Identification and analysis of trade barriers for processed food in Mercosur and Chile Central/Eastern Europe and Russia Country Report: Prepared for Market Access Unit, DG Trade By Bureau Européen de Recherches, Brussels (Promar CEAS International) March 2001
TABLE OF CONTENTS 1....1 1.1. General trade policy...1 1.2. Tariff barriers...3 1.3. Non-tariff barriers...3 1.3.1. Registration, Documentation, Customs Procedures...3 1.3.2. Indirect Taxation, Levies and Charges (other than Import Duties)...4 1.3.3. Import Licensing...6 1.3.4. State Trading Enterprises...6 1.3.5. Import Cartels...6 1.3.6. Standards and other Technical Requirements...6 1.3.7. Trade Defence Instruments not in Conformity with the WTO...10 1.3.8. Export Restrictions...10 1.3.9. Subsidies...11 1.4. Investment related measures...11 1.4.1. Direct Foreign Investment Limitations...12 1.4.2. Profit Repatriation Limits...12 1.4.3. Foreign Exchange Measures...12 1.4.4. Tax Discrimination (Direct Taxation)...12 Bureau Européen de Recherches Romania / i
1. 1.1. General trade policy Regional trade agreements and other preferential arrangements Romania is a member of the GATT/WTO and, since 1997, of the Central European Free Trade Association (CEFTA 1 ), and has concluded an agreement with EFTA and a Europe Agreement 2 with the EU. Also, the EU and Romania have renewed in 2000 their Agreement on the reciprocal establishment of tariff quotas for certain wines, which was first concluded in 1993. Romania has trade agreements with Moldova and Turkey, while other agreements are planned for negotiation with the Baltics, Morocco, Israel and Egypt. In the context of the Europe Agreement, the EU and Romania have concluded in May 2000 negotiations for further reciprocal trade liberalisation, including under the so-called doublezero option which extends the concessions granted by Romania on agri-food products imported from the EU, in exchange for a progressive elimination of export subsidies on EU agri-food exports to Romania. These concessions entered into force on 1 July 2000. The products covered by the double-zero agreement in the case of Romania are poultry and cheese. In July 2000, the EU also opened negotiations with Romania on new reciprocal concessions for fish and fish products. Under the renewed wine agreement, with effect from 1 January 2001, Romania opens an annual duty-free import quota of 60,000 hl of EU wine. In exchange, the EU has granted Romania duty free import quotas for 300,000 hl of wine, which represents a substantial increase from the old agreement. CEFTA members were planning the introduction of full liberalisation in intra-cefta agrifood trade by January 1999 but, following the Russian crisis and trade problems in the region, these talks have come to a standstill. Romania has had particular disputes with Hungary in the last two years over the enactment of a safeguard clause, which instituted tariff increases on imports of pigmeat and poultry from this country for an indefinite period. 1 2 CEFTA consists of the Czech Republic, Slovakia, Poland, Hungary, Slovenia, Romania and Bulgaria. Signed on 1 February 1993 and entered into force on 1 February 1995 this incorporates the trade provisions of the Interim Agreement of May 1993. Bureau Européen de Recherches Romania / 1
In general Romania has been sceptical over the advantages of its membership to the CEFTA. Pan-European cumulation of origin: Since the beginning of 1997 new rules of origin based on the concept of pan-european cumulation have been applied in a number of Free Trade Agreements within Europe. The model of the new cumulation rules for Romania is similar in structure and substantive provisions with that of the other associated CEECs, although this only started applying in Romania on 1 January 1999. The Origin Protocol in the EU-Romania agreement has been replaced by the pan-european cumulation provisions. In all other respects, the framework of the Europe Agreement has remained unchanged. Romania has agreed to amendments to the pan-european cumulation of origin system, which are due to enter into force on 1 January 2001. The implementation of the new origin rules has two major consequences. Firstly, semifinished products originating in any country of the system and which are further processed or assembled in any other partner country may always be considered as originating products. Secondly, originating products can be traded between any of the countries involved in the system. The introduction of European cumulation should be particularly beneficial in the case of trading of originating products in the agri-food sector. The advantages of the new system of cumulation of origin for producers and traders, both in and outside the pan-european cumulation area, are significant. Customs procedures are simplified by the fact that once a product has been given European origin there is no need for the origin to be verified again. For firms established in Europe, including foreign-owned firms, this means more freedom in using input material or deciding in which country to invest their production facilities. With regard to third country materials, the new rules are generally more flexible due to the fact that they provide for a general tolerance rule as well as alternative processing rules allowing more input of third country materials. Further information on the matter has been notified by the different countries involved both to the WTO Committee on Rules of Origin and, in the context of the examination of individual agreements under GATT Article XXIV, to the WTO Committee on Regional Trade Agreements. Bureau Européen de Recherches Romania / 2
