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Export Study - Chapter 6: Trade Barriers - Organic Trade Association
Organic Trade Association
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Export Study - Chapter 6: Trade Barriers

 

The list of trade barriers below are gleaned from numerous interviews with trade sources of the industry, with representatives of internationally operating certifiers and with representatives of government authorities, both in the US and abroad. As most of the sources expressed their wish to remain unnamed, we have respected this wish and compiled the information anonymously. While there is no explicit connection between the ranking of the specific trade barrier in the list and the "gravity" of the trade barrier, government regulations with respect to the EU and Japan have been mentioned by almost all sources (including sources from the EU and Japan) as the most difficult barrier to surmount.


In the perspective of our interview partners, the main trade barriers are the following:

  • Foreign Government regulations and national organic standards or procedures regarding the import of organic products
  • Cultural differences
  • Language problems
  • Market transparency of foreign markets
  • Pricing as information problem
  • Problems of the mutual acceptance of certification procedures and documentation between certifiers from different countries
  • A perceived lack of support by US government and industry organizations
  • Subsidies and foreign government support
  • Competitiveness of certain US products
  • High currency exchange rate
  • Customs tariff structure, especially for exports of processed products in the EU
  • Amount of work for export operations

Foreign government regulations

As explained in chapter 5 on regulations, the European Union with its fifteen member countries has enacted regulations applicable to each member country. While in theory the regulations should be applied uniformly throughout the EU and create a level playing field, it is a unanimous perception that with the enacting of the EU rules exporting to the various EU countries has in fact become more difficult than before. "You cannot export to the EU, they can import", as one source put it. Not only does each country have its own interpretation of the rules, but there are additional barriers to surmount. For example, import licenses in Franc are handled on the level of the Départements, an administrative unit comparable to something between a county and a state, while in Germany the sixteen federal states are responsible for handling importing licenses. Sources independently agree that very obviously some of the authorities or their respective representatives are more inclined to issue import licenses for US products than others. Therefore, especially in cases with tight timelines, it is very helpful to know which authority in a respective country is more inclined to expedite the issuance of import licenses for US organic products.


Another level of difficulty is created by the fact that the EU has legislation in place for organic standards, while the US does not. This is a major reason why the US is not on the article 11 list of countries whose inspection and certifications are generally accepted as equivalent with those of the EU. In practical terms this also means that in case of arising difficulties private entities like US certifiers have to deal directly with foreign government authorities without having the backing of their own federal legislation. Solving these problems can be very difficult, as for example in the case of the permission of Chilean nitrate in organic agriculture. While Chilean nitrate is prohibited under EU regulations, several US certifiers do allow the application of modest amounts of Chilean nitrate. This fact created a problem for the EU authorities in terms of accepting the validity of the respective certifiers. After a long period of negotiations and a meeting of the so-called article 14 group of the EU in Brussels the respective certifiers had to re-write their rules so as to be accepted as equivalent.


What is unambiguously laid down in the EU 2092/91 rules is that once organic products are imported in the EU, they can move freely without restriction within its borders. This part is obviously working. However, often problems arise when, for example, a distributor wants to obtain a license for an established well-known organic logo like AB in France or the KRAV logo in Sweden for a product imported through the Netherlands. In those cases, the issuing authorities might require the applying entity to import directly into their country, although this appears to be a questionable practice.


Before the Japanese National Organic Standards took effect in April 2000, the main obstacle was the exhaustive requirements for pesticide residues testing by Japanese authorities, which far exceeded any other government’s requirements. As this type of testing is time-consuming and expensive, in certain cases it effectively created a trade barrier. However, the newly enacted national organic standard for Japan is perceived as for more restrictive, and in fact all sources interviewed regard them as outright problematic. On the level of regulations, they are perceived as "lax, vague and inconclusive" in many respects and therefore as almost inviting varying interpretations. On the level of the certification regulations, they are perceived as outright protective. For example, in order to issue the JAS seal on the product to be imported, a representative of the Japanese MAFF has to personally audit the qualification of the competent representative of the exporting entity. This is seen as unprecedented, inappropriate and very expensive. The regulation that certifiers have to be incorporated in Japan so that their regulations can be accepted as equivalent is another aspect that is seen as a substantial trade barrier, as incorporation in Japan requires either $30-40,000 or $80-100,000 working capital, depending on the type of incorporation, a substantial sum when taking into account the present amount of organic commodities and products that are being imported to Japan. The second option in this regard, the formal cooperation with a Japanese certifier is also assumed to be a difficult one as it may force certifiers into cooperation with a hitherto unknown entity.


