Brussels, 17 December 2012 Euromalt position paper on the EU-ASEAN trade negotiations Euromalt is the European organisation representing the interests of the malting industry in the European Union. The EU malting sector has a production capacity of about 9.5 million tonnes, of which 2.1 million tonnes are exported worldwide. The malting sector represents a competitive European industry that is present in all the key importing regions: Asia, Africa, Russia and South America. Asia is in fact the leading destination for EU malt exports. Euromalt is concerned that slow moving trade negotiations with the ASEAN countries will damage the competiveness of the European malt exporting sector to the benefit of our international competitors, i.e. Australia and Canada, who have concluded or are close to conclude trade deals. As an example, the conclusion of the Australia-Thailand FTA in 2005 determined a steady erosion of European malt exports to Thailand to the benefit of Australian malt. Our sector welcomes the progress made by the EU on a bilateral basis with several ASEAN-member countries. However, we encourage the Commission to aim at a regional trade agreement with the ASEAN block. This solution would guarantee a level playing field for the EU exporters without jeopardising their competitiveness. The reasons for the success of the EU malting industry are outlined in annex 1. Euromalt urges the Commission to conclude as soon as possible free trade agreements with the important players of the region: mainly Thailand, Vietnam and the Philippines, which still maintain duties for EU malt. The Commission should aim at trade liberalisation through elimination of tariff for malt. Euromalt members risk suffering potential losses of over 10 million US dollars per year if ASEAN countries will keep import tariffs in place. The EU malting industry s competitors are increasingly gaining preferential access to the ASEAN markets. The EU malt exports to Thailand dropped by 40% to large benefit of Australia, following the Australia-Thailand FTA enforced in 2005. Euromalt promotes a regional approach in trade negotiations and encourages the Commission to start a regional EU-ASEAN FTA as soon as the political and economic conditions will make it possible.
EU malt interests in the ASEAN region The EU-27 exported over 3 million tons of malt (unroasted) to the whole ASEAN countries in the period 2001-2011, with an average of 290,000 tons per year (chart 1). The first export destinations for EU malt in the region were Thailand, Vietnam and the Philippines, with average exported volumes in the last 10 years of respectively: 100,000 tons; 66,500 tons; 52,000 tons. Singapore and Malaysia follow this first destination grouping, with the average exported volume in the last 10 years being 30,000 and 20,000 tons respectively. Country-specific fact sheets for Malaysia, Vietnam and Thailand can be found in annex 2. Chart 1: EU Malt Exports to ASEAN Countries 2001-2011 (tons) 400,000 EU Malt Exports to ASEAN Countries 2001-2011 (tons) 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 VIET-NAM THAILAND SINGAPORE PHILIPPINES MYANMAR MALAYSIA LAOS INDONESIA CAMBODIA Source: Eurostat Database EU malt primacy in the region is at stake For logistic reasons, the European malting industry is today a natural supplier to the ASEAN area with a leading position- see annex 1. However, the EU malting industry s competitors are increasingly gaining preferential access to the ASEAN markets. This is because they have already negotiated or are negotiating trade agreements at a quicker pace with the ASEAN region and its member countries. 2
Australia has been strengthening its position as a malt exporter and progressively gained market share in the region, especially in Thailand since the conclusion of a free trade agreement in 2005. The EU malt exports to Thailand, the second largest market in ASEAN, collapsed from nearly 160,000 tons in 2004 down to 60,000 tons in 2009. Chart 2 below clearly shows how the export volumes lost by the EU malt were covered by Australia that went from 48,000 tons of exports in 2004 to an average of about 114,000 tons in the period 2005-2009. Euromalt is deeply concerned that this negative trend for EU malt exports could be extended to other ASEAN countries, if Australia opens preferential access before the EU is able to sign FTAs. It must be noted that Australia has already signed an FTA with Singapore in 2003 and it has just recently signed the MAFTA Malaysia-Australia FTA, which is expected to come into force after formal ratification. In addition to existing/under negotiation preferential agreements, the February 2009 free trade agreement concluded with the group of ASEAN countries and New Zealand (AANZFTA) has additionally confirmed Australia s position in the area, causing an even more serious threat to the EU malt s market share. The impact of the new AANZFTA has potentially disastrous effects for EUROMALT members as it provides for the complete liberalization of Australian malt exports to all major ASEAN importers by 2017. Euromalt members risk suffering potential losses of over 10 million US dollars per year if ASEAN countries will keep import tariffs in place! The loss is calculated as the total of import tariffs for all ASEAN countries considering the average yearly export of the last 10 years, and with an average malt price of 430 $/ton. The highest share of this potential loss is made up by the cost for exporting malt to Thailand, which still has an ad-valorem duty. Details of the calculations are provided in annex 3. Timely conclusion of FTAs is needed