Tuesday, July 18, 2006

Butter wars

With the Middle East in flames, it seems bizarre to be talking about a "war" over a common and garden commodity like butter, but such is the term so often used in discussions about trade. "Jaw-jaw", it seems, is "war-war".

Anyhow, we are talking – if you had not guessed – about New Zealand butter, a story we reported on the blog in the early hours of Saturday morning, then to have it picked up and made into a front-page story in The Sunday Telegraph (not a coincidence).

Although we did not refer to him, the Telegraph chose to focus on the role of Peter Mandelson, the EU trade commissioner, in the unilateral and unexpected ban on the import of New Zealand butter to the EU.

That Mandy was responsible was by no means an unreasonable assumption, on two grounds. Firstly, the New Zealanders were protesting that the ban was in breach of the WTO agreement and, secondly, this is a matter of international trade with the EU, for which our trade commissioner is responsible.

Since then, however, the Telegraph has received a storming letter of complaint from Mandelson himself saying, in effect, "not me guv". "The decision," he writes, "was made entirely under the authority of the European Commissioner for Agriculture." He then continues:

It followed an European Court of Justice ruling that existing import arrangements are monopolistic and must be changed to avoid a further legal challenge. The European Commission's Agriculture officials are working closely with New Zealand and have commited (sic) to making the neccesary (sic) changes to EU law as soon as possible, and the issuing of licenses will then be resumed.
To say that this is bizarre is something of an understatement. The arrangements to which Mandelson refers are set out in Commission Regulation (EC) No 2535/2001 of 14 December 2001, which lay down detailed rules for applying Council Regulation (EC) No 1255/1999. This regulation itself sets out "import arrangements for milk and milk products and opening tariff quotas".

The point here is that these regulations stem directly from, and implement, an agreement concluded in the framework of the Uruguay round of multilateral trade negotiations of the GATT and the WTO – in turn continuing an agreement made with the British in 1973 - which would therefore have been negotiated by Mandelson’s directorate, then under his predecessor, Pascal Lamy.

If Mandy was not involved, therefore, he should have been. But, as it stands, there seems to be a situation where an agreement negotiated by "Trade" has been pulled by DG Agriculture, without the apparent knowledge or involvement of Mandelson’s directorate.

What then raises this from the bizarre to the surreal is that the initial court reference was made in June 2004 and there was a very detailed preliminary judgement in December 2005.

Crucially, in the judgement, the court declared that the key regulation (No 2535/2001) was invalid but that it "is maintained until the entry into force of a replacement provision which does not infringe the Community non-discrimination and competition rules."

In other words, the court was telling the commission that the existing arrangements could continue until there has been time for officials to draft a new, compliant regulation and get it through the approval system.

The commission thus had plenty of time to get this matter sorted and, when the final judgement was released on 11 July, the court merely re-iterated the earlier, provisional judgement, affirming that the regulations were invalid. It made no order that the import of butter should be suspended.

Thus, while the commission knew what was coming and had effectively been instructed to produce new regulations. But, or so it seems, it had actually done nothing until the final judgement on 11 July, when it unilaterally suspended imports, even though it was under no obligation to do so.

And, contrary to Mandy's assertion that the commission's agriculture officials are working closely with New Zealand, this action was not only unilateral but precipitate, catching the New Zealanders totally by surprise, with 14,000 tons of butter on the high seas or in bonded store, awaiting permission to enter the EU.

As we write, New Zealand is asking the EU to make emergency arrangements to import the orphan butter while New Zealand officials are on their way to Brussels for face-to-face negotiations in an attempt to reverse the commission’s decision.

All-in-all, this is one huge cock-up by the commission and the more Mandelson protests his innocence, the more culpable he looks.

STOP PRESS Mandelson's office is now saying that existing arrangements can continue, until October. See here for more details.

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