AGRICULTURE, SPS AND TBT MASTER IN INTERNATIONAL TRADEAND POLICY 4 ------------------------------------- GROUP 2: BORDER PROTECTION In order to protect its producers and ensure a stable market supply to consumers, can Vietnam adjust import tariffs for animal feed (incl. farmed fish and seafood) according to world market price variations? How often? Please describe the relevant rules, and WTO case law (Chile, Peru). What are the alternatives, if any? Do the WTO legal bases permit your alternative? Group member: 1. Lê Thị Kim Phụng 2. Bùi Thị Bích Phượng 3. Đặng Văn Quân 4. Nguyễn Ngọc Tấn 5. Nguyễn Thu Thảo 6. Nguyễn Thị Minh Thu 1. Introduction of the issue 1.1.Overview Animal feed is defined as any substance, that is ingested orally by animals (AustralianDepartment of Agriculture and Water Resources, 2016). It is considered as 17edible materials(s) which are consumed by animals and contribute energy and/or nutrients to the animals diet (AAFCO, 2000). 24Animal feeds include stock feed, aquaculture feed, pet food, supplements and baits. Vietnam feed industry summary 2Vietnam can supply about 75 percent of its demand for feed ingredients, which relies heavily on imported protein sources such as soybean, soybean meal, meat and bone meal, and fish meal.2Imports of finished feed are estimated at about 1.5 million tons per year (Trade Policy Review Report 2013 for Vietnam). 2Currently, Vietnam focuses on expanding planted area of corn and soybean to minimize imports. The2local production source of feed includes corn, rice bran, broken rice and cassava, in which rice bran and broken rice are obtained from the rice industry. The rice milling industry produces approximately 5 million tons of rice bran, most of which is used for feed. The volume of cassava for feed use has been decreasing as it faces 2strong competition from exported cassava, local industrial use and the biofuel industry. The table below shows the volume and sources of various feed materials. Revised 2Estimate of supply of feed ingredients for Vietnam feed industry (million tons) *: (6) = (4)-(3)-(5); Source: 26USDA Foreign Agricultural Service (2015), Vietnam Grain and Feed Annual 2015. Policy in Vietnam: Vietnam passed its first Law on Value Added Tax in 1999. At present, VAT for animal feed is levied according to 28the Law on Value-Added Tax No. 71/2014/QH13 of 26 Nov 2014 at 0% rate. Ministry of Finance decided to increase tariffs on certain products from 01 Jan 2010. Specifically, wheat: from 0% to 5%, fish meal: from 5% to 7%, and so on. 1.2. Adjustments of import tariffs for animal feed As import tariff is increased, producer surplus get A, and domestic animal feed producers are protected (as Fig 1). In contrast, as import tariff is decreased, the more quantity of animal feed can be in the market and its price can be lower, which can help to ensure market supply of animal feed. Figure 1. The effect of import tariff adjustments According to Special Safeguards Provisions (SSG), countries are allowed 16to impose additional duties in order to protect them from sudden import surges in terms of volumes or low prices (Article 5 of the AoA), which means that Vietnam can adjust import tariffs. However, there are conditions to apply SSG. Firstly, about the time period, Article 5.4 of AoA regulate that additional duty imposed 8shall only be maintained until the end of the year in which it has been imposed Conditions to apply SSG. Besides, Article 5.4 of AoA also regulates the tariff increase, for example, in case of (Import price – trigger price)/trigger price =< 10%, there is no added duty. In Vietnam, Ministry of Finance is the authorized agency for making policies relating to import tariff. There is no any requirement for frequency specified, so the decision to adjust tariffs bases on real situation of world market variations, on seasons, and so on, but the adjustment cannot happen too often. In normal, a new policy should be issued 3-5 years after the latest policy to avoid uncertainty of the market. 2. Case law 2.1. Relevant rules Since the Agreement on Agriculture (AoA) - 1994, the obligations to convert 22all non-tariff measures into tariffs have been more strictly, as the footnote of its 22Article 4.2 clearly specifies the non-tariff measures required to convert including: ? Quantitative import restrictions (QRs, like Art.XI GATT) ? 7Minimum import prices ? Variable import levies ? Discretionary import licensing ? Voluntary export restraints ? Non-tariff measures maintained through state trading enterprises Hence, before adjusting import tariff, the countries should learn the lessons from related precedents, such as Chile case and Peru case. 2.2.Chile case – 5PRICE BAND SYSTEM (ARTICLE 21.5 – ARGENTINA)- DS207 Parties Agreements Time of the dispute Complainant Respondent Argentina Chile AA Art. 4.2 GATT Art. II:1(b), second sentence WTO Agreement Art. XVI:4 Referred to the Original Panel Circulation of Panel Report15Circulation of AB Report Adoption 20 Jan 2006 8 Dec 2006 Circulation of AB Report 22 May 2007 4The amended price band system applied by Chile, under which the total amount of duties imposed on imports of wheat, wheat flour and sugar would vary, through the imposition of additional specific duties or through the concession of rebates on the amounts payable. When the reference price determined by the Chilean authorities fell below the lower threshold of a price band, a specific duty was added to the ad valorem MFN tariff. Conversely, when the reference price was higher than the upper threshold of the price band, imports would benefit from a duty rebate. The Panel give findings to show Chile’s violations to WTO and the findings were upheld by the Appellate Body. 3The Panel found that the amended price band system continued to be a border measure similar to a variable import levy and a minimum import price, which was inconsistent with Art. 4.2 of the AoA 3(Market access – conversion of certain measures into ordinary customs duties).9Chile's price band system was designed and operated as a border measure sufficiently similar to "variable import levies" and "minimum import prices", which prohibited by Art. 4.2. 