Index

Expert Opinion: Fixing Cotonou’s Rules of Origin Regime

By Roman Grynberg and Natallie Rochester

The environmental and commercial implications of the rules of origin regime for canned and loined fish products under the Cotonou Agreement between the European Union (EU) and 77 developing and least developed countries may seem an arcane subject to some, but it is of great significance to the livelihoods of many.

Rules of origin determine which goods can benefit from the lower rates of customs duty under preferential trade arrangements such as the Cotonou Agreement. Under the Cotonou Agreement, products from African, Caribbean and Pacific (ACP) countries enter the EU duty free. In the case of a can of tuna from non- ACP countries, the rate of import duty into the EU is 24 per cent. When a product, such as a can of tuna, uses inputs from a number of countries, it is necessary to have a rule that determines whether that can qualifies for preferential treatment. The current rules of origin used by the EU are complex and susceptible to abuse.

The Cotonou Agreement and related annexes provide for the preferential access of ACP exports into the EU and the rules of origin that allow products to qualify for preferential treatment. In the case of canned and loined fish, fish caught in ACP territorial waters (12 miles from shore) automatically qualify irrespective of who catches the fish. However, catches from the exclusive economic zone or EEZ (200 miles from shore or beyond) are subject to vessel ownership criteria. Only if the vessel is owned by an EU or ACP country will that can of fish be deemed to have originated in the ACP and to qualify for preferential access into the EU market.

This has a number of effects. First, it encourages fishing effort in the territorial sea and increases competition between medium-scale or industrial fleets and artisanal and subsistence fishers. Second, this rule of origin creates a long-term subsidy for EU distant water fleets in ACP territorial waters. As few ACP states have large capital intensive purse seine fleets, this in effect means that fish, such as tuna, must be caught by EU fleets in order to qualify for preferential treatment. Such a predetermined supply chain results in price distortion for EU-caught fish.

Consequently, there is an incentive for tunarich ACP states with canning capacity (e.g., Ghana, Mauritius, Papua New Guinea, Senegal, the Seychelles and the Solomon Islands) to grant access to their EEZ to the EU rather than other states, even though it may be cheaper to import raw material for processing from states geographically closer than the EU, or even more lucrative to export raw fish to the EU. This rule of origin, therefore, imposes significant costs on developing countries and limits the potential to develop their fisheries industries in a sustainable manner. It also skews investment patterns, dissuading non- EU distant water fishers and increasing ACP dependence on EU firms.

For example, Mauritius, one of the three Indian Ocean countries with a Fisheries Partnership Agreement (FPA) with the EU, incurs an increase in the cost of sourcing fish to comply with the EU rules of origin regime, thereby reducing its overall competitiveness. Mauritius processes around 50,000 metric tonnes (MT) per year. In 2003, Mauritius paid an average of US$61 more than the world price for fish sourced in the Indian Ocean per MT and US$31 more per MT in 2004. In effect, this means that part of the 24 per cent margin of preference given to ACP states is being passed up the value chain to EU vessels. In Papua New Guinea, the volume of exports of the country’s tuna cannery to the EU was limited because that cannery and the related fishing capacity were controlled by Philippine interests. In order to overcome the constraints on exports caused by the rule of origin, Papua New Guinea went to the United Nations and redefined its territorial sea to include its extensive archipelagic waters. Thereafter, it was able to export freely to the EU.

Development of the ACP fisheries industry requires greater domestic ownership of fleets and increased capabilities to produce valueadded fisheries products, which would diversify ACP fisheries exports to Europe and increase potential revenues from fisheries trade with the EU. Often, these ambitions are in direct conflict with the EU objective of supplying its canneries with raw fish, as opposed to importing value-added fisheries products. Through bilateral access agreements, ACP states charge European vessels an access fee to fish in ACP waters. These traditional “cash for access” agreements have been overhauled and renamed Fisheries Partnership Agreements, which are supposed to ensure the interests of EU distant water fleets as well as sustainable fisheries in the waters of the ACP partner. The 24 per cent preferential margin under the current EU rules of origin regime gives a subsidy to those ACP states with fish canning capacity to provide EU vessels with access to ACP waters. This also provides tariff protection for EU canneries and ACP canneries exporting to the EU. Together, these effects concentrate harvesting of fisheries resources in certain ACP waters. This raises crucial issues about the food-security situation in ACP countries.

To have the preferential origin of a country, fish must be “wholly obtained” in that country or, where this is not the case, have undergone sufficient processing there. In order to make these rules of origin less destructive and more conducive to sustainable development of ACP fisheries, the definition of “wholly obtained” fish should be amended to allow fish caught by any vessel within an ACP state’s EEZ to qualify for preferential treatment, so as to reduce the subsidy to EU vessels.

This would also lessen fraudulent declarations of origin and other forms of corruption that undermine the fisheries industry. Under the current EU rules of origin, it is possible for an ACP country to use fish caught in neighbouring ACP states and these fish are considered “originating” fish. However, where countries are not ACP states, and not part of the same regional organization, the ACP state cannot use the fish of these countries. Thus, for example, the Mauritius cannery can use fish caught in the Seychelles, but not fish caught in the neighbouring Maldives because the Maldives is not part of the same economically- integrated regional entity.

Highly migratory fish stocks, such as tuna, require regional management mechanisms. Current EU rules of origin encourage fishing in a particular area by particular boats and, therefore, impede a balanced regional approach to fisheries management. The limited scope under these rules of origin for the “cumulation” of origin with neighbouring states reinforces the dependence on EU fleets as suppliers of raw fish.

Roman Grynberg, from Canada and Australia, is the Director for Economic Governance at the Pacific Islands Forum Secretariat.

Natallie Rochester, from Jamaica, is a Services Analyst with the Caribbean Regional Negotiating Machinery. This essay is written in her personal capacity.