FWC COM 2011 - LOT 1                            EuropeAid/129783/C/SER/MULTIReport on the Implementation of the derogation...
Final Report                                                    RoO Derogation under the PACP-IEPADISCLAIMERThis report wa...
Final Report                                                                                         RoO Derogation under ...
Final Report                                                                                            RoO Derogation und...
Final Report                                                                                     RoO Derogation under the ...
Final Report                                                                                              RoO Derogation u...
Final Report                                                                                          RoO Derogation under...
Final Report                                                                                         RoO Derogation under ...
Final Report                                                RoO Derogation under the PACP-IEPAACRONYMS3IA                T...
Final Report                                                  RoO Derogation under the PACP-IEPAEEZ                Exclusi...
Final Report                                                RoO Derogation under the PACP-IEPAJP                 JapanK   ...
Final Report                                                RoO Derogation under the PACP-IEPARDTC               RD Tuna C...
Final Report                                  RoO Derogation under the PACP-IEPAWMP                Waste Management PlanWQ...
Final Report                                                       RoO Derogation under the PACP-IEPAEXECUTIVE SUMMARYBack...
Final Report                                                         RoO Derogation under the PACP-IEPAfacilities, given p...
Final Report                                                         RoO Derogation under the PACP-IEPAThe derogation also...
Final Report                                                          RoO Derogation under the PACP-IEPAProvided complianc...
Final Report                                                        RoO Derogation under the PACP-IEPAachieved. There has ...
Final Report                                                        RoO Derogation under the PACP-IEPAItaly), largely sinc...
Final Report                                                        RoO Derogation under the PACP-IEPAmt by 2016. Alternat...
Final Report                                                         RoO Derogation under the PACP-IEPA1       INTRODUCTIO...
Final Report                                                           RoO Derogation under the PACP-IEPAIn accordance wit...
Final Report                                                          RoO Derogation under the PACP-IEPAface meetings with...
Final Report                                                      RoO Derogation under the PACP-IEPAIn contrast, consultat...
Table 1.1 List of stakeholder organisations consulted Country      Location       Stakeholder Group/Company               ...
Final Report                                                                   RoO Derogation under the PACP-IEPA2        ...
Final Report                                                                 RoO Derogation under the PACP-IEPA          p...
Final Report                                                                    RoO Derogation under the PACP-IEPA        ...
Final Report                                                              RoO Derogation under the PACP-IEPA           the...
Final Report                                                                      RoO Derogation under the PACP-IEPA      ...
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Report on the Implementation of the derogation to the standard rules of origin granted to the Pacific ACP States in the framework of the Interim Economic Partnership Agreement (EPA)

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This report was commissioned and financed by the European Commission. The views expressed herein are those of the Contractor, and do not represent the official view of the Commission.

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Report on the Implementation of the derogation to the standard rules of origin granted to the Pacific ACP States in the framework of the Interim Economic Partnership Agreement (EPA)

  1. 1. FWC COM 2011 - LOT 1 EuropeAid/129783/C/SER/MULTIReport on the Implementation of the derogation to the standardrules of origin granted to the Pacific ACP States in the framework of the Interim Economic Partnership Agreement FWC COM 2011 RFS 2011/266449 Amanda Hamilton Antony Lewis Liam Campling December 2011 A project financed by the A project implemented by LINPICO European Union
  2. 2. Final Report RoO Derogation under the PACP-IEPADISCLAIMERThis report was commissioned and financed by the European Commission. The views expressedherein are those of the Contractor, and do not represent the official view of the Commission.ACKNOWLEDGEMENTSThe consultants gratefully acknowledge and extend their sincere thanks to all persons who kindlyassisted in carrying out this review by making the time available to meet with members of theconsultancy team during in-country visits and/or providing valuable insights and data.Linpico s.a.r.l. Page ii
  3. 3. Final Report RoO Derogation under the PACP-IEPATABLE OF CONTENTS1 INTRODUCTION .................................................................................................................... 8 1.1 Background ........................................................................................................................... 8 1.2 Methodology ......................................................................................................................... 9 1.3 Stakeholder consultation .................................................................................................... 102 RULES OF ORIGIN DEFINED ................................................................................................. 13 2.1 What are preferential rules of origin? ................................................................................ 13 2.2 The ‘global sourcing’ rule of origin under the PACP-EU Interim EPA ................................. 143 PNG CANNED TUNA INDUSTRY ........................................................................................... 18 3.1 PNG Tuna Fishing Fleet ....................................................................................................... 18 3.2 PNG Processing Sector ........................................................................................................ 25 3.2.1 Existing Operations ................................................................................................ 25 3.2.2 New planned investments ..................................................................................... 31 3.2.3 Potential future investments ................................................................................. 36 3.2.4 Competitiveness of PNG processors ...................................................................... 38 3.3 PNG Tuna Trade .................................................................................................................. 41 3.3.1 Exports ................................................................................................................... 41 3.3.2 Domestic Market .................................................................................................... 45 3.4 Projected Production - 2012-2016 ...................................................................................... 46 3.4.1 Implications of global sourcing on PNG processing sector expansion ...................474 DEVELOPMENT EFFECTS ON THE PNG ECONOMY ............................................................... 48 4.1 Definition of ‘Development Effects’.................................................................................... 48 4.2 Income Generation ............................................................................................................ 49 4.3 Employment Generation..................................................................................................... 50 4.4 Labour/Working Conditions ................................................................................................ 52 4.4.1 Cannery Labour Profiles ......................................................................................... 52 4.4.2 Cannery Labour Conditions .................................................................................... 54 4.5 Other Social Issues .............................................................................................................. 66 4.5.1 Corporate social responsibilities of tuna processing companies ........................... 66 4.5.2 Spin-off businesses ................................................................................................. 68 4.5.3 PMIZ development ................................................................................................. 70 4.5.4 Other concerns ....................................................................................................... 71 4.6 Environmental Issues .......................................................................................................... 72 4.6.1 Management of environmental risks ..................................................................... 72 4.6.2 Existing environmental risks .................................................................................. 74 4.6.3 Potential environmental impacts ........................................................................... 77 4.7 Impact of RoO derogation on PNG development ............................................................... 79Linpico s.a.r.l. Page iii
