1. Since its inception the Sub-Group has taken an interest in policy developments affecting the hides and skins economy, including particularly the impact which barriers to imports and exports have on the sector. While information on import restrictions, both tariff and non tariff, imposed by various countries is generally available, that on export restrictions is more difficult to obtain.

2. Although export restrictions may have somewhat smaller impact on world hides and skins trade than import restrictions, nevertheless export taxes, quotas, the prohibition of exports and other restrictions may have a significant impact on the supply and prices of material within selected countries as well as on export markets.

3. This review of export restrictions was prepared by the Confederation of National Associations of Tanners and Dressers of the European Community (COTANCE) in order to provide the Sub-Group with the perspective of importers and tanners of Europe, which represents the major market for hides and skins. The document has been published without further editing in FAO. The opinions contained in the document are exclusively the responsibility of COTANCE and do not necessary represent the views of FAO.

4. Other delegations are invited to provide information and views to the session on this topic.

FAO

FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS

Seventh Session of the Sub-Group on Hides and Skins

Rome, 4-6 June 2001

TRADE RESTRICTIONS ON HIDES AND SKINS

Prepared by :Gustavo Quiano Gonzales
Secretary General of

CONFEDERATION OF NATIONAL ASSOCIATIONS OF TANNERS AND DRESSERS OF THE EUROPEAN COMMUNITY

I. BACKGROUND

1. Since the last Session of the Sub-Group on hides and skins, notable changes have occurred on the markets of raw materials for the leather industry.

2. At that time prices for hides and skins were at record lows following the economic and financial crisis in Asia and Russia. While demand for leather and leather products recovered timidly, supply of raw materials experiences difficulties to adjust. Today hides and skins are again in the spotlight, but for featuring prices on open markets reaching historical heights.

3. The difficult adjustment process on meat markets following the beef crisis in Europe adds to the relative shortage of hides and skins on international markets. The policies adopted for eradicating animal diseases, such as BSE and Foot & Mouth, have an undeniable impact on the leather industry. Sanitary safeguard measures provoke unexpected disruptions of supplies and these are having a significant effect on the availability and prices of hides and skins for the leather industry.

4. The panorama of export restrictions has thus been enlarged to a new category of measures. So far export restrictions on hides and skins were fundamentally motivated by purely economic considerations. Recent developments show that other concerns such as health and safety may also lead to measures that have similar economic consequences as the former, but as a side effect.

5. The combined impact of export restrictions on hides and skins, based both on sanitary or economic grounds, is pushing the leather industry into a further structural adjustment process.

6. This occurs in a context where a new round of multilateral trade negotiations is announced for later this year. The agenda of this new Round is to address the issue of trade barriers but also issues concerning health and safety and environmental sustainability.

7. This paper is meant to contribute to the debate regarding trade restrictions on hides and skins. It highlights certain negative aspects of export restrictions and advocates their control in the interest of the leather industry.

II. DESCRIPTION OF TYPES OF EXPORT TRADE RESTRICTIONS PRESENTLY IN FORCE

A. NON-ECONOMIC EXPORT TRADE RESTRICTIONS

8. Hides, skins and leather markets have been lately quite concerned about the consequences on trade of the outbreak of certain animal diseases in major raw material markets.

9. The outbreak of Bovine Spongiform Encephalopathy (BSE), also known as the "Mad Cow" disease, first in the United Kingdom and later in other European countries has led to measures that restrict the trade in raw hides for avoiding that unsafe hide material could possibly enter the food chain. Only tanned material, can exit freely the country managing a BSE intervention scheme. This guarantees that all by-products of cull animals are safely disposed of.

10. It is very fortunate for the leather industry that public authorities, in allowing the recuperation of the hides of animals subject to precautionary cull schemes, have acknowledged the positive role of the leather industry in minimizing the cost of the BSE crisis. It is less positive, however, that not enough attention has been paid to the market distortions caused by the export restrictions in the various countries and in Europe's internal market as a whole.

11. The outbreaks of the Foot & Mouth Disease (FMD) also in the United Kingdom, and its spread over other countries, have been cause of concern. Sanitary reasons oblige to create a safety nets around the areas of affected farms. For isolating the virus and avoiding that it spreads to neighboring regions and farms, all movements of animals (bi-ongulates) and animal products are strictly forbidden. All productive animals are totally destroyed through incineration, including their hides and skins.

12. Quarantine measures imply temporary export restrictions of raw hides and skins but not on treated material. The loss for the leather industry comes rather from the destruction of raw materials that will become visible in the medium term. This loss will be higher the more hides and skins escape the leather value chain.

IN CONCLUSION

13. Export restrictions on raw hides and skins have been used for safeguarding other values than economic ones. Temporary sanitary precaution measures are taken to protect animal and human health. Similar measures are also likely to start protecting other societal priorities, such as the environment (Salt).

B. ECONOMIC EXPORT TRADE RESTRICTIONS

14. The European Union has been particularly active in addressing the issue of economic export restrictions on hides and skins.

15. In bilateral trade negotiations, notably in the various Europe agreements with Central and Eastern European Countries (CEEC's), a clause prohibiting quantitative export restrictions and measures having equivalent effects has been consistently integrated. This is in line with the aim of the trade agreements that is to integrate CEEC's in the EU. Since export restrictions would impair the correct functioning of the internal market these have been ruled out from the onset. Export restrictions have also been ruled out in the free trade agreement with Mexico and in the WTO accession negotiations with China.

16. In multilateral trade debates the issue of export restrictions is clearly on the agenda. Apart from hides and skins, such trade measures also affect other raw materials in various industrial sectors such as textiles and clothing (cotton, wool, silk), furniture (exotic wood), steel (ferrous scrap). Their adverse effect on conditions of competition between operators has led to the understanding that export restrictions need to be targeted and brought under control.

