.3 480.5 562.2 487.5 373.9SMP * 166.8 127.2 227.8 171.8 145.1Wheat ^ 51.1 46.0 19.7 33.4 53.5Rice ^^ 1 079.5 909.4 832.7 1 000.0 966.9

# Percent difference between Japanese domestic price and world indicator price. Source: OECD 2005. Price differential does not account for insurance, transport & handling costs. Excludes in-quota tariffs.* Calendar year price differentials for 2000 to 2004. Based on fob export prices, Northern Europe.^ Based on US No.2 hard red winter wheat, ordinary protein, fob Gulf Ports.^^ Based on Thai milled rice, grade b, fob Bangkok. Reductions or the removal of in-quota tariffs could strengthen the incentive to use the TRQ access. However, tariffs of this magnitude do not fully explain the TRQ underfill for Japanese dairy product imports. A large world price differential still exists and there should be a strong demand for imports. It suggests some other factors may be involved. Technical restrictions are imposed on the TRQ access provided for dairy commodities. The access for milk powders is disaggregated into product categories with particular end-use specifications. This restricts commercial decisions on how the overall commodity access can be utilised. The access concession will be under-utilised if some of the TRQs for specialised products exceed market requirements. TRQs for Other dairy products (133.9 kt) and Designated dairy products (137.2 kt) are almost fully utilised. They can be used to import a range of products which provides greater commercial flexibility for importers. It suggests that liberalising the technical restrictions associated with the specialised dairy TRQs would lead to higher fill rates: • a State Trading Enterprise (STE) controls the Designated dairy products TRQ through a

competitive bidding process • an investigation of the benefits of deregulating the regulatory conditions on dairy

commodity access in Japan would be worthwhile.

Utilisation of TRQs in the EU The EU has a large number of TRQs for imports of meat, cereal and dairy products (table 4). TRQs for meat commodities are disaggregated into various product categories. In general the access is dispersed into specialised products with requirements on the way the imports are processed and prepared for shipment. TRQ specifications include conditions for a product to be supplied in a chilled or frozen form and with different levels of processing (i.e. carcass, bone-in, boneless, specified cuts etc): • most of the beef TRQs are almost fully utilised • pig meat TRQs are under-utilised and fill rates for poultry products are variable. The under-utilisation of EU access for some meat TRQs could reflect a limited demand for imports. This can be judged by the differential between the domestic price and the landed import price for a similar product. The large world price differential for beef is consistent with the high TRQ fill rates (table 5). An exception is the TRQ for Beef – HQ cuts (37.8 kt) where the fill rate averaged around 66% for the five years to 2002-03.

8

4. TRQ fill rates for selected products - the European Union

TRQaccess * 1998-99 1999-00 2000-01 2001-02 2002-03'000 tonnes % % % % %

Dairy productsButter ** 76.7 na na na na 100.0

Cheese - processing ** 4.5 97.8 99.9 93.8 94.2 100.0

" - whole cheddar ** 10.3 100.0 100.0 100.0 100.0 99.9

" - un-pasteurised cheddar ** 4.0 77.4 100.0 100.0 100.0 100.0

SMP 68.0 98.2 96.5 72.8 51.0 76.3

Butter 10.0 97.8 96.3 92.3 98.4 99.1

Cheese - emmental 18.4 71.5 55.1 11.8 3.8 0.0

" - gruyere 5.2 76.3 40.3 25.0 1.3 14.2

" - cheddar 15.0 99.3 98.0 98.2 99.4 99.6

" - processing 20.0 96.3 94.7 93.3 47.4 36.9

" - frozen pizza 5.3 56.2 33.8 29.8 4.3 31.0

" - other types 19.5 93.8 88.9 83.4 72.4 99.7

Meat productsSheep & goat meat ** ^ 283.8 80.7 79.3 86.9 86.7 73.9

Pig meat - loins & bellies ** 7.0 47.4 47.9 29.4 0.0 3.2

Chicken meat - frozen cuts ** 15.5 100.0 100.0 100.0 100.0 100.0

Turkey meat - frozen cuts ** 2.5 100.0 100.0 100.0 100.0 100.0

Beef - HQ cuts 37.8 88.9 72.2 59.2 41.3 68.1

" - frozen forequarter cuts ^ 50.7 100.0 59.9 55.7 70.3 100.0

" - frozen cuts *** 53.0 100.0 100.0 99.5 99.6 99.7

" - chilled HQ cuts *** 11.0 100.0 100.0 72.0 92.0 100.0

" - boneless HQ cuts *** 5.0 100.0 97.7 98.6 99.6 100.0

" - boneless HQ cuts *** 4.0 100.0 100.0 100.0 99.8 100.0

" - selected cuts 0.3 100.0 100.0 100.0 71.7 95.3

Beef offal - thin skirt 1.5 66.7 63.5 57.3 55.5 74.9

Buffalo meat - boneless cuts *** 2.3 4.4 26.2 1.5 0.0 0.0

Pig meat - carcasses 15.0 100.0 0.0 0.0 0.0 0.0

" - selected cuts 5.5 3.2 3.3 0.0 12.2 25.0

" - loins & hams *** 34.0 16.6 21.5 10.8 8.2 16.0

" - tenderloins *** 5.0 28.4 31.1 18.0 19.7 36.9

" - preserved 6.1 1.9 0.0 0.0 0.1 0.0

Chicken meat - carcasses 6.2 19.6 22.7 16.6 17.8 21.0

" - selected cuts 4.0 98.5 62.8 29.6 8.6 2.7

" - boneless cuts 0.7 100.0 100.0 100.0 100.0 100.0

Turkey meat - chilled cuts 1.0 42.3 100.0 100.0 100.0 69.2

Cereal productsWheat ** 300.0 100.0 100.0 18.9 0.0 0.0

Maize (Spain only) ** ^^ 2 000.0 79.1 67.2 66.4 70.9 66.2

Sorghum (Spain only) ** 300.0 87.5 67.2 53.6 0.2 2.7

Rice - brown (husked) ** 20.0 100.0 100.0 97.7 99.4 94.5

" - milled ** 63.0 100.0 100.0 99.4 100.0 72.9

Wheat - durum 50.0 100.0 99.9 0.0 0.0 0.0

Maize (Portugal only) ^^ 500.0 100.0 100.0 100.0 99.5 100.0

Oats - worked grain 10.0 86.9 100.0 59.4 52.4 82.1

* TRQ access for the 2002 calendar year and the 2002-03 marketing year. Source: WTO 2004a.** Calendar year TRQs for 1998 to 2002.*** TRQ access expressed in boneless weight.^ TRQ expressed in carcass (bone-in) weight terms.^^ TRQ access reduced by imported volume of maize gluten feed, brewers' grains and citrus pulp.

TRQ fill rates

9

5. World price differentials for selected EU commodities #

1999 2000 2001 2002 2003% % % % %

Butter * 125.2 128.0 125.8 155.1 149.7SMP * 65.8 18.6 9.7 49.8 37.4Cheddar cheese * 143.7 100.7 76.4 131.7 146.1Beef ** 104.8 74.1 25.6 60.5 48.6Pig meat *** 6.2 - 9.6 2.3 12.5 9.9Wheat ^ 10.7 3.1 - 7.5 - 9.3 - 19.6Rice ^^ 9.8 12.5 34.5 39.2 59.3

# Percent difference between EU domestic price and world indicator price. Source: OECD 2005. Price differential does not account for insurance, transport & handling costs. Excludes in-quota tariffs.* Based on fob export prices, Northern Europe.** Based on Australian weighted average dressed weight price for pasture fed beef.*** Based on US dressed weight price for barrows and gilts, No. 1-3, 230-250 lbs live weight, Iowa/South Minnesota.^ Marketing year price differentials for 1998-99 to 2002-03. Based on US No.2 hard red winter wheat, fob Gulf Ports.^^ Marketing year price differentials for 1998-99 to 2002-03. Based on Thai milled rice, grade b, fob Bangkok. Estimates of the world price differential are not a precise measure of the incentive to fully utilise the TRQ. The products compared are not perfect substitutes and the estimates do not account for differences in processing costs and the cost of product movement. A further consideration are the in-quota tariffs which are mostly set at 20% for the beef TRQs: • the in-quota tariff for the under-filled TRQ on Beef – HQ cuts is 20% • this would still leave a significant price differential which suggests other factors may be

affecting the utilisation of this TRQ. Market conditions were most likely the primary reason for the under-utilisation of EU pig meat TRQs. The world price differential for pig meat was relatively small throughout the five year evaluation period. In-quota tariffs vary in size in each of the TRQs. For the larger access items the in-quota tariffs were 250-300 €/t which had a tariff equivalent effect of around 15-30% over the five year period: • carcass imports are the best indicator of the price competitiveness of imported pig meat in

the EU market • the in-quota tariff on the TRQ for Pig meat – carcasses (15 kt) was equivalent to an ad

valorem rate of 17-27%. The size of the in-quota tariffs and the small world price differential suggests the incentive to fully utilise the EU pig meat access was limited. However, technical requirements could also be affecting the fill rate. For example, there was no in-quota tariff on the calendar year TRQ for Pig meat – loins and bellies (7 kt). An average fill rate of 26% and the price differential in some years suggest technical restrictions on the conditions of use may have played a role. Market conditions probably contributed to the under-fill of some poultry meat TRQs. The differential between the EU price and the world price is relatively small. TRQs for Chicken meat – frozen cuts (15.5 kt) and Turkey meat – frozen cuts (2.5 kt) had no in-quota tariffs and were fully utilised. Other TRQs with in-quota tariffs were under-utilised: • the in-quota tariff for Chicken meat – carcasses (6.2 kt) had an ad valorem equivalent

effect of around 10-13% • a tariff of this size would affect the price competitiveness of TRQ imports.