  4. 4. Final Report RoO Derogation under the PACP-IEPA5 MANAGEMENT OF TUNA RESOURCES IN THE WCPO .......................................................... 80 5.1 Tuna Stock Status ................................................................................................................ 80 5.2 Catch and effort trends ....................................................................................................... 82 5.3 Profile of WCPO purse seine fishing fleets ......................................................................... 84 5.4 Fisheries Management Frameworks and Institutions ........................................................ 89 5.4.1 Regional level institutions ...................................................................................... 89 5.4.2 Sub-regional level institutions................................................................................ 94 5.4.3 National level (Papua New Guinea) ....................................................................... 99 5.4.4 Current effectiveness of management institutions ............................................. 101 5.5 IUU Fishing ........................................................................................................................ 104 5.5.1 Incidence of IUU fishing in WCPO ........................................................................ 104 5.5.2 Evaluation of monitoring, control and surveillance (MCS) capabilities for combating IUU fishing .......................................................................................... 105 5.5.3 Implementation of the EU- IUU Regulation 1005/2008 ......................................110 5.6 SPS Regulations ................................................................................................................. 113 5.6.1 Background .......................................................................................................... 113 5.6.2 PNG Competent Authority ................................................................................... 114 5.7 Impact of RoO Derogation on Tuna Resource Management............................................ 120 5.7.1 Stock sustainability............................................................................................... 120 5.7.2 IUU fishing ............................................................................................................ 120 5.7.3 SPS compliance .................................................................................................... 1216 IMPACTS ON THE EU MARKET AND EU-CENTRED INDUSTRY ............................................. 122 6.1 EU Retail Market for Canned Tuna ................................................................................... 122 6.2 EU Market for Pre-cooked Frozen Tuna Loins .................................................................. 125 6.3 Major Suppliers of the EU Canned Tuna Market .............................................................. 129 6.4 Intra-EU ............................................................................................................................. 129 6.4.1 Extra-EU................................................................................................................ 132 6.5 EU Distant Water Fleet (EU DWF) ..................................................................................... 134 6.6 EU-based Processors ......................................................................................................... 142 6.7 Third Country Processors .................................................................................................. 146 6.8 Impacts of the Derogation on the EU and Third Countries .............................................. 148 6.8.1 Projecting PNG exports: data and assumptions................................................... 150 6.8.2 Impacts on the EU Distant Water Fleet................................................................ 151 6.8.3 Impacts on EU-based Processors and their Canned Tuna Markets .....................153 6.8.4 Impacts on Third Countries and their EU Canned Tuna Markets ........................1587 OTHER CONSIDERATIONS ................................................................................................. 169 7.1 Fiji ...................................................................................................................................... 169 7.2 Direct and Indirect Preference Erosion............................................................................. 169Linpico s.a.r.l. Page iv
  5. 5. Final Report RoO Derogation under the PACP-IEPA 7.3 GSP+ Reforms.................................................................................................................... 170 7.4 PACP-EPA Negotiations ..................................................................................................... 1718 CONCLUDING COMMENTS ............................................................................................... 1719 REFERENCES ..................................................................................................................... 173APPENDIX 1 TERMS OF REFERENCE (ANNOTATED) ................................................................. 182APPENDIX 2 LIST OF PERSONS CONSULTED ............................................................................. 187APPENDIX 3 DETAILED DATA FOR PNG PRODUCTION AND EXPORT PROJECTIONS ................190APPENDIX 4 PROFILE OF EU CANNED TUNA PROCESSORS, 2011 ............................................ 193Linpico s.a.r.l. Page v
  6. 6. Final Report RoO Derogation under the PACP-IEPALIST OF TABLESTable 1.1 List of stakeholder organisations consulted .................................................................... 12Table 3.1 Vessels licensed to fish in PNG by flag and permitted operating area - 2008, 2011 ....... 18Table 3.2 Catch in PNG watersa by vessel access category (mt), 2006-2010 .................................. 19Table 3.3 PNG fleet catch in PNG waters and beyond (mt), 2006-2010 ......................................... 19Table 3.4 Catch in PNG archipelagic waters (mt), 2006-2010 ......................................................... 20Table 3.5 Market/processing destination of fish caught by vessels in PNG waters, 2011 .............. 22Table 3.6 Profile of PNG’s Existing Tuna Processing Operations, 2011 ........................................... 26Table 3.7 Production Capacity of PNG’s Tuna Processing Plants (2006-2011) ............................... 30Table 3.8 Status of New PNG Tuna Processing Investments, October 2011. .................................. 35Table 3.9 Total PNG Tuna Exports (mt), 2006-2010 ........................................................................ 42Table 3.10 PNG Exports of Canned Tuna and Cooked Loins (HS 1604) to EU, 2000-2010 ................ 43Table 3.11 PNG Exports of Canned Tuna and Cooked Loins (HS 1604) to US, 2000-2010 ................ 44Table 3.12 PNG Exports of Canned Tuna to other markets (non-EU, US) (mt), 2000-2010 .............. 44Table 3.13 PNG Domestic Market for Canned Tuna (Estimate) – 2006-2010 (mt) ........................... 45Table 3.14 Medium-term projection of the production capacity of PNG’s tuna processing plants, 2011-2016 ........................................................................................................................ 47Table 4.1 Income Generation by Existing Tuna Processing Plants to PNG Economy, 2007-2010 ......................................................................................................................................... 50Table 4.2 Projected Income Generation by Tuna Processing Plants to PNG Economy, 2011-2016 ......................................................................................................................................... 50Table 4.3 Estimated Employment Generation in PNG from Tuna Processing, 2006-2010 ............. 51Table 4.4 Projected Employment Generation in PNG from Tuna Processing, 2011-2016 .............. 52Table 4.5 Labour profile of existing tuna processing operations - 2011 ......................................... 54Table 4.6 PNG ratification of eight ‘fundamental’ ILO conventions................................................ 55Table 4.7 Issues with PNG implementation of ‘fundamental’ ILO conventions.............................. 56Table 4.8 Overview of Working Conditions in PNG Tuna Processing Facilities – September, 2011 ... ......................................................................................................................................... 58Table 4.9 Socio-Economic Benefits Generated by PNG Tuna Processors, 2011 ............................. 69Table 4.10 Potential environmental risks associated with fish processing plants ............................ 74Table 4.11 Reported environmental issues associated with tuna processing plants in PNG............ 75Table 4.12 Status of environmental approvals for planned PNG processing facilities, 2011 ........... 77Table 5.1 Current stock status of skipjack, yellowfin and bigeye in WCPO, 2011 .......................... 81Table 5.2 No. of vessels and catch for major fleets operating in the WCPO, 2010-2011 ............... 85Table 5.3 Changes in vessel numbers in the WCPO industrial purse seine fleet between 2007 and 2011 (October)................................................................................................................. 87Linpico s.a.r.l. Page vi
  7. 7. Final Report RoO Derogation under the PACP-IEPATable 5.4 Summary of current management activity at regional, sub-regional and national levels, according to criteria established for RFMOs, 2011 ....................................................... 103Table 5.5 Summary of MSC activity at regional, sub-regional and national (PNG) level in the WCPO ........................................................................................................................... 110Table 5.6 Number of RASSF alerts for fish and fish products from selected EU exporting countries, 2006 – September 2011................................................................................................. 116Table 5.7 Comparison between numbers of active purse seine vessels and the number of those vessels on the SANCO lists, 2010-2011.......................................................................... 119Table 6.1 Corporate concentration and private label penetration in principal EU canned tuna markets .......................................................................................................................... 124Table 6.2 Extra-EU27 tuna ‘loin’ imports by major supplier and selected GSP+ and ACP countries (all in tonnes unless otherwise specified)...................................................................... 128Table 6.3 EU market volume – domestic production vs. extra-EU imports (in tonnes unless otherwise specified) ...................................................................................................... 129Table 6.4 Intra-EU export of canned tuna in value and volume, bi-annual 2002-2010 ................ 131Table 6.5 Extra-EU export of canned tuna by top-3 destination market, bi-annual 2002-2010 (in million Euro unless otherwise stated) ........................................................................... 131Table 6.6 Extra-EU27 canned tuna imports by major supplier and selected GSP+ and ACP countries (all in tonnes unless otherwise specified), 2001-10 ...................................... 