Archived - Government Response to the Sixth Report of the Standing Committee on Fisheries and Oceans, Problems Facing Newfoundland Shrimpers

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In its Sixth Report, the Committee stated that the 20 per cent European Union (EU) tariff on cooked and peeled shrimp was at the heart of current difficulties facing Canada's East Coast shrimp industry and that, in the long term, Canada's objective should be to seek the elimination of this tariff so that Canadian producers can compete on a level playing field with their non-EU competitors. The Committee then identified several "options" for the Government to consider in pursuing that objective. While the Committee report did not identify "recommendations" as such, it concluded by urging the Government "to attach great importance to this matter".

The Committee's report also acknowledged that market prices for coldwater shrimp had fallen approximately 35 per cent last year (2001) and that it was the combined effects of the EU tariff and of the low market prices that had forced shrimp processors to suspend temporarily their purchases of shrimp from inshore fishers in Newfoundland and Labrador in July 2001. It is important to note, in this context, that the shrimp industries in Quebec and other Atlantic provinces also experienced similar problems last year, resulting in the temporary suspension of some fishing and processing operations for shrimp in those areas.

Both the Canadian industry and the Newfoundland Government have identified the EU tariff as the single most important factor in the decision to shut down the inshore shrimp fishery last summer. Europe (primarily, the United Kingdom) is the major market for coldwater shrimp. Unfortunately, the high tariffs that apply in the EU to imports of shrimp from Canada and the preferential tariff treatment extended by the EU to coldwater shrimp imports from a number of other countries make it very difficult for Canadian shrimp exporters to compete in that market.

While Canada does not dispute that the EU shrimp tariffs are consistent with international trade rules, these tariffs nonetheless have a negative and disproportionate effect on Canada's shrimp industry. In reality, Canada is the only major producer of cooked and peeled coldwater shrimp that faces the 20 per cent tariff. In contrast, most of Canada's principal competitors enjoy either duty-free access for this product or low rates of duty under bilateral trade arrangements. Consequently, the tariff has become a major irritant to the Canadian industry and to the provincial and federal governments.

In any discussion about the EU import tariffs on shrimp, the following considerations should be kept in mind:

  1. EU tariffs on processed seafood are generally high compared to fish tariffs in other industrialized countries - a 20 per cent tariff for processed fish in the EU is not unusual;
  2. the 20 per cent tariff on processed shrimp has existed for many years, at least since the early 1970s;
  3. the tariff that applies to cooked and peeled shrimp from Canada is the most-favoured-nation (MFN) rate that applies to EU imports of cooked and peeled shrimp (both coldwater and warmwater shrimp) from all non-preferential sources;
  4. however, the EU grants preferential tariff treatment for processed shrimp and for certain other fish products to some of its trading partners under bilateral trade arrangements. These tariff preferences are consistent with international trade rules (i.e., the World Trade Organization (WTO) agreements) and are comparable to those that Canada exchanges with the United States, Mexico, Chile, Israel and Costa Rica under bilateral free trade agreements (FTAs).

As shrimp landings on Canada's East Coast increased during the 1990s, Canadian exports to the EU - both of frozen, shell-on shrimp and of "cooked and peeled" shrimp - increased from less than 4,000 tonnes, in 1990, to just under 20,000 tonnes in 2000, despite the EU tariffs. Together, these products accounted for approximately one-third ($106 million), by value, of total Canadian fish and seafood exports to the EU that year. Cooked and peeled shrimp was the leading single item, valued at $58 million.

According to industry representatives, however, the abundance of shrimp on the market, combined with weaker demand, falling prices and tighter profit margins, made it extremely difficult to overcome the effects of the EU tariffs last year (2001). As a result, the value of cooked and peeled shrimp sales to the EU declined by approximately 37 per cent (to $36 million), and the quantity of these exports fell by almost one-third (to 5,170 tonnes).