1.2. Tariff barriers Romania s applied tariffs currently average 19.3% on all products, 32.8% on agricultural products, 21.4% on fishery products and 15.6% on industrial products. Romania has kept the applied most-favoured-nation (MFN) rates on industrial products steady at just under 16%, well below the bound level of some 35%. Applied tariffs on agri-food products are generally much higher, but Romania reduced them substantially in the last few years, bringing the simple average applied MFN rate down from 134.1% in 1995 to 32.8% currently. However, bound duties for agri-food products are particularly high and even after 2004 (deadline for the implementation by Romania of its GATT tariff commitments), certain agri-food products would be subject to bound rates of 333%. This gap leaves ample room for tariff increases within bindings, and may impart a certain degree of uncertainty to the tariff system for agri-food products. Alcoholic drinks have also been exposed to such ad hoc tariff increases i. 1.3. Non-tariff barriers 1.3.1. Registration, Documentation, Customs Procedures Import and export operations can only take place through companies registered with the Foreign Trade Department of the Ministry of Trade (Law No 26/1991), although registration is routine and normally completed in 2 weeks. The new Customs Code of 1997 (L141/1997) unified the regime for importers and exporters in a single framework, aiming to approximation to the EU Customs Code. The principles of customs valuation are generally the same. Comparison values were used until 1998 for products subject to excise taxes, but were replaced in 1999 with a database of prices. Other features of the Code are the availability of duty-suspension regimes (with the authorisation of Customs) to facilitate inward and outward processing activities. Nonetheless, importers still report that they face complex and time-consuming customs clearance procedures. Also, Romania s customs valuation practices have often been contested by other WTO trading partners. Bureau Européen de Recherches Romania / 3
In June 2000 the EU joined the US in a request for consultations on the issue of minimum import prices. In particular, the US has claimed that: pursuant to its 1997 Customs Code, the Ministry of Finance General Customs Directive (Ordinance No 5, 4 August 1998) and other related regulations, Romania has arbitrarily established minimum and maximum import prices for some products including meat, eggs, fruits and vegetables, and certain distilled spirits; additionally, Romania has instituted burdensome procedures for investigating import prices when the c.i.f. value falls below the minimum import price; this situation appears inconsistent with Articles 1-7, 12 and Annex 1 of the GATT Agreement on Customs Valuation and Article 4.2 of the Agreement on Agriculture. Inconsistencies in weighting of trucks at the various borders have been reported (source: Austrian Embassy). In particular, some borders seem to register higher weights, hence requesting higher payments. This has been reported to the European Commission and an in situ visit has taken place to check this, but the problem still remains. 1.3.2. Indirect Taxation, Levies and Charges (other than Import Duties) An import surcharge ii was introduced through Emergency Ordinance No 22/1998 (notified to the WTO), as from 10 October 1998, and was fixed at a rate of 6%. Romania reduced the rate to 4% as from 1 January 1999, and to 2 % as from 1 January 2000. The surcharge was scheduled to be eliminated in January 2001. The surcharge was introduced as an emergency measure to redress the adverse balance of payments situation that Romania faced at the time and the WTO Committee on Balance-of-Payments Restrictions has concluded that this was in conformity with Romania s WTO obligations. A customs commission (or handling fee) of 0.5% (0.25% for EU goods supported by EUR1 certificate). Excise duties apply on certain products, including alcoholic beverages, soft drinks and coffee. An excise tax reform involving the unified application of 180 /hl of pure alcohol across all spirits, with effect from 1 February 2000, has eliminated previous discrimination 3 on spirits. The excise tax regime applicable to alcohol has favourably been revised more recently, with the enactment of Emergency Government Ordinance No 252 (of 8 December 2000), as presented below: 3 This was because, until 31 January 2000, whisky, gin, rum and Cognac were subject to a higher rate of excise duty than other cereal-, wine-, and fruit-based spirits (among which some liqueurs produced locally), beer and wines. Bureau Européen de Recherches Romania / 4