133Table 6.7 The EU distant water tuna purse seine fleet in 2011 .................................................... 141Table 6.8 Estimated EU-based Tuna Processors, Capacity and Production in 2008 ..................... 142Table 6.9 Major EU canned tuna processing firms ........................................................................ 144Table 6.10 Canned Tuna and Loin Production in Selected Countries by EU Preference Regime in 2008/10.......................................................................................................................... 148Table 6.11 Projected PNG exports to EU in 2016 ............................................................................ 151Table 6.12 Average value per tonne of EU imported canned tuna by supplying country, 2006-10 (all in Euro)........................................................................................................................... 155Table 6.13 Identifying market interaction and potential trade diversion – Top 5 markets for EU- based processors plus PNG (in million Euro), annual average for 2006-10 .................. 156Table 6.14 Share of EU Import Market by Selected Third Country Suppliers of Canned Tuna, 2001- 10 (all in %) .................................................................................................................... 159Table 6.15 Share of EU Import Market by Selected Third Country Suppliers of Tuna Loins, 2001-10 (all in %) ......................................................................................................................... 160Table 6.16 Identifying potential raw material trade diversion for Third Countries – WCPO purse seine catch by fleet or flag and estimated processing country receipts in 2010 for major processing countries (all figures to nearest ‘000mt) ..................................................... 164Table 6.17 Identifying market interaction and potential trade diversion for Third Countries – Volume of Suppliers Canned Tuna Exports to EU27 Markets, annual average for 2006- 10 (all in % unless otherwise specified) ......................................................................... 168Linpico s.a.r.l. Page vii
  8. 8. Final Report RoO Derogation under the PACP-IEPALIST OF FIGURESFigure 3.1 Comparative Direct Raw Material Processing Costs – Thailand and PNG, 2011 (US$/mt) ....................................................................................................................... 39Figure 5.1 WCPO catch by gear in the WCP Convention Area, 1960-2010 ................................... 83Figure 5.2 Number of purse seine vessels by flag on the FFA Regional Vessel Register, October 2011. ............................................................................................................................. 84Figure 5.3 WCPO purse seine catch by fleet (mt), 2010 ............................................................... 85Figure 6.1 Schematic value chain in canned tuna ....................................................................... 125Figure 6.2 EU import of pre-cooked tuna loins in value and volume, 2001-2010 ...................... 126Figure 6.3 EU import of pre-cooked tuna loins by major destination market, 2001-10 (in tonnes). .................................................................................................................................... 126Figure 6.4 EU27 production of prepared or preserved tuna, 1976-2008 ................................... 130Figure 6.5 EU27 vs. World skipjack and yellowfin tuna catch. All regions, gears, all fishing areas (in tonnes), 1950-2009 ............................................................................................... 134Figure 6.6 EU Canning-grade Tropical Tuna Catch: all regions, gears, all fishing areas (in tonnes), 1950-2009................................................................................................................... 135Figure 6.7 France (a) vs. Spain (b) total catch by fishing area (skipjack and yellowfin combined), 1950-2009................................................................................................................... 138Figure 6.8 Network of EU marine territories and Fisheries Partnership Agreements in 2011 ... 139Linpico s.a.r.l. Page viii
  9. 9. Final Report RoO Derogation under the PACP-IEPAACRONYMS3IA Third Implementing Arrangement of the Nauru AgreementACP African, Caribbean and Pacific Group of StatesACU NFA – Audit and Certification Unit Asociación Nacional de Buques Atuneros Congeladores y la OrganizaciónANABAC de Productores de Túnidos CongeladosANFACO Asociación Nacional de Fabricants de Conservas de Pescados y MariscosASEAN Association of Southeast Asian NationsAW archipelagic watersBE BigeyeBFAR Bureau of Fisheries and Aquatic Resources (Philippines)BOD Biochemical Oxygen DemandBSCI Business Social Compliance InitiativeCA competent authorityCC catch certificateCCMs WCPFC members, cooperating non-members and participating territoriesCCS catch certification schemeCCSBT Commission for the Conservation of Southern Bluefin TunaCDS catch documentation scheme ILO Committee of Experts on the Application of Conventions andCEACR RecommendationsCEPESCA Confederación Española de PescaCER country evaluation reportCFTO Compagnie Francaise du Thon OceaniqueCH ChinaCMM conservation and management measureCMS Compliance Monitoring SystemCoC Chain of CustodyCRO Community Relations Officer China Shenyang International Economic and Technical CooperationCSYIC CorporationCTC Change in Tariff Classification methodDCI Department of Commerce & IndustryDEC Department of Environment & ConservationDG MARE EC - Directorate General for Maritime Affairs and FisheriesDG SANCO EC - Director General for Health & ConsumersDG Trade EC - Directorate General for TradeDLIR Department of Labour & Industrial RelationsDWFN distant water fishing nationEC Environment CouncilEC European CommissionEEAS European External Action ServiceLinpico s.a.r.l. Page ix
  10. 10. Final Report RoO Derogation under the PACP-IEPAEEZ Exclusive Economic ZoneEIA environmental impact assessmentEMP Environmental Management PlaneNGO environmental non-government organisationENSO El Niño/La Niña-Southern OscillationEP Environmental PermitEPA Economic Partnership AgreementEPO Eastern Pacific OceanEU European UnionEurothon European Tropical Tuna Trade and Industry CommitteeFAC WCPFC Finance and Administration CommitteeFAD fish aggregation deviceFCF Fong Cherng Fishery Company Ltd.FFA Pacific Islands Forum Fisheries AgencyFPA Fisheries Partnership AgreementFSM Federated States of MicronesiaFSMA Federated States of Micronesia ArrangementFTA Free Trade AgreementFVFODF Freezer Vessel Fish Origin Declaration FormFVO EU Food and Veterinary OfficeGDP gross domestic productGoPNG Government of Papua New GuineaGRT gross registered tonnageGSP Generalized System of PreferencesGSP+ EU Generalised System of Preferences PlusGT gross tonnageHACCP Hazard Analysis and Critical Control Point AnalysisHCR harvest control ruleHR Human ResourcesHSP high seas pocketIA Implementing ArrangementIATTC Inter-American Tropical Tuna CommissionICCAT International Commission for the Conservation of Atlantic TunasIEPA Interim Economic Partnership AgreementIFC International Fisheries CorporationILG Incorporated Landowner GroupILO International Labour OrganisationIOTC Indian Ocean Tuna CommissionIPA Investment Promotion AuthorityITUC International Trade Union ConfederationIUU Illegal, unreported, unregulated fishingLinpico s.a.r.l. Page x
  11. 11. Final Report RoO Derogation under the PACP-IEPAJP JapanK PNG kinakg KilogramKR KoreaLNG liquid natural gasLRP limit reference pointMCS Monitoring, control and surveillanceMFN Most-Favoured NationMOU Memorandum of UnderstandingMSC Marine Stewardship Council CertificationMSY maximum sustainable yieldmt metric toneNAMA Non-Agricultural Market AccessNC WCPFC Northern CommitteeNEC National Economic CouncilNFA National Fisheries AuthorityNGO Non-Government organisationNMSA PNG National Maritime Safety AuthorityNPOA National Plan of ActionNTAD non-target, associated and dependent speciesNTMP National Tuna Management PlanNZ New ZealandOFP SPC – Oceanic Fisheries ProgrammeOPAGAC Organización de ProductoresAsociados de GrandesAtunerosCongeladoresORTHONGEL Organisation des Producteurs de Thon CongeléPACER Pacific Agreement on Closer Economic RelationsPACPs Pacific ACP StatesPAE party allowable effortPAFCO Pacific Fishing CompanyPH PhilippinesPICs Pacific Island countriesPMIZ Pacific Marine Industrial ZonePMSA FAO Port State Measures AgreementPMV passenger motor vehiclePNA Parties to the Nauru AgreementPNG Papua New GuineaPNGDF PNG Defence ForcePNGFIA PNG Fishing Industry AssociationPNGSFFP PNG Standards for Fisheries ProductsPS purse seineRASSF Rapid Alert System for Food and FeedLinpico s.a.r.l. Page xi
  12. 12. Final Report RoO Derogation under the PACP-IEPARDTC RD Tuna CannersRFMO Regional Fisheries Management OrganisationRFV Register of Fishing VesselsRoO Rules of OriginROP Regional Observer ProgramRPOA Regional Plan of ActionRTMADS FFA Regional Tuna Management and Development StrategyRVR FFA Regional Vessel RegisterSA 8000 Social Accountability InternationalSAAS Social Accountability Accreditation ServiceSC WCPFC Scientific CommitteeSEZ Special Economic ZoneSKJ skipjackSPARTECA South Pacific Regional Trade and Economic Cooperation AgreementSPC Secretariat of the Pacific CommunitySPS sanitary and phytosanitary standardsSSTC South Seas Tuna CorporationSTDs Sexually transmitted diseasesTAC total allowable catchTAE total allowable effortTOG Thunnus Overseas GroupTOR terms of referenceTPJ Trans Pacific Journey Fishing CorporationTRP target reference pointTSP TSP Marine IndustriesTTC WCPFC Technical Compliance CommitteeTW TaiwanUK United KingdomUN United NationsUNCLOS United Nations Convention on the Law of the SeaUNCTAD United Nations Conference on Trade and DevelopmentUS United States of AmericaUSMLT US Multilateral Tuna TreatyUVI Universal Vessel IndicatorVDS Vessel Day SchemeVMS vessel monitoring systemVTAF vessel tracking agreement formVU VanuatuWCPFC Western and Central Pacific Fisheries CommissionWCPO Western and Central Pacific OceanWMA wildlife management areaLinpico s.a.r.l. Page xii
  13. 13. Final Report RoO Derogation under the PACP-IEPAWMP Waste Management PlanWQM water quality monitoringWTO World Trade OrganisationWWF World Wildlife FundYF yellowfinLinpico s.a.r.l. Page xiii