10

In-quota tariffs on a number of TRQs for pig and poultry meat are affecting the incentive to utilise the available access. Removal of the tariffs could improve fill rates. However, the total commodity access for pig meat, chicken meat and turkey meat will remain dispersed across numerous product categories with specification restrictions. These requirements would still affect the utilisation of TRQ access for these commodities. Highly prescriptive market access conditions are a non-tariff barrier that distorts commercial decisions on trade. They restrict purchasing choices by interfering with the market signals that would normally determine the characteristics of imported products. This can have a protective effect for the importing country which is magnified if the access is dispersed across TRQs for specialised products: • administration of TRQ access on a commodity basis and removing restrictions on product

characteristics would improve market access conditions and fill rates • for example, meat importers are constrained by TRQ specification restrictions on the type

of cuts and the product form – bone-less, bone-in, chilled or frozen. The composition of EU meat imports is distorted by discretionary rules on the technical specifications for product based TRQs. Initial discussions on the Doha negotiation framework canvassed the option of reductions to in-quota tariffs as way of improving market access. In some instances this could help to improve TRQ fill-rates. But there may be greater gains from liberalising the technical restrictions on TRQs. TRQ access for EU imports of butter and SMP are close to fully utilised. There was a sizeable world price differential for both products over most of the evaluation period. In-quota tariffs had an ad valorem effect of around 60-80% for butter and 20-40% for SMP. This indicates there was a strong commercial incentive to fully utilise the TRQ access when world pricing conditions were suitable. The access for cheese is dispersed across a range of TRQs for different cheese types. Fill rates for the cheese TRQs has varied. The cheddar access is close to fully utilised but the fill rates for some other cheese types is limited. To some extent this reflects the large in-quota tariffs imposed on some non-cheddar categories: • in-quota tariffs for Cheese – whole cheddar (10.3 kt), Cheese – un-pasteurised cheddar (4

kt) and Cheese – cheddar (15 kt) ranged from 138 to 210 €/t • they had a tariff equivalent effect of 5-15% over the five year period • in-quota tariffs on emmental and gruyere cheese ranged from 719 to 858 €/t. Limited fill rates for some non-cheddar types could reflect a smaller sales volume for these categories in the EU market. Lower in-quota tariffs are likely to improve the fill rates. But the small amount of access relative to the size of the market suggests other factors are involved. An analysis of the gains from a commodity treatment of cheese access would be worthwhile: • the dispersal of cheese access across specialised product categories has constrained

commercial decisions on how the concessionary access can be utilised. The EU access for cereal products appears to reflect market conditions. There are no in-quota tariffs on the TRQ for Wheat (300 kt). The world price differential also indicates the EU was a competitive supplier on world markets towards the end of the five year period: • technical conditions attached to the cereal TRQs may be less of a concern in comparison

to the access rules for meat and cheese.

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6. TRQ fill rates for selected products - Canada

TRQaccess * 1997-98 1998-99 1999-00 2000-01 2001-02'000 tonnes % % % % %

Dairy productsFluid milk ** 64.5 na na na na na

Concentrated milk ** 0.0 104.3 97.4 100.0 100.0 100.0

Yoghurt ** 0.3 87.7 95.5 100.0 100.0 100.0

Butter milk powder ** 0.9 84.3 100.0 99.6 100.0 100.0

Other milk constituents ** 4.3 99.2 100.0 100.0 100.0 98.7

Other dairy products ** 0.1 39.0 100.0 100.0 100.0 100.0

Ice cream ** 0.5 80.0 96.7 95.2 89.5 93.4

Cheese ** 20.4 99.2 100.0 100.0 100.0 100.0

Cream 0.4 62.7 82.7 84.8 100.0 100.0

Dry whey 3.2 82.9 160.4 100.0 100.0 100.0

Butter 3.3 99.9 100.0 99.3 100.0 94.5

Meat productsBeef ** ^ 76.4 105.5 100.0 100.0 100.0 100.0

Chicken meat ** # 39.8 95.2 149.4 158.9 163.6 172.1

Turkey meat ** # 5.6 93.1 99.6 97.4 99.1 95.2

Cereal productsWheat ^ 226.9 27.1 33.0 5.6 34.5 45.7

Barley ^ 399.0 12.1 18.5 8.6 8.6 30.6

Wheat products ^^ 123.6 110.2 101.7 104.7 109.0 116.2

Barley products ^^ 19.1 58.5 60.4 53.1 46.2 72.9

* TRQ access for the 2002 calendar year and the 2001-02 marketing year. Source: WTO 2006.** Calendar year TRQs for 1998 to 2002.^ TRQ does not apply to imports from the US, Mexico & Chile under the terms of NAFTA and CCFTA.^^ Expressed in whole grain equivalents. Includes flour, meal, pellets, flakes, starch, malt and food preparations.# Includes live products converted to eviscerated equivalent weight.

TRQ fill rates

Utilisation of TRQs in Canada Canada uses TRQs to constrain import access for a range of meat, cereal and dairy products (table 6). In general the TRQs for meat and dairy products have been fully utilised over the five years to 2001-02. High fill rates for specialised dairy product TRQs reflect the high rate of protection for the dairy industry. There are large differentials between world prices for the major dairy commodities and the price of domestic output (table 7). In 2002 the world price differential was around 225% for butter, 140% for SMP and 180% for cheddar cheese. In-quota tariffs are small and have little effect on the commercial incentive to use the TRQ access: • the ad valorem effect of the in-quota tariffs was 4-6% for butter and around 1% for

cheddar cheese. Meat TRQs are close to fully utilised in most years of the evaluation period. The relatively high rate of protection for chicken meat has created a strong commercial incentive to utilise the access. The in-quota tariff is small with the maximum rate of C$95/t equivalent to an ad valorem effect of around 5%. There are no specification restrictions (eg chilled versus frozen) on products imported under the TRQs for chicken and turkey.

12

7. World price differentials for selected Canadian commodities #

1998 1999 2000 2001 2002% % % % %

Butter * 90.3 144.0 173.7 176.0 226.4SMP * 106.4 127.9 65.8 57.8 138.1Cheddar cheese * 149.6 172.6 163.9 122.4 181.4Beef ** 0.0 - 1.7 2.7 1.7 0.8Wheat ^ - 10.0 4.3 4.5 5.3 0.4

# Percent difference between Canadian domestic price and world indicator price. Source: OECD 2005. Price differential does not account for insurance, transport & handling costs. Excludes in-quota tariffs.* Based on fob export prices, Northern Europe.** Based on US choice steers, 1100-1300 lbs live weight, Nebraska.^ Marketing year price differentials for 1997-98 to 2001-02. Based on US No.2 hard red winter wheat, fob Gulf Ports. In contrast, the TRQs for unprocessed cereal products are consistently under-utilised. This reflects the price competitiveness of Canadian cereal production. The world price differential on Canadian wheat is very small and the in-quota tariff on imported grain is also very small – C$1.90/t. There are no specification restrictions on products imported under the TRQs: • Canada is a major supplier of wheat on the world market and the demand for imports is

less than the available access.

Utilisation of TRQs in the United States The United States uses TRQs to constrain import access for beef and a range of dairy products (table 8). The beef TRQ provides access for manufacturing grade beef used in processed meat products. Fill rates for the five years to 2003 show the TRQ is consistently under-utilised. To some extent the US beef access was under-utilised because of market conditions. US domestic prices for manufacturing grade beef are closely linked to the price of pasture fed beef in the major exporting countries – Australia, New Zealand and Argentina. In-quota tariffs are small and have little impact on the demand for imports: • the in-quota tariff of US$44/t on beef for processing had an ad valorem effect of less than

3% over the evaluation period. This suggests the available access exceeded the demand for imports and the under-fill was due to market conditions. There are no specification restrictions on beef imported under the TRQ (eg chilled versus frozen). But there are fixed, country specific allocations of the access which can affect the utilisation rate in certain circumstances. Towards the end of an access year some suppliers may have used their full entitlement while others may have unused access. It raises the issue of access re-allocations and the restrictions imposed by the method of distributing the TRQ access. Technical conditions on distribution can affect fill rates if the TRQ is allocated to countries with insufficient productive capacity to fully utilise the access. There are a large number of TRQs for dairy products and the utilisation rates vary. The butter access is limited and close to fully utilised. This is consistent with the large differential that exists between the US domestic price and the world market price. There would be a strong commercial demand to utilise the available access.

13

8. TRQ fill rates for selected products - USA

TRQaccess * 1999 2000 2001 2002 2003'000 tonnes % % % % %

Dairy productsEvaporated, condensed milk 6.9 86.2 86.4 86.2 86.7 72.8

SMP 5.3 97.6 59.9 44.9 98.1 21.9

WMP 3.3 97.7 60.1 97.8 96.4 97.4

Butter milk & whey powder 0.3 38.5 27.4 28.0 22.6 22.6

Butter 7.0 97.9 99.6 97.6 98.0 98.6

Butter oil/substitutes 6.1 98.8 100.0 96.3 99.6 99.6

Dairy mixtures 4.1 84.8 86.0 100.0 100.0 100.0

Cheese - blue 2.9 97.2 99.4 96.2 96.6 98.9

" - cheddar 13.3 95.7 94.6 95.3 97.7 98.8

" - american 3.5 95.8 89.2 93.3 98.6 93.3

" - edam & gouda 6.8 96.1 97.6 95.7 97.6 94.6

" - Italian 13.5 98.3 93.4 93.3 99.1 97.9

" - swiss/emmental 34.5 95.1 89.8 87.8 82.6 79.9

" - processed gruyere 7.9 90.4 75.1 84.6 86.2 81.9

" - other types 48.6 97.6 89.5 95.4 98.8 95.4

" - low fat 5.5 52.6 48.1 36.5 64.5 56.3

Meat productsBeef 696.6 74.4 82.9 89.0 84.1 90.3

* TRQ access for 2003. Source: WTO 2005a.

TRQ fill rates

In 2003 the world price differential for US butter imports was around 80% (table 9). The in-quota tariff for Butter (7 kt) had an ad valorem effect of around 8-10%. After allowing for the effect of the tariff there would still be a strong incentive to import butter. There was some variation in the TRQ fill rate for SMP (5.3 kt). To some extent this reflects changes in market conditions over the evaluation period. The world price differential varied with changes in global trading conditions. There is an in-quota tariff of US$33/t with an ad valorem effect of 2-3%. The small size of the tariff suggests other factors may be affecting the utilisation rate. Cheese access is divided among several types of cheese. Most of the TRQs are close to fully utilised. In general this reflects the high rate of import protection for US cheese production. The world price differential for cheddar cheese was more than 50% in 2003. In-quota tariffs on the various forms of cheddar (i.e. fresh, natural, processed and grated) were 10-16% but there was still a strong commercial incentive to utilise the access. The TRQ underfill for some types of cheese could reflect a limited market demand. But there could also be technical requirements affecting the utilisation rate. There are fixed allocations of the individual TRQs among supplying countries. This can affect the fill rate if a portion of access is allocated to countries unable to supply the nominated quantity. The commodity access for cheese is dispersed across various specialised product categories. This restricts commercial decisions on how the concessionary access can be utilised. Reduced in-quota tariffs could improve the fill rates. But there may be greater gains from liberalising the product allocation restrictions and managing the cheese access on a commodity basis. This would allow greater commercial flexibility in the way the access is used.

