Cotance report on trade restrictions on hides and skins

1 July 2001

A t the recent Seventh Session meeting of the FAO Sub-Gro up on Hides and Skins held Rome in June, COTANCE, the Confederation of National Associations of Tanners and Dressers of the European Community, provided the Sub-Group with a review of export restrictions from the perspective of importers and tanners in Europe. Although export restrictions may have a lesser impact on the hides and skins industry than import restrictions, there are certain elements such as export taxes, quotas, the prohibition of exports and other restrictions that may have a significant impact on the supply and prices of raw materials within certain countries. What is more, information on export restrictions is often more difficult to obtain. Since its inception the Sub-Group has taken an interest in policy developments affecting the hides and skins economy, particularly the impact which barriers to imports and exports have on the sector. Cotance submitted the following report to contribute to the debate regarding trade restrictions on hides and skins and highlight certain negative aspects of export restrictions: Background Since the last session of the Sub-Group on Hides and Skins, notable changes have occurred in the markets of raw materials for the leather industry. The BSE and foot and mouth crises in Europe have led to a shortage of hides and skins on international markets and prices have reached high levels. Up until recently, trade restrictions were normally created for economic reasons, but recent developments mean that the leather industry is being forced to adjust to further concerns such as health and safety. All this comes at a time when a new round of multilateral trade negotiations have been planned for later this year to discuss not only the issue of trade barriers, but also issues concerning health and safety and environmental sustainability. Types of trade restrictions The outbreak of BSE in Europe has led to the introduction of new, non-economic export trade restrictions so as to avoid unsafe hide material entering the food chain. Only tanned material is allowed to exit BSE-affected countries to guarantee that all byproducts of cull animals are safely disposed of. Public authorities have helped minimise the costs of the BSE crisis by allowing the leather industry to recuperate the hides of animals culled as a precautionary measure. Export restrictions on treated material have not been affected, but in the medium term, the leather industry is likely to be more affected by the destruction of raw materials. The European Union has been particularly active in addressing the issue of economic export restrictions on hides and skins. In bilateral trade negotiations, quantitative export restrictions have been prohibited so that the Central and Eastern European Countries (CEECs) can be integrated into the EU. Export restrictions have also been ruled out in the free trade agreement with Mexico and in the WTO accession negotiations with China. Multilateral trade debates have also identified that export restrictions need to be targeted and brought under control. In the international forum, export restrictions have been the subject of various consultations between the EU and both India and Pakistan. Restrictions have also been addressed at the WTO Dispute Settlement Procedure brought by the EU against Argentina. The country's plans to phase out export restrictions on hides, skins and wet-blue should have been implemented by the end of 2000 but have not yet materialised. Mercosur countries are also required to eliminate internal trade barriers, forcing Argentina, Brazil, Paraguay and Uruguay to adopt a common export regime for hides, skins and wet-blue. In west Africa, export restrictions have been reduced to such an extent that practically none of the French speaking countries apply these type of restrictions any longer. Nigeria, in contrast, has extended its export ban on raw hides, skins and wet-blue. Analysis of adverse effects A. Deviation of trade Countries that apply export restrictions isolate their market from the rest of the world and distort the normal market price of raw materials. This in turn provides financial advantages to manufacturers further down the production chain who are not regulated by export restrictions. This is normally prevented if access to the international market is granted at the earliest stage. This difference in pricing will also affect the manufacturers who are selling their products to leather and leather products outlets. If the difference in cost cannot be justified, such as superior quality, then the manufacturer who has not be able to benefit from the cost advantage is likely to be forced out of business. B. Impairment of the principle of the best allocation of resources As the world market for hides, skins and wet-blue is so fragmented, raw materials are often allocated in the absence of global competition. Skins and hides will often reach markets where they will not be treated with the best quality materials, and this in turn results in a loss in the global balance sheet of the leather industry. C. Impact of export trade restrictions on the hides and skins sector of the developing and developed countries Export restrictions on raw materials tend to reduce earnings at the early stages of production to the benefit of the latter production stages. Operations such as collection, curing or even tanning that involve a larger number of people, often earn less than they would do on the open market. Conclusions The subject of export restrictions has surfaced at various international trade talks over the past few years. As a result of the legal attention given to them by major WTO members, export restrictions on hides and skins have been increasingly challenged, especially those that were not in line with Article XI of the GATT international trade rules. This has helped clarify the situation and brings the restrictions into a form that allows them to be further dealt with in a multilateral context.

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