> EU Single Duty : Who Gets the Profit ?

Over the last 3 weeks we heard about meetings between canned tuna packers in the Philippines and Thailand , who were trying to come up with a system by which they could divide and distribute the benefits of the EU single duty quota.

   The EU single Duty Quota will be applicable to a total of 25.000 M/T canned tuna imported from Thailand , Philippines and Indonesia into the European Union starting July 1st 2003 . Thailand got 13.000, Philippines 9.000, and Indonesia 2.750 M/T. The normal duty rate for these countries is 24%, but after the tuna processing nations protested heavily with the WTO ( World Trade Organization), the EU finally installed a 12% duty quota.

   The main protests were that Andean, African , Caribbean and Pacific Nations ( ACP countries) are able to benefit from the Cotonou Agreement, which enabled these developing nations to import into Europe free of duty, at the expense of business and earnings lost in Asia.

   With the ACP system the 0% duty usually benefits the exporting tuna processor directly. Until recently for example a tuna processor from Madagascar was able to sell their tuna often at a price at least 20% higher then the offers from Thailand , and still grab the order. This was because the Asian Nations faced 24% duty. By this system the canned tuna processor in Madagascar immediately pocketed the financial benefits from the favorable duty on his invoiced sale of canned tuna.

   This is probably also what the members of the Philippine and Thailand tuna processors associations had in mind, when they were fighting with their governments for a reduced duty rate : better earnings, higher profits.

   Reports from both tuna association meetings are basically the same. Packers were trying to come to a system, by which each individual processor is assigned a fixed amount of containers which he can ship to reap the 12% benefits from the “ EU Single Duty Quota”. According to what I heard, both meetings did not produce the desired result and ended with non-concluded discussions, and feelings of frustration.

   It must indeed be frustrating for the packers in Indonesia, Thailand, and Philippines to realize that they might not get a penny more for their canned tuna exported to the European Union, while the importer might even obtain a 12% cost advantage.

   Since the quota will be awarded on a “first come, first served basis”, no EU canned tuna importer has the 100% security that he will finally only pay 12% duty on his tuna. Unlike canned tuna from ACP countries, where always a 0% duty applies, and which is not limited by any quota.

   So it does not look like that EU Importers will be eager to pay 12% extra, or any premium for goods which could possibly not make the quota.

   Some Asian packers had suggested that within the national association each packer should apply a minimum price ( about 12% above the normal level) for canned tuna exported to the EU for the quota , so that indeed they would get more for their tuna and reap the benefits.

   That system does not have much of a chance of success, canned tuna importers in Europe can utilize the quota for all their canned tuna in bonded warehouse. So regardless of exactly at which point in time this tuna was exported from the three nations, they can still try to gain from the 12%, as long as they duty clear at July 1st or shortly after. Even if goods have been in their warehouse for months waiting for a 12% advantage. With the current low interest rates this is an interesting option.

   Then there is of course still the element of competition between the three nations for their sales to the EU market. If for instance packers in the Philippines would indeed decide to raise their prices during a certain period prior to the quota, likely other competing nations would try to benefit from that.

   Even if the Asian tuna packers association would be successful in determining a system of division on quantities to be exported, and of minimum export prices, it would still be questionable if such a system would be respected by their members in the end. Especially when you have members which have their own importing companies in the EU, or have alliances with certain importers or retailers, it will be hard to control what effectively happens.

   Bottom line is that the “ EU single Duty Quota” will indeed create extra volume for the canned tuna industry in Thailand , Indonesia and Philippines . It will also create more jobs in each country, a better utilization of over- capacity, and more business for the related industries. However it will be questionable if it will indeed generate any substantial extra earning for each of the canneries, as so many have hoped for. If the measure will result in extra volume exported by each individual cannery, remains to be seen. As usually in the today's tuna business, this will depend more on competitive pricing, and ability to deliver, then anything else.

   Today's harsh reality is that still some Asian packers are under a lot of pressure to ship out delayed contracted shipments to Europe, facing much increased frozen skipjack prices. If these containers, sometimes produced at a loss, fail to arrive in Europe in time to pass for the single duty, these companies might even face claims ! So quess, Who Get's The Profit ?