14

9. World price differentials for selected US commodities #

1999 2000 2001 2002 2003% % % % %

Butter * 83.3 89.8 174.4 112.9 79.5SMP * 71.3 18.1 12.6 54.8 8.1Cheddar cheese * 79.5 34.1 46.0 49.8 53.8

# Percent difference between US domestic price and world indicator price. Source: OECD 2005. Price differential does not account for insurance, transport & handling costs. Excludes in-quota tariffs.* Based on fob export prices, Northern Europe.

Non-tariff measures affecting TRQ access A TRQ fill rate of less than 100% could be reasonably interpreted as import demand is fully satisfied and that some of the access is not required. It could be inferred from this that market returns is the only factor affecting the utilisation rate and market conditions are competitive. This would imply many buyers and sellers, full information and the freedom for firms to exit and enter the market for TRQ imports. This interpretation implies nothing is interfering with the use of market signals (i.e. price) to determine demand and supply of the imported product. It does not allow for product approval requirements, institutional arrangements or TRQ administration to affect commercial use of the concessionary access. The review of TRQ fill rate performance has considered pricing conditions and the effect of in-quota tariffs. There were some instances where low fill rates were inconsistent with tariff adjusted world price differentials. It suggested technical issues are affecting the TRQ trade in some commodities. This could happen at two levels: • technical requirements on eligibility and the allocation of TRQs • management issues in the way concessionary access for commodities is structured and

restricted by product specifications. The utilisation of a TRQ is affected by two types of non-tariff measures. First, the demand for the imported product may be restricted by conditions on who can utilise the concessionary access. It can also be restricted by the way allocations are made among the eligible users. In terms of a comparative static economic representation it affects the positioning of the demand curve relative to the TRQ access limit: • if there is no provision for traders or new entrants to participate, the volume of trade is

limited to the business requirements of those who are eligible • similarly, trade volumes can be limited if there is no provision for individual access re-

allocations among eligible users. A second consideration is NTMs that impose conditions on the characteristics of the imported product. This can reduce the substitutability of TRQ imports with the domestic output. In economic terms this is likely to limit the price responsiveness of import demand. An inelastic import demand would mean in-quota tariff reductions have a limited effect on the volume of imports and the TRQ utilisation rate: • this is especially the case if the reduction is applied to an existing in-quota tariff with a

small ad valorem effect

15

• lower in-quota tariffs will increase the value of TRQ rents but the expansion effect may be constrained by other technical requirements.

Concessionary access opportunities can be constrained at another level. Restrictions can be imposed through the way TRQ access is structured in terms of product composition. Access concessions for a commodity can be disaggregated into specialised, product specific TRQs. This reduces the flexibility of commercial players to use the commodity access according to demand conditions in the importing market. One of the aims of WTO agricultural trade liberalisation in the Uruguay Round was to provide concessionary access for highly protected commodities. The dispersal of new and existing commodity access concessions into specialised product based TRQs has limited the trade gains. Total access will be under-utilised if the quotas for some product categories are set at levels that exceed normal commercial demand: • the restrictive effect of disaggregating commodity access may be greater if NTMs on TRQ

eligibility and product characteristics are also applied to each category • reduced in-quota tariffs across all TRQ product categories may have little effect on the

volume of imports and the overall utilisation rate. Some product specification restrictions and structural issues have been highlighted in the review of TRQ fill rates. In some instances they are limiting the value of concessionary access for agricultural commodities to exporting countries. If these issues can be addressed in the Doha trade negotiations it could deliver greater trade gains than simply reducing the in-quota tariff rates. Appendix A looks at an example of what could be achieved in this area. Increased TRQ access is the most effective way of liberalising trade in the highly protected commodities because of the uncertainty in gains from reducing prohibitive over-quota tariffs. There are proposals to exempt ‘sensitive products’ from tariff reduction formulas in the Doha negotiations. If this concept is accepted the need for TRQ expansions becomes especially important (Jales, Josling, Nasser and Tutwiler 2005). But the benefits of expanding existing TRQs or establishing new ones will depend on the structure and conditions of the access concessions. Some technical issues that should be considered in the Doha negotiations include: • dispersal of commodity access across a range of specialised product categories • provision of access for specialised products with limited market demand • imposing highly prescriptive conditions on product characteristics • distributing access to supplying countries that are unable to fully utilise their entitlement. These NTMs interfere with the development of commercial trading relationships to utilise the TRQ. They also distort the product composition of the import trade because it is directed by government regulations. The benefits of TRQ access are maximised if market prices and buyer preferences have an undistorted role in determining how the access is utilised: • market access concessions should be treated as a commodity issue rather than a collection

of small, specialised product TRQs.

16

3. TRQ management issues Technical requirements associated with the management of TRQs can limit the trade gains from market access concessions. Product specification requirements and the structure of TRQ access were considered in the previous chapter. The other area of potential trade impediments are the rules that determine how the access concessions will be utilised. The issue that is raised the most is the allocation method. Importing countries use a variety of mechanisms to distribute TRQ access. For example, some TRQs have rules that fix or restrict the allocation among a limited group of users. In other cases it is determined by competitive behaviour among an unrestricted group of importers. Governments have to create mechanisms to distribute TRQ access rights. In some situations these mechanisms may be affecting TRQ utilisation rates. There are three aspects of TRQ management that need to be considered: • administration of TRQ import permits • eligibility rules for importers to participate in the TRQ • allocation rules for distributing the access to eligible importers.

Administration of TRQ import permits Most countries have specific rules associated with the administration of TRQ import permits. An examination of administration procedures for the TRQs discussed in the previous chapter revealed a number of differences. In general the rules related to product sourcing, designation of the issuing authority and the expiry period for import permits: • Appendix B has a summary of the administration procedures for managing TRQ access in

the major developed economies. Japan’s TRQs are available on a global basis apart from the access for prepared edible fat which has a country specific component. Import permits are issued by a government ministry and are valid to the end of the TRQ year. There are three instances where an STE has the authority to issue the import permits. TRQs provided by the EU are mostly offered as global access opportunities. Country specific TRQs are provided for rice and some meat and dairy products. Import permits are issued by a government authority and are generally valid for a limited period within the access year. Most of the meat TRQs have permits valid for 3-5 months and there are shorter expiry periods for cereal TRQs. Some dairy TRQs have permits valid to the end of the TRQ year. In Canada most TRQs are available on a global basis. There are country specific components for butter, cheese and beef. Two dairy product TRQs are fully country specific. Application assessments for import permits are not required for the cereal and fluid milk TRQs. All other TRQs require importers to apply for permits which are issued by a government ministry and are valid for one month. TRQs offered by the United States mostly involve a mixture of country specific and global access components. The TRQ for Butter oil/substitutes (6.1 kt) is the only access concession offered on a global basis. Import permits are issued by a government ministry in all but three instances. In all cases the permits are valid to the end of the TRQ year.

17

Expiry dates for import permits can affect TRQ fill rates in certain circumstances. Permits issued with a 12 month expiry period will not guarantee full utilisation of the access. Over time the commercial circumstances of permit holders will vary and market conditions can change. In some cases this can be an important issue because it constrains the opportunity for access re-allocations with-in the quota year. Permits valid for the full quota year give importers the flexibility to manage their purchasing requirements according to market conditions. An advantage of this approach is that the timing of imports is not determined by a limited expiry date. But there may be times when permits are allowed to lapse without a reallocation. This can occur with changes in market conditions, strategic commercial behaviour or the business performance of the rights holder. To maximise the TRQ utilisation rate import permits need to be fully transferable. There also needs to be a mechanism to facilitate timely re-allocations with-in the quota year. Limited expiry periods can facilitate the process of re-allocating import permits. However, there is a trade-off between the administration costs of issuing import permits and the commercial flexibility required by importers to utilise the access. The under-utilised dairy TRQs in Japan and the United States have import permits valid until the end of the quota year – potentially a 12 month period. EU access for cheese also uses 12 month import permits but there are five month expiry periods for permits to use the TRQs on pig and poultry meat. The issue of expiry periods and TRQ re-allocation procedures should be examined in the Doha trade negotiations: • shorter expiry periods for import permits (i.e. 3-4 months) and a re-allocation mechanism

could improve the prospects for fully utilising a TRQ.

TRQ allocation mechanisms TRQs often have rules that determine the allocation of the available access rights. Australian exporters have raised concerns about the procedures used by importing countries to allocate their TRQs. Some relate to eligibility rules for firms to participate in the TRQ. Others relate to rules for allocating access among the eligible users. A WTO review of TRQ administration showed the methods used in access allocations (WTO 2001a). In the year 2000 about half of the notified TRQs were not active (table 10). They were either temporarily suspended or had not been activated. Imports were allowed to enter the market at the in-quota tariff rate in unlimited quantities: • around two thirds of the active TRQs had unmanaged allocations • about 20% had managed allocations including a small number where importers

participated in a bidding process to gain a share of the access. TRQ allocation methods are concerned with the way access is distributed among individual importers and exporters. The choice of the mechanism has implications for the distribution of rents associated with the access. Allocation methods that limit the number of applicants may lead to non-competitive behaviour (Joerin 2001). This could contribute to TRQ under-fill if import permits are distributed free of charge and there is no reallocation of unused access. Some TRQs are allocated on a first-come, first served (FCFS) basis and others are allocated according to individual requests. In general these methods have eligibility restrictions and do not have penalties for failing to use the allocation. If applicants do not have to purchase their allocation this will not create the conditions to maximise the TRQ utilisation rate.

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10. TRQ allocation mechanisms by WTO members #

TotalMeat Dairy Cereals Fruit & Sugar Other TRQs

vegetables

TRQ not active * 91 54 108 219 23 165 660

Allocations not managed 102 60 82 83 21 123 471 - FCFS ** 26 16 18 26 13 48 147 - licence on demand *** 76 44 64 57 8 75 324

Managed allocations 39 33 22 32 6 20 152 - auctioned access 14 17 1 6 .. 4 42 - past performance ^ 25 14 13 17 6 8 83 - STE ^^ .. 2 7 6 .. 5 20 - producer groups ^^^ .. .. 1 3 .. 3 7

Other 14 35 7 23 2 12 93

Total 246 182 219 357 52 320 1 376

# Number of TRQs used by WTO members in the year 2000. Source: WTO 2001a.* Imports allowed in unlimited quantities at in-quota tariff rate - TRQ suspended.** TRQ filled on a first-come, first-served (FCFS) basis - no shares allocated to importers.*** TRQ filled according to requests by importers - pro rata reductions if request exceeds TRQ access level.^ TRQ allocated to importers according to historical import performance.^^ TRQ imports controlled by State Trading Enterprise (STE).^^^ TRQ imports controlled by producer group or association.

