CARD: Center for Agricultural and Rural Development

The European Union's ban on hormone-treated beef remains one of the United States's most contentious agricultural trade disputes. Iowa Ag Review last addressed this dispute in the Summer 1999 issue, just after the World Trade Organization (WTO) arbitrator had ruled that the EU ban was inconsistent with WTO sanitary/phytosanitary principles relating to risk assessment. This article updates negotiating activities and issues regarding the hormone ban.

On July 29, 1999, the United States imposed retaliatory duties against imported EU products valued at $116.8 million by placing 100 percent tariffs on a selected list of products. The list includes several categories of beef and pork as well as several other product categories such as Roquefort cheese, goose pate, Italian tomatoes, and French chocolate. A "carousel" provision allowing for scheduled changes in the dutiable product mix has never been implemented, and this is one of two common complaints against the current compensation system. The other is that compensation does not provide any direct benefit to the U.S. beef industry.

Table 1 compares the value and volume of trade for these products in 1998 (the last full year before the duties were implemented) with trade in 2001. As shown, Italy, France, Germany, and Denmark have been most affected by the tariffs, and last year's imports of the listed products were only 14 percent of the 1998 value.

In July 1999, the European Union discovered traces of growth-promoting hormones in U.S. beef shipments. After temporarily suspending exports of untreated beef to the European Union, the United States restarted exports in September 1999 under stricter controls, with the European Union testing 100 percent of U.S. shipments. In September 2000, mandatory testing was reduced to a 20 percent test-and-release system that allowed shipments to be released pending receipt of final testing results. In February 2002, the EU Standing Veterinary Committee cleared the way to repeal the 20 percent testing requirement for U.S. beef shipments and to return to random testing.

As negotiations over this issue continue, the three major areas now being addressed are the level of compensation for damages to the U.S. industry, type of compensation mechanism(s), and product testing. Alternatives such as labeling are not currently on the table.

With regard to the level of compensation, EU imports of beef from Canada and the United States are limited by the Hilton quota for high-quality beef, which allows 11,500 metric tons of untreated beef at a 20 percent tariff. Table 2 shows U.S. beef exports to the European Union for the past ten years. Given that the quota has never been filled, it is unlikely that increasing the quota alone would offer any benefit to U.S. exporters.

Earlier talks for a larger quota broke down because there were no guarantees that the larger quota would be in place long enough to compensate producers and processors for the additional costs of raising and shipping untreated beef. In mid-2001, U.S. and EU negotiators continued to discuss increasing the annual quota for hormone-free beef, but the two sides have been unable to agree on the size of the increase and several related issues. At that time, however, European Agriculture Commissioner Franz Fischler noted that reduced consumption in the wake of the BSE and foot-and-mouth disease (FMD) crises had depressed the European market to the point that increased market access would make no difference to U.S. exporters. More recently, with FMD under control and many EU markets recovering to more normal patterns, EU beef consumption is gaining ground.

In January 2002, EU Trade Commissioner Pascal Lamy confirmed that the European Union is developing protocols for a set of industrial, shipping, and control processes that will support an acceptable system for segregating untreated beef. Any agreement package will also need to address other barriers to U.S. beef such as the costs of testing for residues other than hormones and the high costs of gaining and retaining plant approval to process beef for export to the European Union. In the meantime, both U.S. and EU consumers will continue to bear the costs of "protecting" the EU consumer from beef produced with growth-promoting hormones. EU consumers have no choice but to pay higher prices for untreated beef at their supermarket counters. U.S. consumers are the biggest losers in the dispute because the price they must pay for a wide variety of imported food products has increased dramatically due to the 100 percent tariffs. ?