  14. 14. Final Report RoO Derogation under the PACP-IEPAEXECUTIVE SUMMARYBackgroundAfter several years of negotiations to establish a WTO-compliant reciprocal Economic PartnershipAgreement (EPA) between the European Union (EU) and the Pacific-ACP states (PACPs), the EU andPACPs agreed to the terms of an Interim EPA, which was initialled in November 2007 by Papua NewGuinea and Fiji, and later signed in July and September 2009, respectively.As part of this agreement, a special derogation to the standard Rules of Origin (RoO) for processedfish was negotiated. This derogation, often referred to as ‘global sourcing’, permits PACPs to sourceraw material from any vessel regardless of flag or where it was caught, provided it has been‘substantially transformed’ by a PACP-based processing facility into canned tuna or frozen cookedloins. This was a one-off and specific exception offered exclusively to PACPs because of theirhistorical lack of RoO compliant fish under the prior RoO due to limited fishing capacity of PACPfishing fleets, reduced processing capability due to physical and economic factors, geographicalisolation and distance from the EU market, as well as a low identified risk of destabilising the EUmarket.On 13 March 2008, PNG submitted a notification to the EU for use of the derogation for processedfishery products. In meeting the review requirements specified in the PACP IEPA text (Protocol II,Art. 6), this report on the implementation of the RoO derogation was commissioned for completionno later than three years after PNG’s notification had been lodged to consider the following:  Development effects on PNG economy – long-term income and employment generation;  Effective conservation and sustainable management of fishing resources (including compliance with sanitary and phytosanitary (SPS) regulations and support for combating illegal, unregulated and unreported (IUU) fishing in the Western and Central Pacific Ocean (WCPO)).In addition, the review also considers the impacts of the RoO derogation on the EU canned tunamarket and EU fishing and canned tuna processing industries.Impact of RoO derogation on PNG developmentThe impact of PNG’s global sourcing RoO derogation on development effects on the PNG economyhas been negligible since 2008, given that existing canners have made very little use of thederogation to date.In the medium term future (2011-2016), with the potential development of an additional fiveprocessing plants, the derogation is expected to have a partial impact on development effects on thePNG economy, given global sourcing is only one contributing factor of several in attracting newonshore investment to PNG.Onshore tuna processing facilitiesCurrently, PNG has three tuna processing facilities handling canned tuna and cooked loin production,with a combined maximum processing capacity of 520 mt/day (130,000 mt annual raw materialthroughput). In September 2011, actual production was around 280 mt/day (70,000 mt/year). From2008-2011, global sourcing has had little influence on growth of PNG’s existing tuna processingLinpico s.a.r.l. Page 1
  15. 15. Final Report RoO Derogation under the PACP-IEPAfacilities, given production levels have generally remained constant and well below capacity. Todate, existing plants have generally been able to meet raw material needs with EU-compliantcatches from their own fleets, or if sourcing from non-company vessels, are yet to branch out andutilise the RoO derogation to its full capacity to source fish from vessels who have not traditionallysupplied them in the past.There are currently five new planned tuna processing investments for PNG, each at different stagesof development; four at Malahang Industrial Estate, Lae and one at the Pacific Marine IndustrialZone at Vidar, Madang. By 2016, estimated total daily production could potentially reach around730 mt/day (~182,500 mt raw material), should all five new and proposed operations proceed. Atpresent, there are few other confirmed additional projects in the pipeline for tuna processing inPNG, and the publicity given to the possibility of rapid large scale expansion seems not be based onthe reality of existing development plans.Expansion is currently driven largely by PNG’s National Fisheries Authority (NFA) policy of linkingfisheries access to onshore processing, rather than duty free access to the EU market and globalsourcing per se. However, while not the primary driver for attracting onshore investment, thederogation will play a critical role in industry expansion in the future and its survival. One of theprimary intentions of negotiating global sourcing was to reduce the impediment to industryexpansion of inadequate supplies of wholly originating fish for export to the EU market. Globalsourcing, amongst other factors, will assist in efforts to achieve greater economies of scale, such thatPNG tuna processing facilities can improve their competitiveness in the short-medium term. Indoing so, if and when PNG’s margin of preference (24%) to the EU gradually erodes in light of morefavourable trade preferences garnered by PNG’s major competitors (e.g. Thailand, Philippines),global sourcing will be a contributing factor in sustaining PNG’s processing sector in the future.Income generationFor 2007-2010, total direct income generated to the PNG economy by the existing three tunaprocessing facilities was in the order of around K 35 million – K 48 million annually (US $16 - 22million). The most significant contributions to the economy were employee earnings (average K 25million/year; 45% of net income) and net purchases in local businesses (average K 13.5 million/year;32% of net income).Since 2007, the total net direct income generated from canned tuna and tuna loin processing hasgenerally increased, however, this cannot be directly linked with global sourcing. This trend relateslargely to increased contributions from one of the three existing canneries, whose production hasexpanded annually since establishment in 2006. Also, employee earnings have increasedconsistently in line with increases in the minimum wage rate.In the medium term, as new onshore investments come on stream, additional income will begenerated in the economy - the largest direct contributions being employment earnings andspending by canneries (and their employees) in local businesses.EmploymentNew tuna processing facilities will generate a significant increase in employment opportunities forPNG nationals, particularly young women (potentially in the order of 50,000 direct and indirect jobsby 2016).Linpico s.a.r.l. Page 2
  16. 16. Final Report RoO Derogation under the PACP-IEPAThe derogation also has the potential to contribute, in part, to improvements in working conditionsfor cannery employees. If profitability of the canneries increase due to lower production costsrealised through gains in economies of scale, then the capacity of companies to afford higher thanminimum wages and other benefits will increase. Existing processing companies have alreadyindicated that while there is believed to be a readily available source of local labour, competition forattracting labour will arise between various plants. In trying to attract and retain labour, this mayresult in canneries offering more favourable pay conditions, as well as additional benefits (e.g.transport, housing). Already, with growing international attention on PNG’s tuna cannery sector,including working conditions within processing facilities, companies are voluntarily taking steps todemonstrate their compliance with international labour standards and continue to makeimprovements in this respect through third-party accreditation under private social standardssystems.Other development issuesWith increased investments, the opportunity for expansion in spin-off businesses (and otherancillary benefits) for local communities exist, if these businesses are adequately planned andexecuted, with the necessary capacity building provided in all facets of small business operations, inaddition to any working capital provided.If not properly managed, negative social and environmental impacts associated with tuna processingactivities could magnify. However, it should be noted that the management of broader social, aswell as environmental issues is not the sole responsibility of tuna processing companies. Acoordinated effort is required between canneries, national and provincial governments, localcommunity leaders, as well as concerned NGOs. In addition, it should be noted that social andenvironmental issues associated with tuna processing developments in PNG have been in existenceprior to global sourcing.Impact of RoO Derogation on Tuna Resource ManagementStock sustainabilityThe current status of tuna stocks in the WCPO is generally positive and remains essentiallyunchanged since the advent of the RoO derogation. Two of the three main stocks harvested -skipjack and yellowfin - which supply over 95% of purse seine-caught raw material for processing,continue within sustainable limits, now and most likely into the future. This is despite primarymanagement measures failing to limit effort, associated with the growth of the purse seine fleetduring much of the previous decade. However, most of this growth occurred prior to the derogationand the total WCPO catch has been relatively stable since 2007. The third stock, bigeye, was subjectto overfishing at the introduction of derogation and will continue to be, unless purse seine effort canbe reduced. However, bigeye is not yet deemed to be in an overfished state.Current management measures in place will be strengthened under an enhanced Conservation andManagement Measure (CMM) through the Western and Central Pacific Fisheries Commission(WCFPC), which will be extended to include skipjack (in addition to yellowfin and bigeye currently)and revised on the basis of current scientific advice. An important recent development has been theapproval of the Marine Stewardship Council PNA skipjack certification in December 2011. As a resultof the certification, reference points and harvest control rules will be introduced as key managementmeasures in the near future, which will further strengthen management in the WCPO, includingPNG’s waters.Linpico s.a.r.l. Page 3