Euro/hl/pa old new Raw alcohol 140 0 Refined ethyl alcohol 160 65 Ethyl alcohol-based spirits and grain-based spirits 180 85 Fruit- and wine-based spirits 180 85 Also, Emergency Government Ordinance No 209 (of 21 November 2000) eliminates the additional 1% ad valorem duty charged, since January 2000, on ethyl alcohol-based spirits (which was charged in addition to the excise tax and discriminated against higher value products, basically imported spirits). SEE ALSO BARRIER FICHE. A basic VAT rate, which since January 2000 has been fixed to a unique rate of 19% (Emergency Ordinance No 215 of 29 December 1999). This replaces the previous regime, valid since February 1998, under which a basic rate of 22% and a lower rate of 11% (for certain basic food products including milk and dairy products, fish, meat, edible oils and fats, wheat flour) were imposed, while bread and baking products were totally VATexempt. Thus, VAT exemptions for basic food items are no longer valid. A previous Agricultural Tax, payable by all producers and traders of agricultural and food products to the agricultural social security and pension fund, has been rescinded as from 1 July 2000 (Emergency Government Ordinance No 53 of 23 May 2000). This contribution was set at 2-4% of producers gross revenue (excluding excise duties) from the production of food, drinks and agricultural products, and at 2-4% of traders mark-up /commission in this sector. Finally, new consumption taxes were introduced since February 2000 on semi-luxury goods. These are, in effect, a sort of licence fee instituted through the excise duty legislation. They cover alcohol, alcoholic drinks and coffee. In the case of alcohol and alcoholic drinks, the fee is to be paid annually, while in the case of coffee it is paid once and for all. The fee ranges from Euro 5 to Euro 12,000 (the highest being applied to producers of over 60,000 hl of pure alcohol per year). Bureau Européen de Recherches Romania / 5
Tax unpredictability appears to be a major cause of concern in Romania. Businesses operating in Romania complain that all small taxes put together can amount to a total 100% of taxes on the product value. This can favour tax avoidance. 1.3.3. Import Licensing The import licensing system is established by Government Decision No 215/1992 on Romania's Export and Import Licensing System and Order No 13C/1998 of the Ministry of Industry and Commerce. According to these regulations, imports into Romania's customs territory are liberalised, with possible exceptions including goods subject to tariff quotas and goods subject to automatic import or export licensing (e.g. goods with an impact on human and plant health full list established by Order No 36C/1998 of the Ministry of Industry and Commerce). Agri-food products can clearly fall under these categories, although no specific problems to this effect have been reported by the industry. 1.3.4. State Trading Enterprises State ownership and management of enterprises continues in certain agricultural and food processing and marketing sectors. A state run programme still buys around one third of all wheat production to ensure a good supply of cheap bread -in order to improve competitiveness in this market, the government decided in 1999 to split the single state purchasing agency into 29 regional companies. In the wine sector, production is largely under state control, although this does not appear to give cause to concern within the meaning of state trading (i.e. the granting by the government of special or exclusive privileges to companies involved in the sector). None. 1.3.5. Import Cartels 1.3.6. Standards and other Technical Requirements Existing Romanian food legislation is based on the National Quality Control System. Romania claims its standards are identical to European standards in the food sector. However, the European Commission takes a different view that no significant progress has Bureau Européen de Recherches Romania / 6
been made in the transposition of standards and legislation in the food sector and that further work is needed in this field (Commission Progress Report). In August 1999 Romania adopted government ordinance 113/99 regarding food production, distribution and marketing, which is intended as a framework law for the transposition of vertical and horizontal EU legislation in this field (to be introduced through secondary legislation, in the form of governmental or ministerial decrees). Full harmonisation of Romanian legislation with the acquis is envisaged by the end of 2000, but the legislation will enter into force only in 2002. As part of the country s Accession Partnership, a medium term objective is to implement quality control systems in the sector and to reinforce food control administration in line with EU rules. EU Directives on hygiene rules are currently covered by Ministry of Health Order No 976/1998, which is deemed to be in line with the acquis. However, progress is needed with the implementation of these rules and the application of HACCP systems in the sector. In particular, food controls are currently based on an ex ante licensing system under the responsibility of the Ministry of Health (Department of Public Health), which is not in line with the EU acquis. EU Directives on food additives, processing aids, materials and articles in contact with food, and regulations on contaminants have only partially been transposed by the Ministry of Health Order No 975/1998. However, divergences on both the structure and contents between the Romanian and EU legislation still exist, e.g. on the list of authorised additives. Spanish processed food companies have complained that Romania has stricter additive and contamination level standards (i.e. lower acceptance levels) than the EU. Efforts are however made to monitor the situation within on-going consultations on the technical harmonisation of food standards. Specific legislation on certain categories of foods (corresponding to EU vertical directives) has been regulated through standards which, since 30 April 1998 following the adoption of the law on standardisation, apply on a voluntary basis. There is no defined list of products whose import requires a certificate of conformity with an international standard or a Romanian standard. Such certification is broadly defined as necessary for the marketing of any imported or domestically manufactured product that could affect the life, health or Bureau Européen de Recherches Romania / 7