2.3. Peru case – DS457 5Parties Agreements Time of the dispute Complainant Respondent Guatemala Peru AA Art. 4.2 GATT Art.1II:1(a), Art. II:1(b), X:1, X: 3(a), XI, XI:1 of the GATT 1994 Art. 1,2, 3, 5, 6 and 7 of the CVA Requests for Consultations 15Establishment of Panel Circulation of Panel Report Circulation of AB Report 12 April 2013 19 Sep 2013 27 Nov 2014 20 July 2015 1On 12 April 2013, Guatemala requested consultations with Peru with respect to the imposition by Peru of an “additional duty” on imports of certain agricultural products, such as rice, sugar, maize, milk and certain dairy products. Such additional duties imposed by Peru under 27Peru’s Price Range System (PRS), which determines duties based on1a range constituted by a floor price and a ceiling price, reflecting international prices over the last 60 months. The 1additional duty is applied when the reference price of the affected product is below the floor price.11Guatemala argued that Peru’s additional duties are variable import levies, minimum import prices, and thus, should have been converted into ordinary customs duties under Article 4.2 of the AoA. 1Peru argued that the additional duties form part of its tariff and are, therefore, ordinary customs duties. The Panel found that the PRS-related duties are 29similar to a variable import levy, while lacking in transparency and predictability and having the potential to affect import prices. Thus, by maintaining such measures, Peru 21acted inconsistently with its obligations under Article 4.2 of the AoA. The Panel also found that the additional duties 1do not constitute minimum import prices, and do not share sufficient characteristics with minimum import prices in order to be considered border measures similar to minimum import prices, within the meaning of Footnote 1 to Article 4.2 the AoA. The Appellate Body upheld the findings. 3. Alternatives In order to protect the producers and ensure a stable market supply to consumers, along with adjusting import tariffs for animal feed according to world market price variations, Vietnam government can use methods under two approaches including market access and domestic support. Regarding to market access, tariff rate quotas is a widespread solution that almost nations use as an effective way for border protection. In principle, this method affects the 7quantity of imports within which a lower tariff applies (IQTR), a higher tariff applies above the volume of the quota (the out-of -quota tariff rate - OQTR). This alternative is permitted by GATT- Art. XIII 6“the contracting party applying the restrictions shall give public notice of the total quantity or value of the product or products which will be permitted to be imported during a specified future period and of any change in such quantity or value”. For instance, the dispute between United States and Turkey in 2006, 3Turkey's restrictions on the importation of rice - TURKEY – RICE- DS334 - page 136 3“WTO Dispute Settlement, One-Page Case Summaries 1995–2014”:3Turkey had denied or failed to grant licences to import rice at the MNF tariff rates in case of outside the tariff rate quotas. This was found by the Panel to be a quantitative import restriction and discretionary import licensing. In terms of domestic support, Vietnam government can use 10"Amber Box"- all domestic support measures which distort production and trade,10and "Green Box"- domestic support measures which are not trade distorting or at most cause minimal distortion. Firstly, “Amber Box” (permitted by Article 3, 6, 7 of the AoA) means that product and price support measures are not prohibited but limited: “The domestic support reduction commitments 8shall apply to all of its domestic support measures in favour of agricultural producers with the exception of domestic measures which are not subject to reduction”. Secondly, “Green Box” (permitted by Annex 2 of the AoA) means that domestic food aid and stockpile management, environmental aid and regional assistance, and relief from natural disasters are no limitations. 4. Conclusion Viet Nam is experiencing growing demand for animal feed, which is increasingly becoming the attractive factor to both local and foreign suppliers. Therefore, Vietnamese Government can have policies in order to protect its producers and ensure a stable market supply to consumers. The Government can adjust import tariffs for animal feed by applying Special safeguards Provisions (SSG) but the adjustment cannot be frequent and based on real case of world market variations. Chile case and Peru case are the related precedents in experiencing adjustment of tariff. Moreover, Vietnam Government can also use at least three methods including tariff rate quotas for market access and “Amber Box" “Green Box” for domestic support. Ultimately, the government should access the feasibility of alternatives as well as notable common issue that assist in protecting Vietnamese producers and creating the stable market supply to consumers. References: (1) Department of Agriculture and Water Resources, Australian Government, 122016, Importing plant based animal feed and veterinary therapeutics http://www.agriculture.gov.au/import/goods/plant-products/information-about-importing- plant-based-animal-feed (2) 23Fisheries and Aquaculture Department, FAO, Aquaculture development. 1. Good aquaculture feed manufacturing practice http://www .fao. org/docrep/005/y1453e/y1453e06.htm Law No.71/2014/QH13 amendments to tax laws (4) 18WTO,2013,Trade Policy Review Report 2013 for Vietnam https://www.wto.org/english/tratop_e/tpr_e/s287_e.pdf (5) Gerald Smith , Quan Tran, 2016, VietnamGRAIN AND FEED ANNUAL 2016, https 20://gain.fas.usda.gov/Recent GAIN Publications/GRAIN AND% 20FEED ANNUAL_Hanoi_Vietnam_4-21-2016.pdf14(6) Chile – Price Band System and Safeguard Measures Relating to Certain Agricultural Products – Recourse to Article 21.5 of the DSU by Argentina, 2006 19https://ustr.gov/sites/default/files/uploads/Countries Regions/africa/agreements/pdfs/ d ispute _settlement/ ds207 /asset_upload_ file917_6547 .pdf (7) DS 457 25Peru — Additional Duty on Imports of Certain Agricultural Products (Complainant: Guatemala)13https://www.wto.org/english/tratop_e/dispu_e/cases_e/ ds457 _e.htm (8) WTO, Agreement of Agriculture https://www.wto.org/english/ docs _e/ legal _e/ 14-ag_02 _e.htm 1 2 3 4 5 6 7