Product categories:

In other cases TRQ allocations have discretionary rules based on historical performance or some other criteria. These methods will often limit the opportunity for new entrants or new products to participate in the TRQ trade. If traditional users do not have to compete for access the incentive to innovate and maximise the value of the TRQ may be stifled: • over time there can be a tendency for the access to become ‘locked-in’ into servicing the

traditional end-use business activities • it tends to discourage the use of TRQ imports for new end-uses.

Eligibility and allocation rules for TRQs Eligibility rules are an aspect of TRQ administration that can affect utilisation rates in certain circumstances. Restrictions on who can apply will limit the number of potential users of the access rights. An examination of the eligibility rules for the TRQs discussed in the previous chapter revealed a variety of restrictions. Appendix C provides a summary of the eligibility rules applied by the major developed economies. Applications for TRQ access in Japan are limited to organisations or groups of firms with a specified end-use interest in the product. There are no unrestricted FCFS allocations of TRQ access. Eligibility rules have limited the number of buyers of the imported product. This may have contributed to the under-utilisation of some dairy product TRQs: • demand is limited by the processing requirements of eligible participants • there is no opportunity for traders to participate in the TRQs • traders play a useful role in strengthening competitive market behaviour and improving

product distribution.

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For most of Japan’s TRQs there is more than one commercial group designated as eligible applicants. It is not clear if there is competition for access rights between the groups or if the TRQ is informally divided into fixed shares. A key consideration for fill rates is the number of independent firms that can use the TRQ. Access levels may exceed the total requirements of the applicants while other potential users are excluded by the eligibility rules. An investigation of market behaviour among the users of dairy TRQs would be worthwhile. For example, the TRQ for SMP – school lunch (7.3 kt) is only available to the suppliers of a specified product in the domestic market. The TRQ for SMP – other purposes (85.9 kt) has five eligibility groups but the competitiveness between these groups is unclear. One of the groups is described as ‘organisations for feed manufacturers’: • it is not clear how the members of the organisations participate in the TRQ • there may be strategic behaviour to maximise returns from the TRQ. In Japan government departments are responsible for issuing import permits. But a further consideration is the process of distributing the access to eligible applicants. Most of Japan’s dairy TRQs use ‘business records and plans’ to guide allocations: • TRQs for designated dairy products (137.2 kt) and cereal products are treated differently

– a competitive bidding process is used to allocate access. Business activities introduce an element of historical performance and planned sales activity into the allocation process. This creates an incentive for individual firms to utilise their TRQ access rights. However, it is not a sufficient condition for maximising fill rates. Restrictions on the number of eligible applicants and a lack of traders will limit the demand for permits and the options for administrators to vary allocations. A range of eligibility rules are applied to the TRQs offered by the EU. In some cases the TRQ administration is performed by supplying countries. In other cases the EU is the administrator. Eligibility is often limited to importers who have been actively trading the products covered by the TRQ. There are opportunities for traders to participate in some TRQs and in a few instances an allowance is made for new entrants: • in general, eligibility for the TRQs administered by the EU is determined by historical

performance conditions • this approach encourages importers to use their access rights but it limits the pool of

eligible applicants – the number of importers with an historical record may have implications for utilisation rates.

Some TRQs have eligibility restrictions on the type of industry participants who can apply. For example, EU access for pig and poultry meat has specifically excluded retailers and restaurants. Other examples of eligibility restrictions include: • applicants must be an active importer in the past 12 months • applicants have to meet a minimum import requirement – small businesses or those who

experience a temporary decline in trading activity are excluded. EU access for some specialised cheese types has been under-utilised in recent times. Some TRQ categories may be under-utilised because the access availability exceeded demand. But eligibility rules that required applicants to be active importers in the previous 12 months are also likely to be a contributing factor. The dispersal of total cheese access into specialised TRQs increases the sensitivity of fill-rates to eligibility conditions.

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For example, the pool of applicants for a specialised TRQ like Cheese – gruyere (5.2 kt) will be smaller than the number applying to use an aggregated cheese TRQ. If market conditions reduced the TRQ rents on imported gruyere some firms may decide not to purchase any imports. This would reduce the pool of applicants in future years: • a smaller number of importers will meet the 12 month performance criteria • over time the lack of provision for ‘new’ entrants could reduce the demand for imports

through the specialised TRQ. Allocation of EU access is mostly based on the quantity requested by eligible applicants. If total requests exceed the TRQ the applications are adjusted. There is no past performance condition affecting allocations. This creates an incentive for applicants to maximise their requests and under-utilise the permit if market conditions are unprofitable. EU performance conditions and TRQ re-allocations are issues that should be investigated further. In Canada applications for TRQ permits are mostly restricted to import distributors and end-users with an interest in the product. These rules limit the pool of potential applicants for import permits. Competition for a portion of the TRQ access rights is restricted and there is no opportunity for traders to participate in the TRQs. Three of the dairy TRQs have more than one group designated as eligible applicants. One group has priority in access allocations but it is not clear how this rule is applied in practice. The remaining dairy TRQs have restricted eligibility to firms that meet specified criteria. For example, the cheese TRQ is only available to historical importers – there is no provision for new entrants to apply for import permits. There are no eligibility rules applied to the cereal TRQs and import permits are available on a FCFS basis. Meat TRQs have specified eligibility groups but there is no fixed distribution of the access between the groups. Eligibility is limited to historical import distributors and end-users of the product which limits the competition for a share of the access rights. A variety of mechanisms are used to allocate Canadian TRQs among those who satisfy the eligibility rules. Historical imports or import shares are used in many instances. These rules include a specific provision for re-allocations in the following year if the access is under-utilised by a specified amount. The TRQs for Cream (0.4 kt), Dry whey (3.2 kt) and cereal products are allocated on a FCFS basis. Administration of the TRQ for Butter (3.3 kt) is handled by the industry organisation that is responsible for setting support prices for butter and SMP. This organisation distributes the available access to processors. Allocating TRQ access rights to an industry body may not be conducive to maximising the utilisation rate: • producer groups have little incentive to maximise the TRQ utilisation rate if the imports

have a competitive affect on domestic returns. TRQ allocations based on past performance without any provision for new entrants ‘locks-in’ the pool of potential applicants. Over time competition to use the TRQ can weaken as firms exit the industry or exit the market for the imported product. In certain circumstances this may contribute to lower fill rates. This has not been an issue for Canada’s TRQs in dairy and poultry products because of the high rates of import protection. There is a strong financial incentive to fully utilise the access rights. Fill rates are high despite the eligibility restrictions on applicants.

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In situations where the TRQ rents are limited, eligibility restrictions will be a more relevant consideration. Some countries have TRQs for products where the market conditions generate relatively small quota rents. In these situations an unrestricted pool of applicants will create the competitive conditions that are necessary to maximise the utilisation rate: • provision for new entrants, opportunities for traders and liberalised eligibility restrictions

would help to improve TRQ fill rates in some markets. In the United States TRQ eligibility rules are a relevant consideration in the concessionary access for dairy products. Administration of the beef TRQ is largely performed by supplying countries. Eligibility for the TRQs on dairy products appears to be less constrained than is the case for TRQs in the other major developed economies. US dairy access is open to historical and non-historical importers. There are fixed allocations between the two groups and in most cases historical importers get a larger share of the access. This approach makes some provision for new entrants. There are administrative mechanisms for the re-allocation of under-utilised access: • exceptions to this approach are the TRQs for Butter oil/substitutes (6.1 kt), Evaporated,

condensed milk (6.9 kt) and Dairy mixtures (4.1 kt) • there are no eligibility restrictions applied to these TRQs and the access is allocated on a

FCFS basis in two of the three cases. Allocations to historical importers are based on a previous, pre-determined import level. This includes the allocations to importers designated by exporting countries in situations where they are responsible for the TRQ administration. The access allocations for non-historical importers are determined by lottery. Almost all of the TRQ access offered by the United States has country specific components. There does not appear to be a formal provision for automatic, temporary re-allocations of un-used access to maximise the global fill rate. Historically there have been situations where US beef access was re-allocated when a supplying country did not use their full access. However, this occurred at the discretion of US administrators. A requirement for TRQs to include a re-allocation mechanism would improve the fill rates for under-utilised TRQs with country specific components. This would be consistent with the principle of non-discrimination among WTO members. It is an issue for a number of TRQs in several markets and should be considered in the Doha trade negotiations.

Technical issues in TRQ management The review of TRQ administration has highlighted some technical requirements that can affect utilisation rates. If these issues can be addressed in the Doha negotiations it could deliver some important longer term trade benefits. Exporting countries will benefit from changes in TRQ administration that: • remove constraints on who can apply for TRQ import permits • facilitate access re-allocations to users and suppliers with un-satisfied demand. Eligibility restrictions on who can utilise the TRQ access can have a detrimental effect on fill rates in certain circumstances. Utilisation rates depend on the business performance of those who meet the eligibility conditions. A restricted pool of applicants could limit the demand for imports permits to a level that is less than the available access.