  17. 17. Final Report RoO Derogation under the PACP-IEPAProvided compliance with existing and new management measures is good, and current effort levelsin both the purse seine and longline fisheries can be reduced, the impact of derogation on stocksustainability in the future is likely to continue to be minimal.IUU fishingMonitoring, control and surveillance (MSC) capability at the regional, sub-regional and, in the case ofPNG, national level is well developed and continues to strengthen. There is little evidence of IUUfishing in the WCPO purse seine fishery, with most issues relating to in-zone infractions.As tighter MCS controls are introduced and enhanced management measures adopted, pressure toinfringe, particularly with respect to closed high seas areas, time period closures and fishing methodrestrictions may increase. This additional pressure on MCS schemes will be exacerbated by increasedpressure on relatively static raw material supplies, given WCPO catch levels are expected to remainstable. Provided MSC activities continue to be well resourced and well coordinated across theregion according to agreed strategies, both within EEZs and on the high seas, any impacts ofderogation on IUU fishing should be limited.A recent review indicated that PNG has effectively implemented the EU-IUU Fishing Regulation. Thisadditional requirement for EU market access has not limited the supply of compliant raw materialfor processing in PNG plants, other than in the case of Vanuatu-flagged vessels.SPS complianceTo date, global sourcing has had little or no direct impact on PNG processors, with adequate suppliesof originating fish to meet prior and current needs. Catches within archipelagic waters have beenclose to 100,000 mt in recent years, while PNG’s canneries have required around 60,000-70,000 mt.Also, the requirement for compliance of this supply with the EU’s Sanitary and Phytosanitary (SPS)Regulation has not been a constraint thus far, with an adequate number of SPS-compliant vessels tomeet the necessary raw material supply.In the short to medium term, as additional processing plants come on stream, global sourcing willneed to be exercised to a much greater degree for new plants to acquire sufficient SPS-compliantraw material for processing and export to the EU. However, the issue may not be that the numberof vessels with SPS certification is inadequate, given that in 2010, over 750,000 mt of WCPO fish waslikely caught by vessels with SPS certificates. Rather, the issue may be the availability of SPScompliant fish to PNG processors. Global sourcing notwithstanding, there is currently little to noincentive for fleets to offload to PNG plants (existing or potential plants) if those vessels/fleets haveno links to PNG onshore investments. Even where vessels do have links to onshore plants,significant quantities of fish are often transhipped and exported, rather than offloaded to processingfacilities. PNG will need to consider arrangements to guarantee supply to proposed future plants(e.g. compulsory offloading a portion of catch by licensed vessels, in combination with preferencegiven to licensing SPS-compliant vessels to fish in PNG waters). The present requirements for vesselsfishing under existing arrangements to supply fish to onshore plants may need to be tightened up orenforced.A second SPS-related issue for PNG relates to the status of its Competent Authority (CA). Issues withthe CA itself and the certification of vessels and plants were identified by DG SANCO’s Food andVeterinary Office in 2007 and 2008, and the CA was further examined in 2009. While best effortshave made to rectify the deficiencies identified, it is still not certain if full compliance has beenLinpico s.a.r.l. Page 4
  18. 18. Final Report RoO Derogation under the PACP-IEPAachieved. There has been a recent increase in rapid alerts for EU tuna imports from PNG, which willraise renewed questions about the compliance of vessels/plants and the CA itself. PNG cannotafford to be de-listed, with the EU the primary market for PNG canned tuna and increasingly, cookedloin exports. In future, the work load and expectations of the CA associated with increasing numberof plants and unloading vessels can increase substantially. The CA has anticipated this to someextent, with plans to double the number of auditors by next year. Furthermore, additionalequipment, enhanced training and capacity building, upgrading systems/processes etc. will all berequired.Impacts on the EU Market and EU-Centred Fishing and Processing IndustriesThe EU is PNG’s most significant market overall in terms of total tuna exports, and is the largestmarket for canned tuna. In 2010, total canned tuna exports to the EU were 15,867 mt and valued ataround € 37 million. The highest volume of canned tuna exports on record was 18,217 mt in 2005,with annual export volumes fluctuating throughout the past ten years (2001-2010). The major EUmarkets for canned tuna from PNG are presently Germany, UK, Denmark and the Netherlands.PNG processors have also been exporting cooked loins to the EU since 2005 and volumes havefluctuated during this time. In 2010, cooked loin exports were the highest volume to date, totalling2,485 mt and valued at € 8.8 million. The major markets for PNG loins are Italy and Spain.Impacts on the EU Distant Water FleetThe purse seine fleet that is flagged by EU member states operates almost exclusively in the EasternTropical Atlantic and the Western Indian Ocean. Today, and historically, there is very limitedinteraction of the EU Distant Water (tuna purse seine) Fleet (EU DWF) with the WCPO. Currentlyonly four Spanish-flagged boats operate under Fisheries Partnership Agreements in the WCPO (withFSM, Kiribati and Solomon Islands), and an additional 10 Spanish-owned, non-EU flagged boats areregistered to fish in the WCPO. Non EU-flagged Spanish-owned vessels in the Pacific operateprimarily in the Eastern Pacific Ocean, but also engage in operations in the WCPO. These purseseiners primarily supply catches to parent tuna processing facilities in Latin America. As a result,these vessels generally do not supply originating fish to PNG or other tuna processing facilities basedin the Pacific islands.PNG-based processors have utilised only very minor quantities of tuna under the derogation in 2011,so de facto no direct impacts on the EU DWF are discernable. The Spanish DWF active in the WCPO isnot currently supplying PNG, so processing investment in PNG is not directly influencing EU DWFtuna sales through competition on the PNG market with non-EU purse seining firms.Given zero direct interaction between the Spanish fleet and PNG, there is little likelihood of thederogation impacting on the current operations of the EU DWF in the medium term. However, in thecase where European fishing firms wanted to expand their operations to the PNG EEZ, they mayencounter enhanced competition for fisheries access and the PNG market for tuna raw material mayalready be sufficiently supplied by fishing firms that have onshore investments.EU-based processors and their canned tuna marketsSince PNG processors have only sourced very minor volumes of raw material under the derogation in2011, the derogation has not had a discernable impact on EU markets. In any case, PNG canned tunaexports have not penetrated the most important markets of EU-based producers (i.e. Spain andLinpico s.a.r.l. Page 5
  19. 19. Final Report RoO Derogation under the PACP-IEPAItaly), largely since the types of canned tuna products currently processed in PNG (i.e. basic skipjackin vegetable oil or brine in 180 g packs) do not interact substantially with the types produced withinItaly and Spain for their major markets of Italy and Spain (i.e. high quality yellowfin in olive oil insmall packs). Given that Philippines-based processors are the principal source of investment in PNG,and that these companies have not penetrated the Italian or Spanish markets in their three decadesof operations in the Philippines either, it is highly unlikely that this will change in the far morechallenging business environment of PNG.It seems that the most important immediate strategic concern of EU-based processors is that globalsourcing will be treated as a precedent rather than as an exemption and be offered to other tradingpartners, such as in free trade agreement negotiations with major canned tuna processors in ASEAN.In the medium-term, without the purchase of a major brand, PNG’s lack of direct penetration ofItalian and Spanish markets is very unlikely to change. If there are plans for intra-EU growth bySpanish non-branded exporters, they may deepen interactions with PNG exports, possibly in theFrench market. However, Italy- and Spain-based processors may develop a symbiosis with PNGthrough the increased import of loins.Third countries and their EU canned tuna marketsThailand, Philippines, Ecuador, Mauritius and Seychelles have consistently been leading third countrysuppliers of canned tuna and cooked loins to the EU market throughout the last decade. To date,PNG’s RoO derogation has not had any direct impact on third country exports to the extra-EUmarket, given the derogation has barely been utilised. Similarly, the derogation cannot explain shiftsin PNG’s share of EU markets for canned tuna and tuna loins. Neither the data for relative PNGshare of the EU canned tuna market, nor that for the loin market show any discernable trends in the‘post-derogation’ period (March 2008-2011).For extra-EU imports of canned tuna, the top-5 third countries have dominated the market for the 7year period running up to the derogation (2001-06) and afterwards. PNG has remained a relativelyinsignificant player throughout. In fact, PNG’s largest recorded volume share of the extra-EU cannedtuna import market was before the derogation (i.e. 4.5%. in 2005). The market share of the leadingthird country supplier in that year (Ecuador) was 3.4 times higher than PNG’s. For PNG volume shareof the extra-EU import market for tuna loins there was a minor increase in the post-derogationperiod when it hit a new height of 2.4% in 2010, but there is no discernable trend in the data. Thisshare is, however, insignificant compared to that of the top-3 leading third country suppliers in 2010(i.e. Ecuador with 35.6%, Mauritius with 12.0%, and Thailand with 11.6%).Raw material diversion of tuna catch in the WCPO from third country processors relying on thissupply to PNG-based processors is one potential impact on third country suppliers identified for themedium term. By 2016, PNG processors may require an additional 120,000 mt of raw material. Themain third countries that will likely be impacted will be processors in Thailand, Philippines, Vietnamand China. There are no likely raw material diversion impacts on EU-based processors, or other IEPA(i.e. Indian Ocean based processors) and GSP+ (i.e. Latin American) third countries.Trade diversion of finished product, where increased PNG exports of duty free canned tuna and tunaloins to the EU market will displace market share of existing exporters, has been identified asanother potential impact on third country tuna processors.If the EU market remains relatively stagnant, by 2016 PNG could capture up to 14.0% share of theextra-EU import market for canned tuna (from 4.3% in 2010), potentially exporting around 56,700Linpico s.a.r.l. Page 6