safety of the population or protection of the environment, and could take the form either of a certificate or of a declaration of conformity with the standards. Romania needs to undertake further work to transpose EU directives on foods for special nutritional purposes, on quick-frozen foods (for which Romania already applies Codex Alimentarius), on food irradiation, novel foods and vertical directives (e.g. on mineral waters). EU companies in the spices sector have reported serious delays (up to 3 months) in the required registration procedures for exports to Romania. Moreover, each spice has to be registered separately (source: Austrian Embassy). Again, the problem seems to be due to the differences in current legislation on product specifications between the EU and Romania. Geographical indications of origin: Protection for geographical indications is provided in Romania under the Law on Trademarks and Geographical Indications, No 84/1998 and the Government Decree No 833/1998. The Law provides that geographical indications shall be protected in Romania by means of their registration with the "Oficiul de Stat pentru Invenţii Mărci - OSIM" (State Office for Inventions and Trademarks). Under Article 3(f) of Law No. 84/1998, "geographical indication" is the name used to identify a product originating from a country, region or locality in a State in cases where a quality, reputation or other characteristics which have been laid down may be essentially attributed to this geographical origin. Article 69 of Law No. 84/1998 provides for recognition and protection of geographical indications or appellations of origin of foreign countries. The procedure is the same as that for national products. However, the procedure is carried out, in the case of national products, by the Ministry of Agriculture and Food and, in the case of foreign applicants, by the competent authority of the country of origin. Geographical indications which have obtained protection under bilateral or multilateral conventions concluded by Romania will not be subject to the registration procedure set up under Law No. 84/1998. A list of international/foreign geographical indications in respect of which protection is automatically recognised in Romania pursuant to these conventions is registered by OSIM şi Bureau Européen de Recherches Romania / 8
in the National Register of Geographical Indications. For example, under the 1993 Agreement between Romania and the EU on the reciprocal protection and control of the denominations of wines, protected indications for EU wines in Romania will not be subject to the Romanian registration procedure. In the case of application for protection of certain homonymous geographical indications for wines, this will be accompanied by an indication of the name of the association of producers of the wines concerned, as well as by an indication of certification by the competent authority of the conformity of the products with the standards laid down by the required specifications for the homonymous geographical indication. The right to use the geographical indication is granted for a period of ten years, renewable indefinitely, provided that the conditions on which this right was obtained remain valid. To this effect, it should be accompanied by confirmation from the Ministry of Agriculture and Food regarding the preservation of the characteristics of the products. The fee for the renewal is 2,400,000 lei or $400, under Government Order No. 41/1998. The EU industry complains about the absence in Romania of recognition and protection of geographical designation for spirits iii and that existing Romanian legislation on the definition of spirits is not harmonised with EU rules (Council Regulation 1576/89 and 1014/90) (source: industry survey). In particular, there is concern that it can encourage unscrupulous traders to seek to exploit the reputation of such products, e.g. by falsely describing inferior local products as being from a particular country of origin or by producing counterfeit versions of well-known brands. Also, further enforcement of the fight against imports of counterfeited goods needs to be undertaken through border measures. Bureau Européen de Recherches Romania / 9