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Liberalisation of eligibility rules would increase the competition for import permits and expand the opportunities for trade by increasing the number of potential importers. Priority can be given to the traditional users of the TRQ or end-users with specialised requirements. But an opportunity for new entrants is required to maximise the prospects for fully utilising the available access. For some TRQs different eligibility groups may be necessary to foster business relationships for alternative end-uses of the imported product. In these situations the overall fill rate may be affected by the number of applicants in a particular group. It could also be affected by short term changes in the market conditions for a particular end-use. Total applications by a particular group may be less than the amount of access provided. A mechanism is required to facilitate the re-allocation of unused access to other eligibility groups. The overall utilisation rate will be maximised if there is greater flexibility in the allocation of access shares to the different eligibility groups. Competition for TRQ import permits is a key factor in creating the conditions for maximising the utilisation rate. Market driven allocation methods offer the best approach (Skully 1999). Access rights should be fully transferable among the approved importers. A mechanism for re-allocations before the end of the quota year is another essential requirement. Limited expiry periods for import permits would facilitate this process: • for some commodities in particular markets there are potentially significant trade benefits

in TRQ re-allocations (Appendix A) • auctioning transferable access rights would create the conditions for market driven re-

allocations provided the auction was open to any interested firms • a requirement for TRQs to have an effective re-allocation mechanism is an issue that

should be addressed in the Doha trade negotiations. TRQ allocations based on requests by importers are not conducive to maximising fill rates because there is no price based competition for a share of the access (Jales, Josling, Nasser and Tutwiler 2005). A lack of performance requirements encourages importers to maximise their requests to use the access. They could subsequently allow a portion of the rights to lapse if commercial considerations reduce their demand for imports. Historical performance conditions would increase the incentive for importers to fully utilise the access granted against their requests. By itself this requirement would strengthen the conditions for maximising TRQ fill rates. But the effectiveness of this discretionary approach would be stronger if it was combined with a mechanism for re-allocations before the end of the quota year.

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4. General requirements for import approval TRQ access conditions are not the only source of NTMs affecting trade. Market access is also conditional on compliance with the general requirements for import approvals. This refers to the regulations that certify an imported product can be sold in the market place. Australian exporters have raised concerns about the impact of some of these requirements. The general approval requirements imposed by importing countries can impede trade in two ways. They can delay or disrupt the supply of imports to the market. They can also increase marketing and distribution costs which reduces the price competitiveness of the imported product. These technical requirements affect trade in markets protected by tariffs as well as markets offering concessionary access through TRQs. It is important to recognise that many of these technical requirements are not trade barriers imposed to protect the domestic industry. There are differences in business practices and regulatory standards between countries that translate into border requirements imposed on imports. If the requirements do not discriminate against imports they will generally reflect the cost of doing business in a foreign country. However, some import approval regulations are excessively detailed and can be unnecessary trade impediments. In some cases they provide additional protection for domestic producers. Efforts to reform these regulatory requirements are important as they expand the opportunities for trade. But it is often difficult to know what issues have the greatest pay-off and should be a priority for government representations: • it is important to focus on the issues that have a potentially bigger pay-off in terms of

trade growth • for example, the technical requirements affecting TRQ fill rates are an important issue for

trade in meat and dairy products in some markets • some NTMs are relatively small trade impediments and would have a lower priority in

terms of trade policy representations. In recent times there has been an increased focus on the technical barriers to trade. The WTO Committee on Technical Barriers to Trade provides a forum for member countries to raise specific issues. For agricultural products the most commonly cited issue is labelling (OECD 2003a). But there are other concerns often raised by commercial players. For meat, cereal and dairy products the most commonly cited NTMs that are regarded as trade impediments are regulations on: • product testing and import certification approvals • processing methods and product composition (i.e. food standards) • labelling • packaging and distribution. The issues covered by these categories range from regulations affecting the content of the product through to label specifications (table 11). It is beyond the scope of this study to evaluate the relative importance of each issue. But a brief review of the nature of the main issues may help to put their relative importance in perspective.

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11. Technical requirements affecting agricultural trade

Technical requirements Specific issues

Product testing and import Applications for import permits, licences certification approvals Registration conditions for approved importers, exporters

Customs approvals - certification of country of originProduct testing - labelling verification, composition,

Processing methods and Regulations on ingredients, additives - colourings, flavourings, stabilizers product composition Public health certifications from exporting country

Processing plant inspections, certificationsTrace-back requirementsInput declarations - GMOs, HGPs, Halal livestock slaughter

Labelling Name, weight, composition, shelf lifeProduct composition, manufacturing recipes, GMO declarationsLanguage of importing countryCounty of originTrace back contact details

Packaging and distribution Product used-by dates, minimum shelf life requirementsProduct storage - refrigeration requirementsDesignated distribution, sales channelPackaging regulations - container size, etc

Sources: OECD 2003a; USITC 2001

Import certifications Most countries require an imported product to be registered before it can enter the market. The registration process varies because there are no standard procedures set by the WTO or related international organisations. In some countries it can be a lengthy process that involves the submission of detailed information on product characteristics. Registration requirements are often more detailed and time consuming for processed food products. Some countries require specific information such as ingredient listings, product composition, product formulations, packaging materials and the sourcing of product inputs. In some cases a sample of the imported product is required for analysis. The requirements can sometimes require the provision of commercially sensitive information that exporters are reluctant to provide without adequate safeguards. The approval process may involve dealing with more than one government agency. Assembling the information and dealing with several different agencies can be a costly exercise and lead to delays in obtaining approval. These costs are magnified when approvals are required for a number of markets: • trade can be disrupted if there is a requirement for products to be re-submitted for

certification when there is a change in product characteristics. In some countries the product certification process is significant one-off cost. For a small business this can be a major impediment to trade. The requirements for raw commodities or semi-processed products like meat and grains are generally less onerous than is the case for processed food products. Dairy products such as ingredient milk powders, infant formula, cheese and dairy mixtures can face a more demanding approval process.

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Product testing and approval is a necessary aspect of doing business in a foreign market. In most countries the competing domestic product is subjected to a similar approval process. This typically involves meeting specified food safety standards. But some countries adopt a highly cautious approach to import approvals because of consumer sensitivity to the safety of foreign sourced food products: • a more stringent testing procedure for imports could be discriminatory and impose higher

certification costs. To some extent the principle of mutual recognition could be applied to reduce the costs of certification. This would require comparative assessments of product certification procedures. An import certification obtained from a third country with higher standards could be used to speed-up the approval process in other markets: • in general import approvals are a one-off cost and a limited trade impediment • but a case study investigation of the import certification process in a country with a

reputation for extensive procedures would be a useful exercise.

Processing methods and product composition The technical requirements that relate to product characteristics primarily involve food and hygiene standards. It covers a variety of issues such as product composition, the use of additives, trace-back requirements and processing plant inspections. The requirements are not necessarily a trade barrier if they are based on recognised scientific principles and uniformly applied to domestic and imported products. CODEX standards provide an international reference point on issues such as food standards, additives and chemical residues. But there is no harmonization of food and hygiene standards in world trade. Commercial players often raise questions about the justification for particular standards imposed by an importing country: • these concerns are best handled through bilateral representations • in making these representations it is important to encourage importing countries to align

their technical requirements to the CODEX standards. There may be instances where the hygiene standards imposed by an importing country exceed those applied under Australian regulations. Compliance with these standards can impose extra costs. But if the conditions apply equally to the domestic output of the importing country it is difficult to argue for a change in the import requirements. Highly stringent hygiene standards on imports can provide an element of trade protection for domestic producers. This is sometimes evident in the conditions imposed on processing plant inspections. Plant inspection requirements can be a trade impediment if they limit the number of sites that have approval to supply product to the importing country. Processing plant inspections are especially relevant for Australian exporters of meat and dairy products. Some importing countries impose high standards of hygiene and have regular plant inspections. This increases the cost of production and it is often unclear if the same standards are applied to processing plants in the importing country. The plants often have to comply with different standards set by a number of importing countries: • in general plant inspection requirements are a limited trade impediment • but a comparative assessment of plant inspection standards would be worthwhile.

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Product traceability is a technical issue that is becoming more important. Some countries are looking to impose traceability requirements on imports of certain food products. This is likely to require data on the origin of the inputs used in the production process. For example, it may become necessary to identify the source animals for imported meat products along with the type and source of feed inputs. These requirements are being driven by consumer concerns over food safety issues. It will lead to higher production costs for imports and it will be important to ensure the same rules apply to the domestic product in the importing country. The cost of establishing a product traceability mechanism could be a significant trade impediment. So it will be important to verify that any requirements are necessary from a food safety perspective. Some product standard requirements can be significant trade impediments. The application of CODEX standards is important for developing greater consistency in the regulations imposed by importing countries. Market access conditions can be improved by persisting with efforts to remove arbitrary and excessive standards.

Labelling requirements Labelling requirements is the non-tariff measure that is most often cited by exporters as a barrier to trade. It is especially relevant for the processed and semi-processed food products that are packaged for direct retail sales. There is no standard approach set by the WTO or related international organisation. Regulations covering the minimum requirements are set independently by a government agency in the importing country. Commercial considerations will generally require a product label to contain a certain amount of information to support product marketing. However, most countries have imposed some minimum requirements to ensure consumers are adequately informed about the content and sourcing of the product. The requirements vary but they typically include: • product name, container weight, use-by dates and contact details of the supplier • some key information in the native language of the importing country • nutritional information including some details on the product composition and the

inclusion of specified additives and preservatives. The minimum labelling requirements generally apply to both imported and domestic products and would not be regarded as a non-tariff trade barrier (USITC 2001). But situations can arise where additional labelling rules are imposed on imports. It may be to address a particular food safety concern or it may be a protective measure that highlights the source of supply in the mind of the consumer: • discriminatory treatment of imports through arbitrary labelling requirements is not

consistent with WTO principles • labelling issues have become an important focus of trade policy representations through

the TBT agreement. GMO labelling requirements have become a prominent issue in recent years. Some countries require product labels to note the use of GMO inputs. It is a contentious issue because there is no evidence the products are harmful for consumers. If this were the case the products would not be approved for sale on public health grounds: • this requirement is generally applied to imports and domestic products but it only affects

the label on imports if GMOs are banned in the importing country.

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Labelling rules are an important issue for exporters because it can lead to higher distribution costs. These costs are multiplied if labels have to be adjusted for individual markets. This can be a significant trade impediment particularly for small businesses. For each market there is a one-off expenditure on preparing new packaging and labels: • but different labels also require a separate stock keeping unit for each market • this will involve additional inventory management costs which can be significant if excess

stock has to be re-labelled for sale into other markets. Often the extra information included on the label has limited value for the consumer. Efforts to remove arbitrary labelling requirements will improve the cost competitiveness of imports. Labelling issues can be a trade impediment but they are often product specific issues. It is important to maintain a strong interest in these issues through the TBT Agreement: • a case study investigation on the cost of labelling changes for a product sold into several

overseas markets would be a useful exercise • it would help to assess the benefits of seeking greater consistency in the application of

minimum labelling requirements.