With respect to Taiwan, no specific trade barriers on the governmental level have been reported. It should be noted, however, that the organic trade relations are very recent and that trade volume is low and therefore not much experience is accessible at this point.


Problems of the mutual acceptance of certification procedures and documentation between certifiers from different countries

Several sources reported problems in the cooperation between European international certifiers and US certifiers, especially with regard to imports of tropical fruits and coffee and cocoa. In several instances European certifiers required extensive additional supporting documents or were not satisfied with paperwork of their US certifying counterparts. It is hoped by the majority of certifiers that the introduction of ISO 65 as standard procedure how to document organic certification will at least alleviate this problem.


Cultural and language differences

Cultural differences have been cited mostly with respect to Japan. Simply put, most sources interviewed find Japanese partners harder to read and business customs more distinguished. Consequently, most companies doing business with Japan have one or more employees with Asian-American background and the ability to speak Japanese. The same, albeit to a lesser extent, appears to be true for Taiwan.


The aspect of cultural differences seems to have no significant bearing in regard to the European countries. Language problems, not cultural differences are perceived as a trade barrier with France. In France, the willingness to communicate in English seems not exceptionally high, and as few companies have French-speaking employees, starting business with France is perceived as more difficult than with the Netherlands or Germany.


Market transparency of foreign markets and pricing of products

Most sources have the impression that reliable market information on foreign markets in general is scarce. Despite the progress through the Internet, information on organic markets worldwide is in no way comparable to market information on conventional products. So far, no country has easily accessible statistics on organic imports and exports, and even publicly accessible market information on the domestic market is perceived as not sufficient. This creates a substantial hurdle insofar as even a preliminary "peek" into a foreign market requires a substantial effort with unknown results. Smaller companies especially cannot easily afford this initial effort. Therefore, the limited knowledge of the European and Asian markets among American organic companies is perceived as a trade barrier per se.


An even more sensitive area is the pricing of organic products. There is practically no way to easily monitor current pricing of organic products. (For the countries surveyed the only exception to this rule we know is weekly pricing information for German domestic organic products by the ZMP at http://www.zmp.de/projekte/bio/index.htm. Therefore it requires a lot of practical understanding and experience to figure out appropriate pricing, and, once established, many companies make every effort to keep this valuable information in-house. While the new business-to-business Internet-based services like Foodtrader.com or the Green Trade Net help to increase information on pricing, it will for sure take some additional time to establish an informational and pricing infrastructure that allows timely access to market data needed to make appropriate decisions.


Competitiveness of certain US products

There are specific products where US production costs are very high, if not preventing competition on an international level. Presently, this is true for dairy products, which can be produced in the EU much cheaper than in the US. Another case is grain, where Canadian and Eastern European competition is increasing substantially and causing loss of export market share for American companies


High currency exchange rate and tariff structure

One factor responsible for the limited competitiveness of certain products is the still soaring US-Dollar. As the EURO lost 25% of its value in relation to the US-Dollar in less than two years, this creates problems especially for some of the smaller companies. The loss in value of the EURO may easily erase the profit margin if no sophisticated procedures to protect against currency exchange rate losses are in place. Exporters to Japan also report a strong influence of the exchange rate between the Dollar and the Yen in the last five years.


Current European customs tariffs for processed products are also seen in many cases as prohibiting exports of processed goods to Europe. Customs tariffs seem to play a lesser role for exports to Japan and Taiwan.


A perceived lack of support by US government and industry organizations

Knowledge on domestic supporting government services like the USDA Foreign Agricultural Service or the regional trade groups among actual and potential organic exporters appears to be mixed, and some of them would wish for a more hands-on approach with regards to their export questions, and staff familiar with the organic industry in the respective target country. There is also a perception of some industry members that there is not enough knowledge and support from organic and industry organizations readily available. Several interview partners expressed their wish for a sort of "one-stop export information shopping center" and trade representations in Europe and Asia.


In summary, it is not one single trade barrier, but an array of obstacles that hamper organic exports from the United States. Small to medium sized companies without trained export staff face difficulties in accessing the necessary market and pricing information, international organic certification can be extremely complicated and the business environment is becoming more competitive. Layered on top of these problems are the various, not easily intelligible international rules and regulations regarding organic agriculture, processing and trade. This situation persuades a number of companies with successfully established export relations to keep their valuable information strictly confidential.

 
 
2014 Annual Fund

Research and Promotion 2012

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