to maintain key markets for EU malt Euromalt urges the Commission to conclude as soon as possible free trade agreements with the important players of the region: mainly Thailand, Vietnam and the Philippines, which still maintain duties for EU malt. Euromalt encourages the Commission to liberalise trade through tariff elimination. Our sector is faced with imminent and unrecoverable losses up to 10 million US dollars if the current import tariff regimes are maintained. This is also very concerning as the global competitors are increasingly opening preferential market access in the ASEAN countries. EUROMALT asks for an urgent contribution from the Commission so that the markets for European malt can be maintained. To that aim, we believe that the EU should be promoting the process of regional integration of the ASEAN countries and should 3
support the region by facilitating effective trade relations in view of a regional EU- ASEAN trade agreement. Chart 2: Thailand malt imports by origin, 2004-2009 (tons) 250,000 Thailand malt imports by origin, 2004-2009 (tons) 200,000 150,000 100,000 China Canada Australia EU 50,000 0 2004 2005 2006 2007 2008 2009 Source: e-malt; AWEX Annex 1 - EU malting industry: reasons for success Annex 2 - Country-specific fact sheets: Malaysia, Thailand, Vietnam Annex 3 Potential losses for the European malting industry EUROMALT, the EU malting industry association, represents the interest of the European malting barley processors and malt producers. EUROMALT s full members are national associations in Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Spain, Sweden, the Netherlands and the UK. The EU malting industry accounts for more than 60% of the world malt trade: with about 187 facilities in Europe, the sector provides around 28,000 direct employments. Its members process approximately 11.5 million tonnes of malting barley of European origin to produce 9 million tonnes of malt for the brewing industry in the EU, for export to overseas brewers as well as the distilling and food industries [The world malt production destined for beer is around 20 million tonnes]. The revenue from EU malt exports is today approximately 850 million with no export subsidies. 4
Annex 1 - EU malting industry: reasons for success Facts and figures of the European malting industry and key reasons for its growth and success In 2011 the total world malting capacity was about 23.50 million tons of which approximately 21.50 million tons was used; The world malt production destined for beer is around 20 million tons of which approximately 9 million tons is produced within the EU; The EU malting industry accounts for more than 60% of the world malt trade with a production capacity of over 9.500.000 tons of which 2.100.000 tons is exported; There are 187 maltings (EU 27) 1 ; The revenue from EU malt exports is today approximately 850.000.000 euros with no export subsidies; Malt is a value-added product, which has not received export refunds since 2000; The annual market for European farmers is about 11.50 million tons of malting barley (to produce 1t of malt one needs 1.27 t of barley) 94% of the obtained malt is used for beer production, 4% for whisky production while the remaining 2% is used for manufacturing other foodstuffs, such as breakfast cereals and malt vinegar; In terms of logistics, the EU is very well positioned to export to Asia by utilising otherwise empty containers returning to the Far East after delivering goods made in Asia. In some small way an even condition in malt trading would help the existing trade imbalance that the container situation clearly demonstrates. Why is the EU malt production competitive? Malting barley has many critical quality requirements. Breeding of new varieties a process that takes around ten years ensures that there is a continually improving source of malting barley varieties which process well in the maltings and the brewery, as well as offering good yield and disease resistance to the farmer. The ability to germinate evenly is of paramount importance in harvested barley, with moderate protein content in the grain to meet specifications for the finished malt. These specific malting barley varieties are grown to suit the needs of the maltsters and the brewers/distillers, while the malting barley production which does not comply with the quality requirements is used for animal feed. The establishment of a mature supply-chain takes time which farmers, maltsters and brewers in the EU have invested in to develop an efficient and therefore competitive malting industry. Production of malt is historically linked to growing barley, which is only possible in a moderate climate. The leading malting barley producers in the world are the EU, Russia, Canada, Turkey, Ukraine, USA, Australia and (increasingly) Argentina. The germination stage of the malting process requires the grain to be kept cool, which is only possible in a humid or hot climate with the aid of expensive refrigeration (which also produces greenhouse gas emissions and has a higher energy usage). 1 Malteurs de France, Annual Statistics Compendium of the Barley, Malt, Beer Supply Chain 2011 Edition, p.58 5