Packaging and distribution Requirements on packaging and distribution appear to be less of a concern for exporters than some other NTMs. Restrictions through the designation of retail sales channels for imports are rare. There are some cases where packaging restrictions are imposed through a differential tariff treatment. For example, bulk imports may be treated more favourably than small retail sized packs of the same product: • packaging restrictions can limit the opportunities for trade if re-packaging costs in the

importing country places imports at a competitive disadvantage. Shelf-life requirements are related to food safety concerns. Many countries require food manufacturers to nominate a shelf life for the products they offer for sale. It is in the interests of export suppliers to voluntarily provide the information or comply with shelf life regulations in order to maintain consumer confidence. If highly restrictive shelf life rules are imposed on imports it is important to verify the justification for these requirements: • packaging and distribution issues do not appear to be a major trade impediment and would

seem to be less important than some other NTMs.

Non-tariff measures and import competing industries The general requirements for import approvals can also be considered from the perspective of import competing industries in Australia. NTMs apply to most imported food products and they can affect the opportunities for trade. For example, Australia has quarantine controls and requires imports to meet the food standards that apply to domestic products. There have been situations where changes to a non-tariff measure have increased the competitive pressure from imports: • for example, in the early 1990’s there was a partial relaxation of Australia’s quarantine

restrictions on imports of cooked pig meat • a product specification restriction was imposed and it led to a significant increase sales of

imported ham in the Australian market.

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An important issue for import competing industries is compliance with domestic regulatory conditions by imported products. These requirements impose compliance costs on domestic products. If the same conditions apply to imported products there is no cost disadvantage for the home sourced products. If the Australian domestic standards are revised it is important to ensure the requirements for imports are aligned with the new standards. Food Standards Australia and New Zealand (FSANZ) is responsible for the Food Standards Code which covers product composition and labelling requirements for food products sold in Australia. The Australian Quarantine and Inspection Service (AQIS) is responsible for import approvals and product testing to verify compliance with these requirements. Information exchanges between AQIS and FSANZ are important for regulatory alignment. An example of a technical issue that could affect an import competing industry is the question for chemical residues in food products. The Food Standards Code determines the acceptable level of chemical residues in food products. Domestic products have to comply with these requirements. But import competing industries may face a competitive disadvantage if the same standards are not imposed on imports. A chemical residue issue affecting the honey industry was investigated as an example of the effectiveness of the alignment procedures. In 2003 concerns were raised about the level of nitrofuran residues in imported honey. Nitrofurans are a class of antibiotics that were on a list of banned veterinary chemicals in Australia: • there were public health concerns about a possible link to cancer in humans • domestic producers were worried about a spill-over effect on consumer demand. The Food Standards Code did not incorporate a specific residue limit for nitrofurans because it was a banned substance (FSANZ 2004). Australian honey producers were able to comply with the standard of no residues even though there was no reliable test available. Imported honey that may have contained nitrofuran residues complied with the Food Standards Code because there was no explicit residue requirement: • AQIS granted import approvals according to the certification procedures • there was an anomaly in the legality of non-listed chemical residues. FSANZ conducted a scientific risk assessment of imported honey and found the nitrofuran residues were very low and there were no public health concerns. The anomaly in the legal requirements imposed on residues in import honey was clarified. FSANZ also advised AQIS to begin testing for residues in imported honey and a small number of import consignments were rejected for containing residues. Subsequently AQIS established a testing procedure for nitrofurans residues. The procedure was consistent with international standards and could be used to enforce compliance. Testing of imports began in 2004 and the standards were aligned for imports and domestic products: • an import competing industry could be at a competitive disadvantage if changes in

domestic standards are not automatically aligned with import requirements.

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4. Concluding comments There is a strong focus on improving global market access conditions for agricultural products through tariff reductions and expansion in TRQ access. But non-tariff measures can limit the gains from these improvements in market access. The Doha trade negotiations provides an opportunity to address some of these trade impediments. Australian exporters have concerns about various NTMs that restrict the opportunities for trade. Some of these concerns need to be addressed although it is important to remain focused on the market access issues that offer the largest trade benefits. Government resources are limited so attention should centre on the non-tariff barriers that offer the greatest opportunity for trade growth. A review of TRQ fill rates examined pricing conditions and the effect of in-quota tariffs. There were instances where low fill rates were inconsistent with the tariff adjusted world price differential. It indicates other technical requirements are affecting TRQ trade outcomes. The Doha negotiations provide an opportunity to address these issues. Liberalising some of the restrictive technical requirements attached to existing TRQs could provide significant trade benefits for exporting countries like Australia. The gains will come from importing countries meeting their existing obligations to provide concessionary access for highly protected commodities. These NTMs should also be considered if new TRQs are provided with the adoption of the ‘sensitive product’ concept. In some markets there are technical issues in the way TRQ commodity access is structured and restricted by product specifications. There are also technical restrictions associated with the management of TRQs that reduce competition and limit the opportunity to maximise fill-rates. These issues relate to eligibility requirements for firms to participate in the TRQ and the associated allocation mechanisms: • addressing these issues in the Doha trade negotiations could be more important than

reducing in-quota tariff rates. Technical restrictions attached to TRQs interfere with the development of commercial trading relationships. In some cases they can distort the product composition of the trade. These trade impediments can cause the TRQ access to be under-utilised which provides extra protection for producers in the importing country. Fill rates are likely to improve if there are reforms in areas such as: • treating the market access concessions as a commodity issue rather than a collection of

small, specialised product TRQs with specification restrictions • removing arbitrary, highly specialised product specifications • changing eligibility rules to obtain a larger, competitive pool of TRQ users • making provision for new entrants to participate in TRQs • requiring TRQs to have a re-allocation mechanism for unused access. Increased TRQ access is the most effective way of liberalising trade in the highly protected commodities. Realising the benefits will depend on the structure and regulatory conditions of the TRQ access concessions. The NTMs on TRQ access should be a key focus for efforts to liberalise trade. Other NTMs affecting the general requirements for import approvals are also important but should perhaps have a lower priority.

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Concerns are often raised about the compliance costs for regulations on import certifications, packaging and distribution requirements and labelling rules. In general these issues warrant some attention through the TBT Agreement. The removal of arbitrary labelling requirements and import approval procedures would improve the competitiveness of imports and increase trade opportunities. Addressing these NTMs is important but some further work needs to be done to assess the potential size of the benefits. Some of the technical issues in TRQ administration appear to offer a higher immediate pay-off. There are also some NTMs that can impose significant costs on exporters on both TRQ and non-TRQ product. They could become more important trade impediments in the future. These include: • product standards and composition • hygiene standards and plant inspection requirements • product traceability rules. The aim of this study was to raise awareness of the constraints imposed by non-tariff barriers. It has highlighted some issues that should be considered in Doha trade negotiations. There are several TRQ administration issues and some general technical requirements that should be investigated and their trade impact quantified. This would provide some guidance for future government representations on technical trade issues.

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Appendix A: TRQ structure and product specification restrictions Reforms to the structure and product specification restrictions of concessionary access could potentially provide some significant trade gains for particular commodities. To highlight the effect of these access conditions some examples of the restrictiveness of existing TRQs were examined.

Commodity or product specific TRQs An example of structural restrictions on the TRQ access for a commodity is the treatment of cheese imports in some markets. Instead of providing a single commodity TRQ for cheese some countries have disaggregated the access into various product specific TRQs. This applies to cheese access in the EU and the United States. This is unusual because other markets that offer concessionary access for cheese do not place restrictions on individual cheese types. Treating access concessions on a commodity basis provides greater freedom for commercial players to decide the type of imports. The access concession is used according to the way market requirements change over time: • imposing access restrictions on specialised product categories can lead to situations where

some TRQs are fully utilised and others are under-filled • the overall access for the commodity is under-utilised. The EU has a set of marketing year TRQs for six categories of cheese which are available on a global basis (table 12). Each TRQ is managed separately and the access is divided into two six-month periods. A list of approved importers is determined each year according to the eligibility requirements. Importers are allowed one licence application under each TRQ and the licence is only valid until the end of the quota year. 12. Unused access for EU product specific cheese TRQs #

1998-99 1999-00 2000-01 2001-02 2002-03

CheddarAvailable access '000 tonnes 10.2 12.6 15.0 15.0 15.0 - unused '000 tonnes 0.1 0.2 0.3 0.1 0.1 - fill rate % 99.3 98.0 98.2 99.4 99.6

Other cheeses *Available access '000 tonnes 46.0 57.2 68.4 68.4 68.4 - unused '000 tonnes 7.2 15.1 28.4 43.8 39.2 - fill rate % 84.3 73.6 58.5 36.0 42.7

TotalAvailable access '000 tonnes 56.2 69.8 83.4 83.4 83.4 - unused '000 tonnes 7.3 15.3 28.7 43.9 39.3 - fill rate % 87.1 78.0 65.6 47.4 52.9

# Refers to the marketing year, minimum access quotas for cheese. Source: WTO 2004a.* Includes TRQ categories for emmental, gruyere, processing, frozen pizza and other types (see table 4).

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Licence applications must specify the total quantity requested and importers are limited to no more than 10% of the quantity available in a six-month period. If the total applications are less than the quantity available in the first access period the residual amount is made available in the following six-month period: • there is no provision for residual access in the final six-moth period to be carried over or

made available to ‘new entrants” (i.e. firms that did not meet the eligibility conditions of being an active trader in the previous 12 months)

On a commodity basis the total TRQ for cheese is currently fixed at 83.4 kt. The cheddar component was almost fully utilised during the evaluation period. But most of the access is allocated to other cheese types which was significantly under-utilised. In 2002-03 the overall fill rate for the marketing year cheese access was 53%. If the same group of TRQs were managed on a commodity basis a higher fill rate would have been achieved. The unused access in the non-cheddar types could have been used to import cheddar. This could be achieved while retaining the existing preference structure for different types of cheese in the six-monthly allocations: • unused access could be released on a non-product specific basis immediately after the

determination of applications for the different cheese types • ‘new entrants’ should be allowed to apply for this access. The same approach could apply to the management of US cheese access. The US has TRQs for nine cheese categories (table 13). They involve a combination of country specific and global allocations. The access for cheddar and a number of other categories is almost fully utilised. But a few categories are under-utilised and the residual access could have been used to import other cheeses such as cheddar, Italian, edam and gouda: • release of the unused access on a non-product specific basis would facilitate re-allocations

between supplying countries. 13. Unused access for US product specific cheese TRQs #

1999 2000 2001 2002 2003

CheddarAvailable access '000 tonnes 11.2 13.3 13.3 13.3 13.3 - unused '000 tonnes 0.5 0.7 0.6 0.3 0.2 - fill rate % 95.7 94.6 95.3 97.7 98.8

Other cheeses *Available access '000 tonnes 121.7 123.2 123.2 123.2 123.2 - unused '000 tonnes 6.9 14.9 12.6 10.1 13.9 - fill rate % 94.3 87.9 89.7 91.8 88.7

TotalAvailable access '000 tonnes 132.9 136.4 136.4 136.4 136.4 - unused '000 tonnes 7.4 15.6 13.3 10.4 14.0 - fill rate % 94.5 88.6 90.3 92.4 89.7

# Refers to the calendar year concessionary access for cheese. Source: WTO 2005a.* Includes TRQ categories for blue cheese, american, edam & gouda, Italian, swiss/emmental, processed gruyere, low fat and other types (see table 8).