Labelling Labelling is required in Romanian for all consumer products, with a clear indication of the country of origin, the manufacturer s and the product s name, importer name, the description of goods and the expiry date. New legislation transposing EU labelling rules (Directive 79/112) has been adopted in 2000. 1.3.7. Trade Defence Instruments not in Conformity with the WTO Although Romania has generally not applied minimum import price practices as such, it has had recourse to arbitrary or potentially harming customs valuation procedures. Importers are requested to pay a guarantee valued at the difference between the customs duty already paid and the duty the importer may ultimately be liable to pay. This is assessed on the basis of a statistical data base of customs values for categories of products where under-valuation has been determined in the past. Although the guarantee may be returned, the administration required for this whole process is cumbersome plus the authorities are slow at returning the guarantee, which in view of the high inflation results in substantial loss of the guarantee s value. Such problems may be resolved with the adoption (on 29 November 2000) of Government Decree No 1220 which cancels Decree No 392/1999 which instituted the system of the socalled mandatory control of the customs value 1.3.8. Export Restrictions As from 1 January 1998, all remaining restrictions or quantitative limitations on exports have been completely eliminated. For prudential reasons, some products (raw materials, basic processed foods) continue to be monitored through an automatic export licensing system. This system covers products that are in short supply, or exhaustible natural resources or those affecting the environment. Bureau Européen de Recherches Romania / 10
1.3.9. Subsidies The Romanian government has now made the acceleration of agricultural reforms a high priority, with credit assistance from the IMF/World Bank conditional on the implementation of reforms in the sector. Such reforms include an overhaul of pricing policies, dismantling of state subsidies, the creation of a functioning land market and an improved provision of agricultural credits. The domestic budgetary support for agriculture decreased in real terms from about 500 million in 1999 to about 330 million in 2000. This reduction has been seen as positive, given the high cost of this support in relation to GDP in past years, and its ineffectiveness in promoting the needed sector restructuring. Export subsidies are occasionally provided on agri-food products. The authorities have also periodically used a tax incentive to stimulate domestic production for export. The latest such measure, a reduction of 50% on the tax on profits from exports of goods and services, was in force in 1997, suspended in 1998, reintroduced on 1 January 1999, but suspended once again in March 1999 for budgetary reasons. It appears that a new preference is currently in operation offering a favourable tax rate of 5% on profits stemming from export activities (while the normal company profit tax rate is 25%). 1.4. Investment related measures Although relevant legislation can be extremely unstable, the investment regime is open and liberal, containing guarantees against nationalisation or expropriation without sufficient compensation. Key improvements to the base investment regime of the early 1990s are external current account convertibility and the principle of equality between foreign and domestic investors, thus establishing a uniform business framework for all companies established in Romania. Thus the current regime is based on three principles: equal treatment for foreign/domestic investors; free market access; and minimum government intervention. Acts adopted more recently and dealing specifically with foreign investments have refrained from using nationality as a criterion for granting tax and other privileges as well as from imposing local content and/or export performance requirements, thus being compatible with the disciplines laid down in the WTO TRIMs Agreements. Bureau Européen de Recherches Romania / 11
The food industry has been one of the first sectors to be explored by foreign companies, with a large number of joint ventures between EU and Romanian businesses and the industry is expected to expand further. There are certain tax incentives for foreign investors. The Emergency Government Ordinance No 92/1997, effective from January 1998, has provided 3 types of incentives to investors: customs duty exemption for the import of capital equipment by foreign investors as their contribution to a joint venture; customs duty and VAT exemption on the import of raw materials and production supplies during the first two years of the venture s life; and accelerated depreciation for assets of 20% tax deduction of the purchase price. Various amendments to these incentives have been introduced in more recent years. Romania s Foreign Investment Council has recently prepared a report on major obstacles to investment. Key issues include bureaucracy, customs, heavy handed policing, the extent of grey economy etc. 1.4.1. Direct Foreign Investment Limitations No restrictions. The Foreign Investment Law allows for full foreign ownership of investment projects (including land). However, the approval of joint ventures may require extensive documentation. 1.4.2. Profit Repatriation Limits There are no legal restrictions on the repatriation of profits and equity capital. 1.4.3. Foreign Exchange Measures The foreign exchange market was liberalised since January 1998 (Regulation 3/1997). The Romanian currency (lei) is fully convertible for current account transactions and foreign investment. 1.4.4. Tax Discrimination (Direct Taxation) Positive discrimination with VAT and customs duty exemptions on industrial equipment and raw material supplies for foreign investors establishing joint ventures in Romania, as described above. Bureau Européen de Recherches Romania / 12
Bureau Européen de Recherches Romania / 13
Other information i Commission internal database, Romania - 1095-98 ii Commission internal database, Romania - 1198-98 iii Commission internal database, Romania - 1097-98 Bureau Européen de Recherches Romania / 14