The Government has been working with Canada's fishing industry since 1998 - long before this issue rose to public prominence in 2001 - to lobby for improved access to the EU market for cooked and peeled shrimp. Those efforts were instrumental in the establishment by the EU Council of Ministers, in 1999, of an "autonomous tariff rate quota" (ATRQ) for 4,000 tonnes of cooked and peeled coldwater shrimp at a reduced tariff rate of 6 per cent (instead of the 20 per cent rate that would normally apply). The following year (2000), the ATRQ was increased to 5,000 tonnes. This ATRQ now forms part of a multi-year (i.e., 2001, 2002 and 2003) "package" of reduced-tariff quotas for imported fish and fish products that are intended to undergo further processing (usually some form of industrial processing) in the EU.

This product also qualifies for a small (500-tonne) duty-free tariff rate quota (TRQ) that Canada had negotiated as compensation for lost trade when Austria, Sweden and Finland joined the EU in 1995. The latter TRQ is contractually "bound" in the WTO agreements against a future increase in the tariff for the specified quantity of imports and, consistent with WTO rules, it is available to coldwater shrimp from any WTO member.

While the European Commission does not provide information as to the country of origin of imports admitted under the various ATRQs, it is likely that the ATRQ in question has been of benefit primarily to Canada, since the Nordic suppliers generally receive better preferential access for their coldwater shrimp. Thus, it is also likely that the majority of the approximately 7,500 tonnes of cooked and peeled shrimp that was imported into the EU from Canada in 2000 - as well as the 5,170 tonnes imported in 2001 - benefited either from the 500-tonne WTO-bound TRQ or from the 5,000-tonne ATRQ. Unfortunately, the "further processing" requirement limits access to the ATRQ for much of the production of cooked and peeled shrimp in Canada that is suitable for sale in the retail and catering market segments, generally at higher prices.

Canadian concerns about the high level of EU fish tariffs generally and the shrimp tariffs, in particular, have been raised on a regular basis in bilateral meetings with the EU, including meetings at Deputy Minister level, as well as meetings of the Canada-EU Joint Co-operation Committee (JCC) and of the Trade and Investment Sub-Committee (TISC).

Furthermore, Canadian Ministers have raised the shrimp tariff issue with their European counterparts on numerous occasions, both in bilateral meetings and in official correspondence. Most recently, the then Minister of Fisheries and Oceans wrote to his EU counterpart, last September, on this matter, and the Minister for International Trade wrote to the EU Commissioner for Trade, in November.

The formal responses from the EU authorities have not been encouraging. The consistent response has been that a solution would only be possible through multilateral trade negotiations at the WTO.

While the EU tariffs are a major factor in the problems facing the East Coast shrimp industry, there are also some market-related factors that help explain the difficulties that the industry has been experiencing. Probably the most important factor is the growing imbalance in supply and demand for shrimp, which has been exacerbated by the global economic downturn. Shrimp production world-wide increased rapidly during the 1990s. In the period 1995 to 1999, world production increased by an estimated 22 per cent, while global imports increased by only 8 per cent. Although official statistics for the years 2000 and 2001 are not yet available, industry publications indicate that production has continued to expand throughout the world, both for warmwater shrimp (mainly farmed shrimp) from countries such as Thailand, Vietnam, India and Argentina, and also for coldwater shrimp from northern hemisphere countries. This increase in supply has had a depressing effect on wholesale shrimp prices. According to industry testimony before the Committee, wholesale prices have fallen as much as 44 per cent over the past four years. In this context, the 20 per cent EU tariff is prohibitive.

Canada's shrimp industry has been a contributor to this growth in supply. Shrimp stocks throughout the northwest Atlantic have generally experienced an increase in abundance in the past decade. The short-term prognosis is that these stocks will remain at high levels at least for the near term. Last year (as was the case in 2000), the Total Allowable Catch (TAC) for the northern shrimp fishery (off the east coast of Newfoundland and Labrador and in the Davis Strait) was 110,052 tonnes. Since 1996, this TAC has increased almost three-fold from 37,600 tonnes.