  20. 20. Final Report RoO Derogation under the PACP-IEPAmt by 2016. Alternatively, if the extra-EU canned tuna import market returns to growth, PNG couldcapture up to 12.6% share of a mildly expanding extra-EU import market for canned tuna. Underboth of these scenarios, potential PNG share of the extra-EU canned tuna import market issignificantly less than that of Thailand and Ecuador, the two largest third country suppliers in recentyears. The trade diversionary effect would be minor, and would not serve to destabilise the EUmarket. Two sets of companies in third companies could be potentially impacted: i) non-brandedAsian-Pacific processors targeting similar markets as PNG (e.g. Germany, the UK and theNetherlands) that are also reliant on the WCPO for raw material (i.e. Philippines, Vietnam, China andsmaller players in Thailand); and ii) Others: specialised non-branded processors in a weak tunasupply position (e.g. poor location, without vertically-integrated fleets,) and without ownership byEU firms (i.e. that are not tied-in to EU markets through EU firms who have an interest in thecommercial survival of their overseas cannery investments).In the case of tuna loins, should the EU market experience continued growth, based upon projectedPNG exports to the EU in 2016 of 29,200mt, PNG could capture up to 15.4% share of the extra-EUimport market for tuna loins. Under this scenario, Ecuador’s 2010 market share is more than doublethat of Papua New Guinea’s projected share in 2016. In short, expansion of PNG’s exports to the EU(and the contributing role that the derogation plays in this) will not have a market destabilisingeffect. Moreover, given that the EU market for loins could increase by an estimated 54,600 mtbetween 2010 and 2016 (from 104,400 mt in 2010 to 159,000 mt in 2016) and that PNG’s projectedexports in 2016 are 29,200 mt, existing third country suppliers will also still have room to grow.Linpico s.a.r.l. Page 7
  21. 21. Final Report RoO Derogation under the PACP-IEPA1 INTRODUCTION1.1 BackgroundSince the mid 1970’s, former European Union (EU) colonies in the African, Caribbean and Pacificregions (ACP) have enjoyed preferential market access for exports to the EU under the LoméConvention, and more recently, the Cotonou Agreement. The EU’s primary stated rationale foroffering preferential market access to ACP countries has been to boost ACP industry competitivenessand promote development. Under the Lomé/Cotonou preference, Pacific Island Countries (PICs)benefit from duty free access for processed tuna products (cans/loins), while competing exports aresubject to an EU 24% most-favoured nation (MFN) tariff.To comply with WTO requirements, former non-reciprocal trade agreements between the EU andACP are being reformulated under a series of reciprocal Economic Partnership Agreements (EPAs).Regional negotiations between the EC and the 14 Pacific ACP States (PACPs) commenced in 2004and fisheries issues have been a critical component. From the outset, the principle fisheries-relateddemands of PACPs in negotiations have been ongoing preferential market access for fisheriesproducts (particularly tuna), and relaxed rules of origin (RoO) that deems fish to be originatingregardless of where the fish is caught or vessel ownership, if substantially transformed (processed)in a PACP-based processing facility prior to export.In 2007, PACPs were successful in negotiating a special derogation to the standard RoO (referred toas ‘global sourcing’) for processed fish (HS Chapters 1604 and 1605, covering canned tuna andcooked loins) which permits PACPs to source fish from any vessel regardless of flag or where it wascaught, provided it has been ‘substantially transformed’ by a PACP-based processing facility. Thisderogation means that PACPs are able to source qualifying fish from a much wider range of vesselsfor onshore processing than under previous Cotonou Agreement rules of origin. The objective of theRoO derogation for processed fishery products is to support the development of onshore processingcapacity for fish (notably tuna) products in the Pacific States, in order to create local employment (inparticular for women) and income. For the EC this was a one-off and specific exception offeredexclusively to PACPs because of their historical lack of ‘compliant’ fish under the prior RoO due tolimited fishing capacity of PACP fishing fleets, reduced processing capability due to physical andeconomic factors, geographical isolation and distance from the EU market, as well as a low identifiedrisk of destabilising the EU market.EC-PACP negotiations have been complex and drawn out, resulting in an inability to conclude acomprehensive EPA by the end-2007 deadline. Papua New Guinea (PNG) and Fiji signed an interimEPA in November 2007 to ensure uninterrupted preferential market access into the EU from 1January 2008.On 13 March 2008, PNG submitted a notification to the EU for use of the derogation for processedfishery products. According to Protocol II (Article 6) of the PACP Interim Economic PartnershipAgreement text, a report on the implementation of the RoO derogation must be drawn up no laterthan three years after notification has been lodged by a PACP to utilise the derogation.In meeting the review requirements under Protocol II, this report on the ‘implementation of thederogation to the standard rules of origin granted to the Pacific ACP States in the framework of theInterim Economic Partnership Agreement’ was commissioned by the European Commission’sDirectorate-General for Trade (DG TRADE) for completion by December 2011.Linpico s.a.r.l. Page 8
  22. 22. Final Report RoO Derogation under the PACP-IEPAIn accordance with Protocol ll, Article 6.6 (c), (d), (e) of the PACP-Interim EPA and the project Termsof Reference (Appendix 1), the report considers:  Development effects on PNG economy – long-term income and employment generation;  Effective conservation and sustainable management of fishing resources (including compliance with sanitary and phytosanitary (SPS) regulations and support for combating illegal, unregulated and unreported (IUU) fishing in the Western and Central Pacific Ocean (WCPO)); and  Impacts on the EU canned tuna market and EU fishing and canned tuna processing industry.On the basis of this report, the EU and PNG will hold consultations in 2012 on the utilisation of thederogation, taking into account in particular its development effects and the effective conservationand sustainable management of the resources.1.2 MethodologyThis review has been undertaken in accordance with the methodology specified in the Terms ofReference (TOR) and has involved a review of existing literature, desktop research, stakeholderconsultations and evidence-based analysis.The review was conducted from July – December 2011 and consisted of three phases: i) Phase l (18 – 29 July):  Brussels - 1 week; client inception meeting; multi-stakeholder consultation, bilateral consultations.  Spain - 4 days; bilateral consultations - industry, government. ii) Phase ll (8 Aug – 4 Nov):  FSM consultation - 1 week; Western and Central Pacific Fisheries Commission (WCPFC).  PNG consultation - 3 weeks; National Fisheries Authority (NFA), other government departments, industry representatives, non-government organisations (NGOs), international organisations.  Evidence-based analysis and report preparation.  PNG De-briefing - i) NFA/EC; ii) wider stakeholders. iii) Phase lll (7 Nov – 31 Dec):  De-briefing Brussels - EC (DG Trade, DG Mare, DG Sanco, European External Action Service (EEAS)).  Finalise draft report – submit to EC and NFA for review.  Client review of draft report – 21 days.  Report finalisation – 14 days; submission end December.An extensive review of literature was conducted to complement the consultants’ existing knowledgeand establish a strong foundation for the study, since considerable information and data alreadyexists in the public domain. This enabled the consultants to maximize the time available in face-to-Linpico s.a.r.l. Page 9
  23. 23. Final Report RoO Derogation under the PACP-IEPAface meetings with relevant stakeholders to focus on issues that are not sufficiently addressed in thepublic domain, are not easily understood or are of a sensitive nature.Desk top research included a review of reports/documents (e.g. public sector, private sector, greyliterature, academic literature), media releases, company profiles, data and official statistics (e.g.vessel catch and effort data, vessel registries, trade statistics, market information), internet sites andother sources in the public domain.The study involved face-to-face consultation with key stakeholders in the EU (Belgium and Spain),PNG and Federated States of Micronesia (FSM). Written submissions were also received from threeEU stakeholders (see Section 1.3).Using relevant literature sources, data, information gathered from key stakeholders and theconsultants’ own knowledge and industry contacts, an evidence-based analysis was conducted.In assessing the impacts of the RoO derogation, three timeframe scenarios were considered:  Pre-derogation: 2006-2007  Post-derogation (first three years following notification): March 2008-2011  Post-derogation (future five-year projection): 2012-2016In terms of future projections of potential development of PNG’s tuna processing industry, amaximum period of five years was considered, as both the client and the consultants’ were of theview that projections any further than five years out could not be made with any certainty.While the objective of the review was to specifically analyse the impacts of the global sourcingderogation, in each section of this report discussion goes well beyond this, where issues which wereeither in existence prior to the derogation and/or have little relation to global sourcing have beenincluded for the purpose of providing context.1.3 Stakeholder consultationThe study involved extensive consultation with key stakeholders in the EU (Belgium and Spain), PNGand FSM. Table 1.1 presents a list of organisations that were consulted including relevantgovernment agencies, tuna fishing and processing operators, international and regionalorganisations, non-government organisations and civil society representatives. Follow-up wasconducted via email/telephone with selected stakeholders (particularly industry representatives)with additional information and data requests to support evidence-based analysis (see Appendix 2for the list of persons consulted).Discussions held with EU stakeholders centred largely around their respective positions on PNG’sglobal sourcing derogation. The positions raised were general in nature (with little empiricalsupporting information) and centred on issues including the potential impact of the derogation onthe EU market, and EU fishing and processing industries, as well as industries in other ACP and GSP+countries; the impact on the WCPO tuna resource, including the potential for IUU fishing and SPSinfractions; and social issues relating to PNG’s processing facilities. Positions were presented duringthe multi-stakeholder consultation and bilateral meetings held in Brussels and Spain (18-29 July), aswell as via written positions submitted to the consultants by three EU-based organisations.Linpico s.a.r.l. Page 10