Annex 2 - Country-specific fact sheets: Malaysia, Thailand, Vietnam Malaysia The EU malting industry exports around 20.000 tons yearly to Malaysia with a zero duty on import to the country. The EU industry enjoys the absence of duties for the export of a high quality product such as malt. These potential advantages might be at stake if the round of negotiations is not concluded in the near future. A successful conclusion of a FTA between the EU and Malaysia would consolidate the current situation and most likely improve trade rules (rules of origin, etc.) while, at the same time, facilitate and open the potential for increased exports in the sector. Increased trade would mean increased employment not only in the EU malt exporting industry but also in other sectors. It is necessary to consider that an FTA between Malaysia and Australia has been concluded: this will increase the attractiveness of direct investments in Malaysia and provide an advantage to the Australian malt exporters who would like to expand and invest in the malting sector in the country. As a result, the Australian malt exporters could gain a competitive advantage over the EU malt exporters with easier and preferential access to the Malaysian market. Thailand Thailand is the first export destination in the ASEAN region for EU malt, with an average of 100,000 tons exported every year. However, Thailand has an ad-valorem duty in place that contributes to increasing the costs of exports. This has become an increasing problem, especially since the signature of the Thailand-Australia FTA in 2005 which has liberalized trade: this has determined an increase of Australian malt exports towards Thailand in the last years. Australia has been strengthening its position as a malt exporter and progressively gained market share in the region, especially in Thailand since the conclusion of a free trade agreement in 2005. The EU malt exports to Thailand, the second largest market in ASEAN, collapsed from nearly 160,000 tons in 2004 down to 60,000 tons in 2009. The export volumes lost by the EU malt were covered by Australia that went from 48,000 tons in 2004 to an average of about 114,000 tons in the period 2005-2009. Euromalt wishes that the EU and Thailand will soon formalise the initiation of FTA discussions, which we understand are under way. If an FTA with Thailand will not come soon into place, with the elimination of tariff barriers, the EU malt exports will lose further ground at the advantage of its competitors. Vietnam Euromalt welcomed the opening of an EU-Vietnam FTA in June 2012. Euromalt contributed to the public consultation launched by the European Commission and will be happy to keep supporting the Commission with figures and information in the upcoming negotiation phase. 6
Euromalt members have exported an average of 130,000 tons of EU malt to Vietnam in 2010 and 2011, with a two-fold increase in export as compared to the last years. Vietnam has become the most important malt importing country after Japan. If we consider that the EU malt exports to Vietnam in the period 2004-2009 were on average 50,000 tons per year, the volumes exported have doubled in the last two years, confirming that Vietnam is one of the most dynamic growing markets for the EU malt. The local malt production is around 35,000 tons and the potential for development of the local industry is limited by intrinsic factors linked to the country s tropical position which makes it difficult and costly for an expanded malt production as well as the fact that all the malting barley must be imported. On the other hand, the Vietnamese brewing industry is expanding albeit at slowest peace and will foreseeably need an increased supply of malt, mainly coming from imports from producing countries. The EU malt exports to Vietnam should be further facilitated to guarantee an adequate supply of quality malt to this growing market which cannot be supplied by local production. The competitiveness of the European malting industry should be supported in its role of major supplier of malt to the Vietnamese brewing industry. There is currently a 5% duty on malt imports to Vietnam. Its elimination in the framework of an FTA would support the EU malt exports. An even trading condition must be guaranteed in order to avoid that the competitive advantage of the other malt exporters to Vietnam will jeopardize the EU malting industry capability to supply this market. Australia in particular is favored not only by its geographical proximity, but also by a free trade agreement already in place with the ASEAN block, agreement that seems to be far from being reached for the EU. 7
Annex 3 Potential losses for the European malting industry Period CAMBODIA INDONESIA LAOS MALAYSIA MYANMAR PHILIPPINES SINGAPORE THAILAND VIET-NAM Total per Avg AV duty 7% 5% n.a. 0 5% 1% 0 2.75 THB*/kg 5% year 2001 3,423 5,501 6,231 20,690 1,083 51,477 25,394 73,513 40,309 227,622 2002 3,194 1,955 7,007 14,437 1,905 74,216 27,741 112,774 46,022 289,252 2003 2,352 2,350 7,942 16,151 2,198 80,507 25,637 138,293 63,208 338,636 2004 3,487 3,268 8,126 22,041 1,533 88,287 28,990 170,418 49,298 375,447 2005 4,688 3,710 12,716 25,541 2,894 96,468 34,264 114,956 55,285 350,521 2006 6,306 3,262 13,076 25,732 2,377 38,494 40,272 121,714 49,910 301,142 2007 5,884 2,875 6,986 12,835 3,261 25,681 39,042 104,129 41,055 241,748 2008 5,008 4,880 1,388 18,728 4,435 27,000 37,285 86,854 59,859 245,437 2009 3,882 3,298 3,255 19,251 2,985 16,252 27,838 60,531 66,888 204,181 2010 11,667 6,431 1,367 19,324 1,052 31,721 26,558 51,706 133,758 283,584 2011 16,829 9,992 18,932 20,132 43,597 27,090 65,169 125,536 327,277 Total 2001-2011 66,720 47,522 87,026 214,862 23,722 573,700 340,110 1,100,058 731,127 3,184,847 Average 2001-2011 6,065 4,320 7,911 19,533 2,372 52,155 30,919 100,005 66,466 289,532 Cost of maintained tariff (USD)** $182,569 $92,884 n.a. $0 $51,002 $224,265 $0 $8,933,403 $1,429,021 * exchange rate THB/USD = 0.0324834 ** estimated malt cost = 430 USD/ton Sources: Eurostat; WTO Tariff Download Facility; e-malt