EU "SINGLE DUTY" TUNA & THE ROULETTE FACTOR

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EU "SINGLE DUTY" TUNA & THE ROULETTE FACTOR
(By Henk Brus, Mar 31, 2003)

The last month the market has been full with rumors about the possible implementation of a reduced 12% tariff for a quota of 25,000 M/T per July 1st 2003 in the EU. Some buyers and packers are considering speculating on this, but personally I consider it more likely to start on Jan 1st 2004. The opposition, especially from Spain, is fierce and the measure can still be stalled by various approval procedures within the EU. Even if an agreement is reached this week, when Asian Politicians meet with EU officials, it seems unlikely all decision making and implementation with Europe can be finalized by July 1st 2003.

In the meantime, many Asian tuna canners are already looking forward to the merits of the EU duty reduction of 24% to 12%. The chance for them of really benefiting from this measure might be just as sure as the chance of leaving the casino with more money than when entering it.
Although a duty reduction to 12% seems like a big leap forward for the Philippine, Thai, and also likely for the Indonesian canners, there might be a big down side. In the current WTO proposal this reduced duty is connected to a quota of 25,000 M/T. When measured in net tuna weight, this represents about 1500 x 20 ft containers of canned or pouched tuna. That should indeed be a step in the right direction for the Asian tuna packers, or may be not?

When reading most of the various statements by the politicians involved in the WTO negotiations between Thailand, Philippines and the EU, you get the idea that a quota of 25,000 M/T would be imported gradually, over the period of one year, and be exhausted by the end of that year. However, this is not what is expected to happen. To understand the effect and benefits of a MAV (Maximum Allowable Volume) system connected to reduced duty tariffs, the best example is the United States “ Single Duty” Tuna Import quota. “Single duty” refers to “ a special 6% duty, while normally canned tuna in brine is slapped with a “double duty” of 12%.

All fisherman, canners and importers in the Asian tuna canning nations have experienced the effects of the U.S. single duty system first hand. The U.S. single duty of 6% is applicable every year from January 1st until exhaustion of about 30.000 M/T, and it has been in effect for decades. It is likely that now Europe will use the same set-up. In America the quota was until recently based on a share of the domestic tuna production. If U.S. local production increased, so would the single duty quota for the Asian Nations. Recently that system has been changed . Now the U.S next year’s single duty quota is determined as a share of the previous year’s total domestic canned tuna consumption.
For U.S. importers the “single duty” has become like a game of roulette.

Every year, during the first working days of January, U.S. customs receive an avalanche of requests for duty clearance, applying for the 6% single duty. With the progress and speed of information technology, also the time that the quota was closed rapidly shortened. Therefore, during the last few years, close to 2,000 20ft containers with canned tuna applied for a reduced duty tariff within the first working day of January. Already within days, it would be announced by U.S. customs that the quota was overfilled. And after months, when the canned tuna would often already been consumed, the importers would get a confirmation of customs if they were lucky to get a share of the reduced duty was allocated to them. It’s like playing red or black on the roulette table, you only know it when the ball has rolled into place.
Another picture which came to mind, thinking of the tuna quota, was one from my teenage years. Hundreds of Rolling Stones’ fans with their sleeping bags, camping out for days in front of the ticket-office to be the first to secure entry-tickets for a concert. It was first come, first served, but still then you were only allowed to buy a limited amount of tickets.

The consequence to the U.S. single duty system is that, each year around the months of October and November, Philippine and Thai canned tuna processors have been very busy fulfilling all their shipment orders from U.S customers. Buyers who wanted their tuna to arrive at U.S. ports before Dec 31st of that year. Only this way the major national brand holders and non-branded importers could play in the yearly “ single duty roulette”.
In conclusion the lower duty in the U.S. has hardly ever brought higher profits to the Asian canned tuna industry. It did give a boost in production volume over the months of October and November, but then resulted often in a lack of demand and volume for the U.S market during first few months of the next year. It also did hardly stimulate demand, it merely lead to a shift in delivery schedules of the same amount of tuna.
In the past, consequently the peak in demand for raw material lead to an increase in raw material prices in Bangkok and Philippines during October and November. But then also price-wise the U.S. market for canned tuna would soften significantly during the first months of every year. If Europe’s quota system would go into effect each year by Jan 1st, we can multiply the effect the U.S single duty system has had on the global tuna business by two. The movement of the raw material prices, and the peaks and slumps in production volumes, will even become more extreme. It will only increase the “roulette” factor of our business.

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