  24. 24. Final Report RoO Derogation under the PACP-IEPAIn contrast, consultation held with PNG stakeholders (12-30 September) was for the specific purposeof collecting detailed information and data to underpin evidence-based analysis of the impact of thederogation in PNG, rather than more general positions concerning the strengths/risks of globalsourcing.Linpico s.a.r.l. Page 11
  25. 25. Table 1.1 List of stakeholder organisations consulted Country Location Stakeholder Group/Company Details Belgium Brussels EC / EEAS European Commission - Client DG Trade European Commission - Client & Task Manager EU Parliament - Committee on Fisheries DG Mare European Commission DG Sanco European Commission EU fishing/canning industry OPAGAC, ANFACO, ANABAC, Eurothon, Pole Mer, Frucom Diplomatic Missions PNG, Fiji, Thailand, Philippines NGOs WWF, CFFA-CAPE, EBCD Spain Vigo ANFACO Industry association - Spanish Canned Tuna Processors Vigo Eurothon Industry association - European Tuna Fishers/Processors Madrid OPAGAC + CEPESCA Producer organisation - Purse seine vessel owners Madrid ANABAC Producer organisation - Purse seine vessel owners Madrid Ministry of Fisheries Government Agency – Fisheries Madrid Ministry of Industry, Tourism & Trade Government Agency – Trade FSM Pohnpei Western and Central Pacific Fisheries Commission Regional Fisheries Management Organisation Secretariat of the Pacific Community WCPFC Science Provider PNG Port Moresby EC Delegation to PNG National Fisheries Authority Government Fisheries Agency Investment Promotion Authority Government Agency - Foreign Investment Department of Commerce & Industry Government Agency - PMIZ Project Coordination Department of Environment & Conservation Government Agency – Environment Department of Labour & Industrial Relations Government Agency – Labour World Bank/International Finance Corporation Support for PMIZ/Special Economic Zone development Halisheng Corporation Tuna fishing/processing company - new development Fairwell Investment Tuna fishing company - partner in Niugini Tuna development World Wildlife Fund Environmental NGO Lae Frabelle Fishing Corporation Tuna fishing and processing company - established (2006) Majestic Seafood Corporation Tuna fishing/processing company - new development International Fisheries Corporation Mackerel processors - existing, expanding into canned tuna Madang RD Tuna Canners Tuna fishing and processing company - established (1997) Niugini Tuna Tuna fishing/processing company - new development PNG Fisheries Industry Association PNG tuna fishing/processing industry association Bismarck Ramu Group NGO Nancy Sullivan Social Anthropologist Wewak South Seas Tuna Corporation Tuna fishing and processing company - established (2003)Linpico s.a.r.l. Page 12
  26. 26. Final Report RoO Derogation under the PACP-IEPA2 RULES OF ORIGIN DEFINED2.1 What are preferential rules of origin?Rules of origin (RoO) are contained within all preferential and free trade arrangements and governwhether or not a product is eligible for tariff preferences that are provided in a given tradearrangement. RoO in preferential trade arrangements are designed to serve two purposes. The first isto ensure that the economic activity associated with goods exported under the terms of the tradepreference is undertaken in the preference receiving country. By specifying the origin of inputs or theamount of transformation required these rules reduce trade deflection (i.e. commercial interests in athird country transhipping product through the preference receiving country). The result is that thebenefits of preferential trade are not conferred on non-signatories.In practice, rules of origin (RoO) also serve an important second purpose. They protect and/or promoteeconomic interests based in the preference giving country by targeting the input composition of importsor acting as a non-tariff barrier to trade. 1 According to a RoO specialist at UNCTAD, ‘today’s rules oforigin are used as, or simply are, instruments of commercial policy’. 2 This second purpose can have theeffect of limiting the potential developmental benefits of a commercially significant trade preference. 32.1 EU rules of origin for fish and fish productsEU rules of origin for fish are based upon ‘wholly obtained’ criteria. Under (Interim) EPAs and under theEU’s current Generalized System of Preferences (GSP) regime, 4 the wholly obtained criteria for fish andfish products are that:  All fish is automatically wholly obtained and therefore considered as originating based upon the location of catch for fisheries based inland and within territorial seas (12 miles from the coast). 5 This can also include fish caught in a country’s archipelagic waters where the proper international legal procedures have been followed through the United Nations. 6  Origination is determined by the ‘nationality’ of the boat for fish caught at any point outside the territorial seas of signatories (i.e. in exclusive economic zones and the in high seas). The nationality of the boat is determined by: a) the boat being flagged and registered by one of the1 Falvey and Reed 2002; Gibbon 2008; Hoekman 1993; Krueger 1997.2 Inama 1995: 109.3 Alavi et al. 2007; Brenton 2003; Brenton and Manchin 2003; Brenton et al. 2008: 7-8; Mattoo et al. 2003.4 The three pillars of the EU’s GSP regime are: a) the standard GSP (available to almost all developing countries); b)the GSP+ (available to countries categorised as ‘vulnerable’ and having ratified and implemented 27 conventionson the environment, good governance and human rights); and, c) ‘Everything But Arms’ (available only to leastdeveloped countries, as recognised and categorised by the United Nations) (Council Regulation (EC) No 980/2005;Council Regulation (EC) No 732/2008; Commission Regulation (EU) No 1063/2010).5 Territorial seas as defined under UNCLOS (1982), Part II, Section II, Article 3.6 For example, Papua New Guinea obtained a redefinition of its ‘territorial sea’ to incorporate the sea surroundingits entire archipelago. To receive this status under UNCLOS (1982) Part IV, Articles 47-50, a country declares thewaters sovereign and submits the claim to the Division of Oceans and Law of the Sea at the UN (a collection housefor declarations). If there is no dispute, the declaration becomes law. Before PNG’s application, no other state hadmade use of archipelagic waters in relation to EU RoO.Linpico s.a.r.l. Page 13
  27. 27. Final Report RoO Derogation under the PACP-IEPA parties to the agreement; and, b) being at least 50% owned either by nationals of parties to the agreement or by a company based in one of the parties to the agreement. 7Due to the specific nature of fish, the wholly obtained approach is the basis of all EU preferential rulesof origin for fishery products in international preferential trade arrangements, including in the CotonouPartnership Agreement (and the Lomé Conventions before it) .The main change in defining ‘wholly obtained’ fish in the (Interim) EPAs and the current GSP comparedto Lomé/ Cotonou and prior GSP RoO is the full deletion of a requirement for a vessel’s crew to consistof 50% nationals of the parties to the agreement (75% for the prior GSP RoO). 8 EU industry had pushedfor this deletion as it would give ‘the EU fleet greater flexibility without compromising any of the otherbenefits of the current RoO’. 9The EU tuna fishing industry maintains that the RoO contributes to off-setting its higher cost structurecompared to less heavily regulated competitors, especially in the realm of ‘social and environmentalconditions’. 10 From the perspective of preference-receiving trading partners, such as the ACP group, EUfisheries rules of origin have long been perceived as a source of contention due to their restrictiveness. 112.2 The ‘global sourcing’ rule of origin under the PACP-EU Interim EPAThe ‘global sourcing’ rule of origin permits PACP signatories to the Interim EPA to source fish from anyvessel regardless of flag or where it was caught, provided it has been ‘substantially transformed’ by aPACP-based processing facility. 12 This provision means that PACPs are able to source qualifying fish froma much wider range of vessels for onshore processing than under previous Cotonou Agreement rules oforigin.After several years of negotiations, the EU and the Pacific ACP agreed to the terms of an Interim EPA inNovember 2007, which deals solely with the trade in goods. Only Papua New Guinea and Fiji initialledthe Agreement and both have since signed it (in July and December 2009 respectively). Fiji has not yetapplied the Interim EPA or notified its intention to utilise global sourcing. For PNG, the continuation ofuninterrupted preferential access to the EU market for palm oil and canned tuna were majormotivations behind its initialling of the IEPA.From the perspective of the Pacific parties, achieving a relaxation of the rules of origin for fish was aprimary objective in the negotiations. The rationales for this objective were recorded in the text of thePACP-EU IEPA (2010):7 This is a simplification of complex legal text. More detailed comparative accounts of fisheries RoO under Cotonouand under (Interim) EPAs can be found in Campling (2008) and Naumann (2010).8 Compare (Interim) EPA RoO protocols with CPA, Annexes 5 and 17; and Commission Regulation (EEC) No 2454/93with Commission Regulation (EU) No 1063/2010.9 Oceanic Développement-Megapesca 2007: 52.10 FITAG-Anfaco 2011: 2; Murias 2011a; Estudios Biologicos 2006.11 Commission for Africa 2005: 55-56; Cosgrove Twitchett 1981: 111; Davenport et al. 1995: 33, 61; Ravenhill 1985:167-171; Stevens and Weston 1984: 55.12 See Box 1 for full reproduction of the relevant article in the PACP-EU IEPA.Linpico s.a.r.l. Page 14