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Restrictions on TRQ product specifications An example of product specification restrictions on the TRQ access for a commodity is the treatment of meat imports in some markets. Some countries have disaggregated TRQ access with restrictions imposed on the characteristics of the imported products. This applies to commodities such as beef, pig meat and poultry meat in the EU (table 14). The EU has a number of TRQs with conditions requiring products to be supplied in a chilled or frozen form and with different levels of processing (i.e. bone-in, boneless, specified cuts etc). Arbitrary specification restrictions on specialised TRQs limit the freedom of importers to decide how to use the commodity access to meet consumer preferences: • in some situations these sorts of restrictions can affect the overall utilisation of

concessionary access for a commodity. 14. Restrictions on product specifications for EU meat TRQs

TRQ Otheraccess * b/less bone-in chilled frozen conditions

TRQs for beef productsBeef - HQ cuts 37.8 " - frozen forequarter cuts 50.7 To be used for processing

" - frozen cuts 53.0 " - chilled boneless HQ cuts 11.0 Cuts from pasture fed animals,

22-24 months of age, < 461 kg lw

" - boneless HQ cuts 5.0 Cuts from pasture fed animals,

20-24 months of age, < 461 kg lw

" - boneless HQ cuts 4.0 Cuts from pasture fed animals,

< 461 kg lw

" - selected cuts 0.3Beef offal - thin skirt 1.5Buffalo meat - boneless cuts 2.3

TRQs for pig meat productsPig meat - loins & bellies ** 7.0 Chilled loin cuts; Frozen belly cuts

" - carcasses 15.0 " - selected cuts 5.5 " - loins & hams 34.0 " - tenderloins 5.0 " - preserved 6.1 Preserved products

TRQs for poultry meat productsChicken meat - frozen cuts ** 15.5 Restricted set of cuts

" - carcasses 6.2 " - selected cuts 4.0 " - boneless cuts 0.7Turkey meat - frozen cuts ** 2.5 Restricted set of cuts

" - chilled cuts 1.0

* TRQ access for the 2002 calendar year and the 2002-03 marketing year. Source: WTO 2001b, 2004a.** Calendar year TRQs.

Product specifications:

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Appendix B: TRQ administration procedures 15. Administration of selected TRQs - Japan

Availabilityof TRQ Issuing Expiry Eligibility

access * authority of permit rules

Dairy productsEvaporated milk Global Government Ministry End of TRQ year ** yes

SMP - school lunch " " " yes

" - other purposes " " " yes

Whey - feed purposes " " " yes

" - infant formula " " " yes

" - mineralised " " " yes

Butter & butter oil " " " yes

Prepared edible fat Mixed " " yes

Other dairy products Global " " yes

Designated dairy products " STE *** End of TRQ year yes

Cereal productsWheat Global STE ^ End of TRQ year ^^ yes

Barley " " End of TRQ year ^^ yes

Rice " Government Ministry End of TRQ year yes

* A mixed distribution of TRQ access has country specific and global components. Source: WTO 2004b.** TRQ allocations made 6 times per year.*** TRQ managed by State Trading Enterprise (STE), Agriculture and Livestock Industries Corporation (ALIC).^ TRQ managed by State Trading Enterprise (STE), Food Agency.^^ Bids for TRQ allocations made once a year.

Applications for TRQ import permits:

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16. Administration of selected TRQs - the European Union

Availabilityof TRQ Issuing Expiry Eligibility

access * authority of permit rules

Dairy productsButter ** Country specific Authority in UK 3 months yes

Cheese - processing ** " Member State Authorities " yes

" - whole cheddar ** " " " yes

" - un-pasteurised cheddar ** " " " yes

SMP Global Member State Authorities End of TRQ year yes

Butter " " " yes

Cheese - emmental " " " yes

" - gruyere " " " yes

" - cheddar " " " yes

" - processing " " " yes

" - frozen pizza " " " yes

" - other types " " " yes

Meat productsSheep & goat meat ** Country specific Member State Authorities 3 months yes

Pig meat - loins & bellies ** Global " 5 months yes

Chicken meat - frozen cuts ** Mixed " " yes

Turkey meat - frozen cuts ** " " " yes

Beef - HQ cuts Country specific " 3 months yes

" - frozen forequarter cuts Global " 4 months yes

" - frozen cuts " " 3 months yes

" - chilled boneless HQ cuts " " " yes

" - boneless HQ cuts " " " yes

" - boneless HQ cuts " " " yes

" - selected cuts " " " yes

Beef offal - thin skirt Mixed " End of TRQ year yes

Buffalo meat - boneless cuts Country specific " 3 months yes

Pig meat - carcasses Global " 5 months yes

" - selected cuts " " " yes

" - loins & hams " " " yes

" - tenderloins " " " yes

" - preserved " " " yes

Chicken meat - carcasses " " " yes

" - selected cuts " " " yes

" - boneless cuts " " " yes

Turkey meat - chilled cuts " " " yes

Cereal productsWheat ** Global Member State Authorities 7 days yes

Maize (Spain only) ** " Authority in Spain na yes

Sorghum (Spain only) ** " " na yes

Rice - brown (husked) ** Country specific Member State Authorities 3 months yes

" - milled ** " " " yes

Wheat - durum Global Member State Authorities 7 days yes

Maize (Portugal only) " Authority in Portugal na yes

Oats - worked grain " Member State Authorities 1.5 months yes

* A mixed distribution of TRQ access has country specific and global components. Source: WTO 2001b.** Calendar year TRQ.

Applications for TRQ import permits:

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17. Administration of selected TRQs - Canada

Availabilityof TRQ Issuing Expiry Eligibility

access * authority of permit rules

Dairy productsFluid milk ** Global no

Concentrated milk ** Country specific Government Ministry 1 month yes

Yoghurt ** Global " " yes

Butter milk powder ** Country specific " " yes

Other milk constituents ** Global " " yes

Other dairy products ** " " " yes

Ice cream ** " " " yes

Cheese ** Mixed " " yes

Cream Global " " yes

Dry whey " " " yes

Butter Mixed Government Ministry ^^ " yes

Meat productsBeef ** Mixed Government Ministry 1 month yes

Chicken meat ** Global " " yes

Turkey meat ** " " " yes

Cereal productsWheat Global no

Barley " no

Wheat products " no

Barley products " no

* A mixed allocation has country specific and global components. Source: WTO 2001c.** Calendar year TRQ.^ General import permits (GIPs) freely available for imports for personal use by Canadian residents.^^ Administration of allocations passed on to producer organisation for distribution to processors.^^^ General import permits (GIPs) freely available until TRQ access limit is reached - standard GIP conditions apply. Imports monitored by customs entries (Revenue Canada) for application of lower TRQ tariff rate.

"

No TRQ import permits issued ^

Applications for TRQ import permits:

No TRQ import permits issued ^^^

"

"

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18. Administration of selected TRQs - USA

Availabilityof TRQ Issuing Expiry Eligibility

access * authority of permit rules

Dairy productsEvaporated, condensed milk Mixed no

SMP Mixed Government Department End of TRQ year yes

WMP Mixed " End of TRQ year yes

Butter milk & whey powder Country specific " End of TRQ year yes

Butter Mixed " End of TRQ year yes

Butter oil/substitutes Global " End of TRQ year yes

Dairy mixtures Mixed no

Cheese - blue Country specific Government Department End of TRQ year yes

" - cheddar Mixed Government Department End of TRQ year yes

" - american Mixed Government Department End of TRQ year yes

" - edam & gouda Mixed Government Department End of TRQ year yes

" - Italian Mixed Government Department End of TRQ year yes

" - swiss/emmental Mixed Government Department End of TRQ year yes

" - processed gruyere Mixed Government Department End of TRQ year yes

" - other types Mixed Government Department End of TRQ year yes

" - low fat Country specific Government Department End of TRQ year yes

Meat productsBeef Mixed yes

* A mixed allocation has country specific and global components. Source: WTO 2001d^ Import permits freely available until TRQ access limit is reached. Imports monitored by customs entries (US Customs Service) for application of lower TRQ tariff rate.

Applications for TRQ import permits:

No TRQ import permits issued ^

No TRQ import permits issued ^

No TRQ import permits issued ^

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Appendix C: TRQ eligibility and allocations 19. Eligibility and allocation rules for selected TRQs - Japan

TRQ fill Eligibility rules for TRQ accessrates * importer to share in TRQ access ** allocation method ***

Dairy productsEvaporated milk > 90% (1) Importers & sellers/users in Okinawa Business records, plans ^

(2) Users of evaporated milk in other products (for all eligible groups)

SMP - school lunch 25-50% Suppliers of SMP for school lunch Business records, plans ^

SMP - other purposes 25-50% (1) Users of SMP for mixed feed Business records, plans ^

(2) Organisations for feed manufacturers (for all eligible groups)

(3) Suppliers of SMP to feed manufacturers

(4) Producers of recombined milk in Okinawa

in previous year

(5) Producers of infant formula in Okinawa

Whey - feed purposes 50-75% (1) Users of whey for mixed feed Business records, plans ^

(2) Organisations for feed manufacturers (for all eligible groups)

(3) Suppliers of whey to feed manufacturers

Whey - infant formula 25-50% Producers of infant formulas with own plant Business records, plans ^

Whey - mineralised 25-50% (1) Users of mineralised whey for non-milk Business records, plans ^

products in previous year (for all eligible groups)

(2) Users of mineralised whey for milk products

in current year with historical performance

Butter & butter oil < 25% (1) Producers of recombined milk in Okinawa Business records, plans ^

in previous year (for all eligible groups)

(2) Producers of infant formula in Okinawa

(3) Suppliers to international airlines

(4) For use at international trade fairs

Prepared edible fat filled (1) Users of edible fat for other products Business records, plans ^

