Thailand and Ecuador, two of the world’s largest suppliers of shrimp and canned tuna, face big hikes in tariffs to the European Union over the next three years.
Since 1971, the EU has had rules ensuring that exporters from developing countries pay lower duties on some or all of what they sell to the EU, under the Generalised System of Preferences (GSP) scheme.
The EU adopted a new GSP on Oct. 31, 2012, cutting from 176 countries which get preferential tariffs to 89, with the intention of focusing on the most in need.
Shrimp and tuna giants in Thailand and Ecuador, some of the world’s largest processors, face a loss of preferential tariffs in 2014 on some shrimp and tuna products in a “graduation” of some GSP of tariffs into the EU.
Then, if the World Bank classifies both as a middle-to-upper tier income country this year, they will lose all preferential tariffs in 2015.
In 2015, if Thailand and Ecuador are not on the list of countries that have GSP privileges, considered highly likely, tariffs on raw shrimp will increase.
For Thailand, the tariff on raw shrimp will go from 4.2% to 12%. Ecuador will go from 3.6% to 12%.
Under graduation, the tariff on processed shrimp -- excluding cooked, shell-on – will go up a year earlier, at the start of 2014, from 7% to 20%. Ecuador, however, has a 0% tariff on processed shrimp, as it is a GSP+ country. So, it will remain at 0% in 2014, as long as it reapplies for GSP+ status.
The situation with Thailand seems more immediately pressing, but both situations are seen by importers as equally worrying.
For both Thai exporters and EU importers, processed shrimp is big business. For some, the tariff increase from 7% to 20% in 2014 is the difference between being competitive and uncompetitive, one industry source told Undercurrent News.
A UK source, which has become one of the largest importers of Thai shrimp in the EU, said retailers are asking worried questions on Thailand and processors are looking at other options.
An answer for Thailand and Ecuador are free trade agreements with the European Union, but this is no short-term fix, sources said.
“There is likely to be a gap [between GSP loss and a possible Free Trade Agreement] and importers are very worried,” said Ivan Bartolo, president of the Seafood Importers and Processors Alliance, a European industry group with several shrimp importers as members.
“For whatever reason, Thailand and Ecuador haven't got running on this [getting FTAs] as quickly as some,” he told Undercurrent. “There was some movement on Ecuador last year and then, since July or August, we have heard nothing on progress.”
Thailand recently made the announcement that it is working toward an FTA, but this cannot happen before Jan. 1, 2014.
“At least they have got the message,” said Bartolo.
Bartolo and several other industry sources said there is some hope that the European commission can extend the terms, if FTA negotiations are in place.
“Maybe the commission can extend the terms of how things are now for longer if a negotiation is ongoing, but importers are still very worried as the situation is completely uncertain,” said Bartolo. “There is no way that they [Thailand] can get an FTA done by 2014.”
A spokeswoman for the Thai Frozen Foods Association, an industry body that represents the country’s shrimp export sector, said TFFA is “waiting on a decision from the EU” on GSP.
Although the EC is yet to publish the list of countries with and without GSP, “Thailand might be on the list to be removed”, she said.
As a result, TFFA is pushing on the government to speed up the process of an FTA with the EU.
A scoping exercise for an FTA could take “three to four years”, said the spokeswoman. In the meantime, Thailand will become uncompetitive relative to other GSP countries, such as India and Vietnam.
Thai companies also have to look at new markets, outside of the EU, US and Japan, she told Undercurrent. “China is the good choice for us now.”
A source with one of the large Thai processors said the country’s shrimp giants are likely to lose a lot of market share, in the eventuality of a full GSP loss.
“If Thailand lost the entire GSP granted from the EU, yes for sure it will affect several of Thai export businesses to the EU,” he told Undercurrent. “Thailand will lose a lot of market share to other competitors, for sure.”
Most packers now are looking at other options to move the EU volume to other markets, to compensate for the loss, he said.
Companies like Charoen Pokphand Foods, the largest shrimp farmer in the world, can shift to production bases outside of Thailand to sell to Europe, but other Thai firms do not have this option available to them.
Thailand's FTA plan with the EU is just that, a plan, he said.
“This FTA is a sensitive issue for the Thai government, especially with the unstable political situation in Thailand these last five years,” said the source, who preferred to be quoted unnamed. “There is always a group of people against whatever Thai government is going to do.”
Different, but just as worrying
The situation for Ecuador is slightly different to that of Thailand, but no less worrying, said a source that represents European importers, who wanted to be quoted unnamed.
“They [Thailand and Ecuador] both have a big problem,” he said.
On one level, Ecuador is further down the road to getting a free trade agreement, he said.
They were part of the talks for the recently signed free trade agreement between Peru and Columbia and the EU, but dropped out.
“We have to negotiate alone now with the EU now,” said a source in the Ecuadorian shrimp business.
Ecuador should “at least get the same 0%, if our government restarts negotiations”, the source told Undercurrent.
Ecuador is a GSP+ country, which gives it a 0% tariff on exports on certain products, such as canned tuna and processed shrimp.
The tariff on raw shrimp is 3.6%. The 0% tariff is in place on processed shrimp to stimulate the retention of added value, said a source in the UK.
It has to reapply for GSP+ status this year, because of the revision of the EC’s GSP policy in general.
“They [Ecuador] should get GSP+ back in 2014, they just have to reapply,” said the source who works with EU importers.
This gives Ecuador one extra year of GSP+ tariffs, but then they “have a big problem, with no way to solve it”, the source said.
The executive said EU import groups are talking with processors in Ecuador about a push on the government to get back involved on an FTA, with its fellow Andean Agreement countries.
The timing of a push from the Ecuadorian private sector on the government has to be right, the source said.
There are elections coming in Ecuador, he said. “The general impression is that the same government will remain in place.”
Rafael Correa, a leftist leader with an economic stance on free trade agreements that seems mixed, currently governs Ecuador.
“We hope that our government will come to its senses and get back to the negotiating table with the EU, once this election is over Feb. 17 and reason prevails over politics,” an executive with an Ecuadorian shrimp exporter told Undercurrent.
There needs to be a “private sector push", the EU import source said, but this should be after the election.
In Thailand, the source said it seems “the government would be less likely to want to disturb business. In Ecuador, it [opposition to FTAs] is an ideological decision”.
Although Thailand seems more open to a free trade agreement, it is actually further away, the source told Undercurrent.
“In Thailand, talks have not started. They need to understand, it is the only way out,” he said. “Thailand is actually a bit further away. With Ecuador, the agreement is already ratified, with Peru and Columbia."
Thailand and Ecuador are also the world’s two largest tuna processing countries.
Under the “standard” GSP, Thailand pays 21.5% duty on canned and loins and Ecuador 0% under GSP+, both subject to rules of origin, said a source analyzing the tuna trade.
A change to this “would be a disaster for Ecuador”, which would go from 0% to 24% in 2015, said the source.
The Philippines might gain as it looks like it might be re-categorized as a GSP+ country, he said.
“It will have little effect on Thailand, because the loss of 3.5% is not high enough,” he said.
“Moreover, most of their fish comes from the Taiwanese fleet and thus does not quality for the preference anyway, because of EU rules of origin.”