  28. 28. Final Report RoO Derogation under the PACP-IEPA The Parties recognise that since the Lomé Convention was signed in 1976, Pacific States have not been able to develop an adequate national fleet respecting the vessel conditions of Article 5.2 of the present Protocol II [i.e. on ‘wholly obtained’ fish]. The Parties also recognise the special circumstances of the Pacific States encompassing the insufficient wholly-obtained fish to meet on-land demand, the very limited fishing capacity of the Pacific States’ fishing fleet, the reduced processing capability due to physical and economic factors, the low risk of destabilising the EU market due to large inflows of fishery products from the Pacific States, the geographical isolation of the Pacific States as well as the distance to the EU market. The Parties also share the final goal of promoting further development in the Pacific States while promoting sustainable fisheries and good fisheries governance. (Protocol II, Article 6.6(a).)In other words, the negotiated text of the PACP-EU IEPA explicitly recognised that prior EU RoO hadlimited the developmental potential of commercially significant trade preferences for processed fishproducts due to ‘insufficient wholly-obtained fish’.For the EU this was a one-off exception offered exclusively to PACPs because of their historical lack oforiginating fish under Cotonou RoO. Global sourcing is ‘a specific relaxation’ for the PACP and ‘cannot betaken as a precedent in other negotiations’ (DG Trade 2007a: 3; see also DG Trade, 2007b: 15). A letterby Trade Commissioner Peter Mandelson to Cook Islands Minister of Foreign Affairs Wilkie Rasmussenreiterates this position. In the letter, Mandelson noted that, in offering global sourcing fisheries RoO,‘we did so specifically and only for the Pacific, in response to what you [the PACP] said was a decisiveissue’ (Mandelson 2008; see also, EUROTHON 2011a: 2-3).Popularly referred to as ‘global sourcing’ this negotiated outcome of the PACP-EU Interim EPA is moretechnically understood as an application of the Change in Tariff Classification (CTC) method. That is,goods are deemed to be originating if they are transformed in a signatory PACP country from oneheading of the Harmonised System (HS) of tariff classification (in this case fresh and frozen fish underChapter 3, especially tuna) to another heading (in this case processed fish products, especially cannedtuna and tuna ‘loins’ for reprocessing as canned tuna under Chapter 16). 13 The text establishing the‘global sourcing’ derogation is reproduced in full as follows: 6. (b) The Parties recognise the enormous importance of fisheries to the people of the Pacific States and that the fish, for example tuna in the Western and Central Pacific Ocean is the most important shared natural resource for long-term income and employment generation for the Pacific States. This shared fisheries resource in the waters of the Pacific States is subject to various management regimes at regional, sub- regional and national levels, including the Vessel Day Scheme aiming at regional sustainable tuna purse seine fisheries. These activities are subject to monitoring within13 It is important to specify the type of tuna ‘loins’ under consideration here. Pre-cooked, vacuum-packed frozenskipjack and yellowfin tuna loins are filed under Chapter 16 of the World Customs Organisation HarmonisedSystem and transposed to the EU Combined Nomenclature (Commission Regulation (EU) No 861/2010). This typeof loin is used by canning operations, including by EU processors, for defrosting and inserting into the canned tunaproduction process (HS codes 1604 1416 and 1604 1931). This product is distinct from fresh-chilled vacuum packedtuna loins which are filed as ‘fillets’ under Chapter 3 (0304). This product type is imported to be cut into fillets orsteaks for sale on supermarket fish counters, retailed as pre-packed portions of fresh-chilled or frozen product, orare used in restaurants.Linpico s.a.r.l. Page 15
  29. 29. Final Report RoO Derogation under the PACP-IEPA the framework of the Western and Central Pacific Fisheries Commission, including the Vessel Monitoring System and Observer Programmes. In this context, the Parties agree that notwithstanding paragraph 1, when circumstances are such that wholly obtained products as defined in Article 5 paragraphs 1(f) and 1(g) cannot be sufficiently utilised to satisfy the on-land demand and following the prior notification to the European Commission by a Pacific State, processed fishery products of headings 1604 and 1605 manufactured in on-land premises in that State from non-originating materials of Chapter 03 that have been landed in a port of that State shall be considered as sufficiently worked or processed for the purposes of Article 2. The notification to the European Commission shall indicate the reasons why the application of this paragraph will stimulate the development of the fisheries sector in that State, and shall include the necessary information about the species concerned, the products to be manufactured as well as an indication of the respective quantities to be involved. (Protocol II, Article 6.6(b). Emphases added.)Two points from this text are worth re-emphasising here. First, the rule was worded as a one-offexemption applied to the Pacific islands (as already emphasised in the wording of the text of Article6.6(a)). Second, this text and the ‘review clause’ (see below) details the principal objective of thederogation – ‘long-term income and employment generation for Pacific States’ (see also, CommissionStaff Working Document 2007: 15).The term ‘global sourcing’ can be misleading. While in terms of preferential origin the derogation isglobal if compared to standard EU origin rules, this does not permit PACP signatories unmitigatedsourcing of tuna or other fish species on a global scale. The supply of fish is subject to strict EU sanitaryand phytosanitary (SPS) measures and the EU regulation on the import of IUU fish and fish products.Both conditions are specified in Article 6.6(e) of Protocol II.Another conditionality in the derogation is that ‘[a] report on the implementation of Article 6.6(b) shallbe drawn up no later than three years after the notification’ to the European Commission (Article 6.6(c)and (f)). PNG sent a notification to the European Commission on 13 March 2008. This report wascommissioned to fulfil the requirement of Article 6.6(c). 14 In so doing, it provides the first step in theprocess of the derogation’s ‘review clause’. The review clause specifies that: On the basis of this report, the European Community and the requesting Pacific State shall hold consultations on the utilisation of subparagraph (b), taking into account in particular its development effects and the effective conservation and sustainable management of the resources and, if appropriate, amend it. (Protocol II, Article 6.6(d). Emphasis added)The review clause thus specifies the two central elements to be considered in this report: thederogation’s overarching objective of generating ‘development effects’ (defined as ‘long-term incomeand employment generation’ as per Article 6.6(b) above) and the principal conditionality of ‘theeffective conservation and sustainable management of the resources’ (Article 6.6(d)). A thirdcomponent of this report takes seriously the en passant mention in Article 6.6(a) on ‘the low risk ofdestabilising the EU market due to large inflows of fishery products from the Pacific States’ (see above).14 See Appendix 1 for the full terms of reference for this study.Linpico s.a.r.l. Page 16
  30. 30. Final Report RoO Derogation under the PACP-IEPA Box 1: Text of the PACP-EU Interim EPA on ‘global sourcing’, Protocol II, Article 6 (6) 6. (a) The Parties recognise that since the Lomé Convention was signed in 1976, Pacific States have not been able to develop an adequate national fleet respecting the vessel conditions of Article 5.2 of the present Protocol II. The Parties also recognise the special circumstances of the Pacific States encompassing the insufficient wholly-obtained fish to meet on-land demand, the very limited fishing capacity of the Pacific States’ fishing fleet, the reduced processing capability due to physical and economic factors, the low risk of destabilising the EU market due to large inflows of fishery products from the Pacific States, the geographical isolation of the Pacific States as well as the distance to the EU market. The Parties also share the final goal of promoting further development in the Pacific States while promoting sustainable fisheries and good fisheries governance. 6. (b) The Parties recognise the enormous importance of fisheries to the people of the Pacific States and that the fish, for example tuna in the Western and Central Pacific Ocean is the most important shared natural resource for long-term income and employment generation for the Pacific States. This shared fisheries resource in the waters of the Pacific States is subject to various management regimes at regional, sub-regional and national levels, including the Vessel Day Scheme aiming at regional sustainable tuna purse seine fisheries. These activities are subject to monitoring within the framework of the Western and Central Pacific Fisheries Commission, including the Vessel Monitoring System and Observer Programmes. In this context, the Parties agree that notwithstanding paragraph 1, when circumstances are such that wholly obtained products as defined in Article 5 paragraphs 1(f) and 1(g) cannot be sufficiently utilised to satisfy the on-land demand and following the prior notification to the European Commission by a Pacific State, processed fishery products of headings 1604 and 1605 manufactured in on-land premises in that State from non-originating materials of Chapter 03 that have been landed in a port of that State shall be considered as sufficiently worked or processed for the purposes of Article 2. The notification to the European Commission shall indicate the reasons why the application of this paragraph will stimulate the development of the fisheries sector in that State, and shall include the necessary information about the species concerned, the products to be manufactured as well as an indication of the respective quantities to be involved. (c) A report on the implementation of subparagraph (b) shall be drawn up no later than three years after the notification. (d) On the basis of this report, the European Community and the requesting Pacific State shall hold consultations on the utilisation of subparagraph (b), taking into account in particular its development effects and the effective conservation and sustainable management of the resources and, if appropriate, amend it. (e) Subparagraph (b) shall apply without prejudice to sanitary and phytosanitary measures in force in the EU, effective conservation and sustainable management of fishing resources and support to combat illegal, unreported and unregulated fishing activities in the region. (f) The provisions of this paragraph shall be applicable to imports from a Pacific State from the first day after the publication in the Official Journal of the European Union of a notice informing that the State concerned has made a notification to the European Commission in accordance with subparagraph (b).Linpico s.a.r.l. Page 17

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