Total shrimp landings in all Atlantic provinces and Quebec increased from approximately 13,000 tonnes in 1985 to over 126,000 tonnes in 2000. The value of these landings in 2000 was approximately $265 million. The growth in the Newfoundland shrimp fishery was even more dramatic, with landings increasing from approximately 3,600 tonnes in 1985 to 81,000 tonnes in 2000, valued at approximately $172 million. The need to find markets for this burgeoning production has been a relatively recent phenomenon and, in that regard, access to the important EU market for cooked and peeled coldwater shrimp has become a key priority, both for the industry and for the Government.

It also needs to be recognized that the rapid growth in this industry has been accompanied by a number of "structural" problems in the fishery, including overcapacity in both harvesting and processing and the seasonality of the inshore fishery, which has adversely affected capacity utilization, product yield and quality. These problems have been the subject of a "Structural Study of the Inshore Shrimp Fishery" in Newfoundland and Labrador, undertaken by a Task Force (Panel) appointed by the Newfoundland Government in December 2001. The findings of the provincial study will be useful in supplementing the information contained in the Standing Committee's Sixth Report.

The Standing Committee has identified a number of options for pursuing the elimination of the EU tariff on cooked and peeled shrimp. In the Government's view, however, only the options involving government-to-government negotiation - either bilateral negotiations with the European Commission on this specific issue, or broader tariff negotiations with the EU in the context of the new round of WTO negotiations - appear to be viable.

Some of the options - namely, extension of management control beyond Canada's 200-mile exclusive economic zone (EEZ), port closures, and the imposition of an export tax on transhipments of shrimp through Canada - would be counter-productive in this context and would not contribute positively to resolving the shrimp tariff problem. For example, the port closure and export tax options would have little effect on EU fishing interests, since the involvement of vessels from EU member states in the Flemish Cap shrimp fishery is relatively minor. Canada's Port Access Policy is based exclusively upon fishery conservation principles, not commercial considerations. In addition, such measures would likely raise serious concerns in terms of Canada's international legal obligations, and could lead to a trade law challenge.

The Committee's suggestion that the Government could negotiate the elimination of the EU tariff on cooked and peeled shrimp within the WTO framework is in line with the EU's official position. In December 2001, the Fourth WTO Meeting of Trade Ministers resulted in a consensus to launch a new round of multilateral trade negotiations commonly known as the "Doha Development Agenda". Both Canada and the EU will participate actively in these negotiations, which will include separate tariff reduction negotiations covering non-agricultural goods, including fish and fish products.

EU representatives have signaled to their Canadian counterparts on several occasions in recent months that the EU will be prepared to discuss changes to its tariffs on fish and seafood products in the context of these comprehensive WTO negotiations. For their part, Canadian authorities have indicated that the EU tariffs on shrimp - both unprocessed (i.e., frozen, shell-on) and processed (i.e., cooked and peeled) - will be a top priority for Canada in these negotiations. However, the outcome of those negotiations, particularly whether it proves possible to achieve the complete elimination of the tariffs in question, cannot be predicted.

The Committee also recommended that, in the short term, the Government press for a separate non-tariff (i.e., duty-free) quota for Canada, preferably with no end-use requirements or, as a second-best option, an ATRQ with considerably less restrictive end-use limitations. The Committee further urged Government negotiators, at the very least, to convince the European Commission to further increase the ATRQ and to accept reglazing/repackaging as an "Eligible Further Processing Activity" under EU rules governing ATRQs. In this regard, the Government is, in fact, currently exploring the possibility of a separate reduced-tariff quota for cooked and peeled shrimp and it will, in any event, continue to urge shrimp importing countries in the EU to seek an increase in the existing ATRQ which expires at the end of 2003. For future ATRQs, the Government will also press for greater quantities. As well, officials will explore the possibility of a broader interpretation of the "further processing" provision that determines eligibility for access to the ATRQ.

In conclusion, while there are also market-related and structural factors that have adversely affected both the competitiveness and the viability of Canada's rapidly growing shrimp industry, the Government will continue to attach high importance to finding a solution to the problem posed by the EU tariffs.