(2) Organisations for users of edible fat (for all eligible groups)

(3) Suppliers of edible fat to users

Other dairy products filled (1) Historical importers of eligible products (1) Business records, plans ^

(2) Users of eligible products that were (2) Business records, plans ^

buyers/users in previous year

(3) Ice cream producers with own plant (3) Business records, plans ^

(4) Importers & sellers/users of eligible products (4) First come, first served

that imported dairy products in previous year (not eligible for redistributions)

Designated dairy products > 90% Historical importers that meet certain criteria Competitive bidding ^^^

Cereal productsWheat > 90% Cereal traders (active for past 3 years) ^^ Competitive bidding ^^^

Barley filled Cereal traders (active for past 3 years) ^^ Competitive bidding ^^^

Rice filled (1) OIS Rice traders (active for past 3 years) ^^ Competitive bidding, OIS ^^^

(2) SBS Rice traders (active for past 3 years) ^^ Competitive bidding, SBS ^^^

* Based on TRQ fill rates for the 2000-01 to 2004-05 period. Sources: WTO 2004b, 2005b. TRQ designated as 'filled' for average fill rate > 98%.** Eligibility restrictions on who can apply for import permits under the TRQ.*** Rules or process for allocating TRQ access among successful applicants.^ Allocations depend on factors such as annual output of end product, usage/stocks of imported product in the previous year and planned usage of imports in current year. Unused allocations that are returned are redistributed in later allocations.^^ Participation in bidding for cereal TRQs requires annual imports/exports of wheat and/or barley > 20,000t for the past 3 years. Must be a Japanese business with > 1 billion yen of owned capital & staff with > 3 years experience in cereal trading. Participation in OIS (SBS) bidding for rice TRQ requires annual imports/exports of rice > 10,000t (20t) for the past 3 years. Must be a Japanese business with > 1 (0.1) billion yen of owned capital & staff with > 3 (1) years experience in rice trading.^^^ Allocations made in order of preference to bids with the lowest import price - bids must be below the ceiling price.

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20. Eligibility and allocation rules for selected TRQs - the European Union

TRQ fill Eligibility rules for TRQ accessrates * importer to share in TRQ access ** allocation method ***

Dairy productsButter filled Valid certificate from exporting country Export certificate quantity

Cheese - processing > 90% " "

" - whole cheddar filled " "

" - un-pasteurised cheddar > 90% " "

SMP 75-90% Importers, exporters active in past 12 months ^ Quantity requested ^^

Butter > 90% " "

Cheese - emmental 25-50% " "

" - gruyere 25-50% " "

" - cheddar filled " "

" - processing 50-75% " "

" - frozen pizza 25-50% " "

" - other types 75-90% " "

Meat productsSheep & goat meat 75-90% Valid certificate from exporting country FCFS

Pig meat - loins & bellies 25-50% Pig meat traders active in past 12 months ^ Quantity requested ^^

Chicken meat - frozen cuts filled Active importers (> 99t in past 2 years) ^ "

Turkey meat - frozen cuts filled " "

Buffalo meat - boneless cuts < 25% Valid certificate from exporting country Export certificate quantity

Beef - HQ cuts 50-75% " "

" - frozen forequarter cuts filled Beef manufacturers active in past 12 months Quantity requested ^^

" - frozen cuts 75-90% (1) 80% to active historical importers Historical shares

(2) 20% to newcomers engaged in beef trade Quantity requested ^^

" - chilled boneless HQ cuts > 90% Valid certificate from exporting country Export certificate quantity

" - boneless HQ cuts filled " "

" - boneless HQ cuts filled " "

" - selected cuts > 90% " "

Beef offal - thin skirt 50-75% Beef traders active in past 12 months and Export certificate quantity

valid export certificate for country access for 'country' access

Pig meat - carcasses < 25% Importers active for past 12 months ^ Quantity requested ^^

" - selected cuts < 25% " "

" - loins & hams < 25% " "

" - tenderloins 25-50% " "

" - preserved < 25% " "

Chicken meat - carcasses < 25% Active importers (> 49t/year for last 2 years) ^ "

" - selected cuts 25-50% " "

" - boneless cuts filled " "

Turkey meat - chilled cuts 75-90% " "

Cereal productsWheat ^ 50-75% Cereal traders (active for > 12 months) Quantity requested ^^

Maize (Spain only) 25-50% International cereal traders in Spain Quantity requested

Sorghum (Spain only) 25-50% " "

Rice - brown (husked) filled Rice traders (active for 1 of past 3 years) "

" - milled > 90% " "

Wheat - durum 25-50% Cereal traders (active for > 12 months) "

Maize (Portugal only) filled International cereal traders in Portugal Quantity requested

Oats - worked grain 75-90% Cereal traders (active for > 12 months) Quantity requested ^^

* Based on TRQ fill rates for the 1998 to 2002 period and the 1998-99 to 2002-03 period. Source: WTO 2001b, 2004a. TRQ designated as 'filled' for average fill rate > 98%.** Eligibility restrictions on who can apply for import permits under the TRQ - all applicants must be VAT registered.*** Rules or process for allocating TRQ access among successful applicants. FCFS - first come first served.^ Retailers and restaurants are not eligible to use TRQ access.^^ Applications adjusted by a coefficient if total requests exceed quantity available.

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21. Eligibility and allocation rules for selected TRQs - Canada

TRQ fill Eligibility rules for TRQ accessrates * importer to share in TRQ access ** allocation method ***

Dairy productsFluid milk na No restrictions No allocations to commercial entities

Concentrated milk filled Historical importers Allocated to one importer ^

Yoghurt > 90% " Historical import shares ^

Butter milk powder filled " Allocated to one importer ^

Other milk constituents filled (1) Users of milk protein concentrate (1) Production requirement (priority) ^

(2) Users of other milk constituents (2) Share of total requests (residual) ^

Other dairy products filled Users of imports in food preparations Share of total requests ^

Ice cream filled Historical importers Historical import shares ^

Cheese filled Historical importers (still trading actively) Historical import shares ^^

Cream 75-90% (1) Import distributors of speciality creams (1) FCFS (priority)

(2) Distributors of speciality creams (2) FCFS (residual)

Dry whey filled (1) Users of import domestically unavailable (1) FCFS (priority)

(2) Users of whey products (2) FCFS (residual)

Butter filled

Meat productsBeef filled (1) Users or retailers of processed beef (1) Imports used in past 12 months ^

(2) Historical import distributors (2) Import sales in past 12 months ^

Chicken meat filled (1) Historical import distributors (1) Historical imports ^

(2) Users (for chicken meat products) (2) Requirements for eligible output ^

(3) Food service suppliers (3) Market share (total purchases) ^

(4) Users (70%), import distributors (30%) # (4) Market share, equal share ^

Turkey meat filled (1) Historical import distributors (1) Historical imports ^

(2) Users (for turkey meat products) (2) Eligible output in past 12 months ^

(3) Suppliers of other market demands (3) Share of total requests ^

Cereal productsWheat 25-50% No restrictions FCFS

Barley < 25% " "

Wheat products filled " "

Barley products 50-75% " "

* Average fill rate for 1998 to 2002 and 1997-98 to 2001-02. Sources: WTO 2001c, 2006. TRQ designated as 'filled' for average fill rate > 98%.** Eligibility restrictions on who can apply for import permits under the TRQ.*** Rules or process for allocating TRQ access among successful applicants. FCFS - first come first served.^ If < 90% of TRQ entitlement is used the allocation is reduced proportionally in the following year and redistributed.^^ If < 95% of TRQ entitlement is used the allocation is reduced proportionally in the following year and redistributed.# Initial allocations made to the first three groups - residual access for the bulk of the TRQ is allocated to the fourth group.

Allocated to producer organisation for distribution to processors

41

22. Eligibility and allocation rules for selected TRQs - USA

TRQ fill Eligibility rules for TRQ accessrates * importer to share in TRQ access ** allocation method ***

Dairy productsEvaporated, condensed milk 75-90% No restrictions FCFS

SMP 50-75% (1) 11% to historical importers (1) Historical imports ^

(2) 89% to other importers (2) Lottery

WMP > 90% (1) 0.1% to historical importers (1) Historical imports ^

(2) 99.9% to other importers (2) Lottery

Butter milk & whey powder < 25% (1) 76% to historical importers (1) Historical imports ^

(2) 24% to other importers (2) FCFS

Butter filled (1) 80% to historical importers (1) Historical imports ^

(2) 20% to other importers (2) Lottery

Butter oil/substitutes filled No restrictions Lottery

Dairy mixtures > 90% No restrictions FCFS

Cheese - blue > 90% (1) 80% to historical importers ^^ (1) Historical imports ^

(2) 20% to other importers (2) Lottery

" - cheddar > 90% (1) 28% to historical importers ^^ (1) Historical imports ^

(2) 6% for imports from Canada (2) FCFS

(3) 66% to other importers (3) Lottery

" - american > 90% (1) 81% to historical importers ^^ (1) Historical imports ^

(2) 19% to other importers (2) Lottery

" - edam & gouda > 90% (1) 78% to historical importers ^^ (1) Historical imports ^

(2) 22% to other importers (2) Lottery

" - Italian > 90% (1) 48% to historical importers ^^ (1) Historical imports ^

(2) 52% to other importers (2) Lottery

" - swiss/emmental 75-90% (1) 53% to historical importers ^^ (1) Historical imports ^

(2) 47% to other importers (2) Lottery

" - processed gruyere 75-90% (1) 73% to historical importers ^^ (1) Historical imports ^

(2) 27% to other importers (2) Lottery

" - other types > 90% (1) 49% to historical importers ^^ (1) Historical imports ^

(2) 51% to other importers (2) Lottery

" - low fat 50-75% (1) 70% to historical importers ^^ (1) Historical imports ^

(2) 30% to other importers (2) Lottery

Meat productsBeef 75-90% Valid certificate from exporting country ^^^ FCFS

* Average fill rate for 1999 to 2003. Sources: WTO 2001d, 2005a. TRQ designated as 'filled' for average fill rate > 98%.** Eligibility restrictions on who can apply for import permits under the TRQ.*** Rules or process for allocating TRQ access among successful applicants. FCFS - first come first served.^ Historical quantity as specified in import licence.^^ Includes importers designated by governments of exporting country.^^^ For imports from countries with USTR approval to use export certificates for allocating TRQ access.

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