17. In international fora, such as WTO, export restrictions have been subject of various consultations between the EU and India, and the EU and Pakistan. In both cases an amicable solution could be achieved since the measures adopted to satisfy the EU request went in the direction of a "tarification".

18. Export restrictions have also been addressed in the WTO Dispute Settlement Procedure brought up by the EU against Argentina. Argentina announced the phasing out of the export restrictions on hides and skins and wet-blue by the year 2000. This resolution was eventually not enforced.

19. Also Mercosur had to deal with issues regarding export restrictions. As a customs union the member States have to harmonize their external trade regime. This forces Argentina, Brazil, Paraguay and Uruguay to adopt a common approach with regard to the export regime for hides, skins and wet-blue. It also obliges Mercosur countries to eliminate internal trade barriers. However, while the export restriction on hides, skins and wet-blue existing in Argentina is applied erga omnes and thus also versus Brazil, the latter applies its export restriction on wet-blue selectively, excluding from the restriction its trade partners within Mercosur.

20. In West Africa, export restrictions on raw materials for the leather industry have seen a significant decrease with the exception of Nigeria. Indeed, practically none of the French speaking countries applies this type of restrictions any longer. Mali used to surcharge the export of hides and skins in 1996 and early 1997, but the measure was eliminated. Burkina Faso also lifted its export ban and Côte d'Ivoire eliminated the 5FF/kg surcharge set up in 1995. Nigeria, on the other hand, extended the export ban applying on raw hides and skins to wet-blue.

IN CONCLUSION

21. Export restrictions on hides, skins and wet-blue seem to have bi-polarized in two major categories:

III. ANALYSIS OF THE ADVERSE EFFECTS OF EXPORT TRADE RESTRICTIONS

23. The adverse effects of export restrictions on tanning industry raw materials are fundamentally those deriving from the deviation of trade and from the impairment of the principle of the best allocation of resources.

A. DEVIATION OF TRADE

24. Countries applying such measures isolate their market of raw materials from the rest of the world and distort the normal market price fixing mechanism of offer and demand. Depending on the competitive conditions acting on the demand side in the isolated market, prices of raw materials may drop below the world market price. This in turn will provide comparative advantages to those operators within the isolated market further down the value chain exempted from export restrictions. Whether the "hidden subsidy" is passed on to the next link in the value chain is uncertain. The margin is normally capitalized at the earliest possible stage where access to the free market is granted. There open market principles rule again the price setting mechanism.

25. This dual pricing of raw materials has noticeable consequences on the competitive environment of the sector's operators acting on the same market outlets for leather and leather products. If price differentiation cannot be justified by objective criteria, such as quality, fashion or other, the operator competing against a colleague with a cost advantage on raw materials, is likely to be forced gradually out of business.

B. IMPAIRMENT OF THE PRINCIPLE OF THE BEST ALLOCATION OF RESOURCES

26. With a fragmented world market for hides, skins and wet-blue, raw material resources for the tanning industry are allocated in the absence of a global competition. These will thus not necessarily reach the market where they may obtain the optimal value added. Valuable raw materials are likely not to yield their expected returns and this would represent a loss in the global balance sheet of the leather industry. Although locally a higher value is possibly achieved through the sale of more value added products, the global gain may turn out to be lower than the one obtained through an open market environment.

C. IMPACT OF EXPORT TRADE RESTRICTIONS TO THE HIDES AND SKINS SECTOR OF THE DEVELOPING AND DEVELOPED COUNTRIES

27. Export restrictions on raw materials tend to reduce the earnings in the early stages of production reducing the income of the hide and skin sector to the benefit of the later production stage. Operations such as collection and curing, or even tanning, involving generally a larger number of people employed are less remunerated than they would be under open market conditions. The profits concentrate usually on a few.

IV. CONCLUSIONS

29. Export restrictions have surfaced in international trade talks in the last few years. Their appearance on the political trade agenda has been particularly noted when it was in the form of a standard clause prohibiting them between trade partners or as a conflict and in the framework of dispute settlement procedures.

30. As a result of the legal attention given to them by major WTO members, export restrictions on hides and skins have experienced a significant pressure. The trend was mainly to challenge export restrictions, notably those that were not strictly in line with international trade rules (Article XI of GATT). This has certainly helped to clarify the situation and to bring them into a form that allows them to be further dealt with in a multilateral context.

31. Irrespective of economic export restrictions, there is a growing trend in trade in wet-blue rather than in raw hides & skin as a starting material for the leather industry. Sanitary, but also environmental considerations, push in that direction. These are societal values that influence increasingly international trade and that contribute to the adjustment process of the leather industry towards its sustainable development in the new Millennium.

TABLE: OVERVIEW ON RAW HIDES AND SKINS PRODUCTION AND EXPORTS WITH REFERENCES ON EXPORT RESTRICTIONS: SELECTED COUNTRIES

*1997*	Bovine				Sheep & lambs				Goats & Kids				Type of restriction						Products	Regulation	Source
Unit:000 tons	Production Exports				Production Exports				Production Exports
	% %				% %				% %				EB	EQ	ET	EL	MEP	DFB
World	5651	100	2173	38.4	548	100	181	33	323	100	22	6.8
Argentina	244	4.32	0.3	0.12	3.6	0.66	1.2	33.3	1.1	0.34	0	0			5%		X		RHS+WB grains		1
Brazil	523.9	9.27	23.3	4.45	5.2	0.95	0	0	2.6	0.80	0	0			2% / 9%				RHS / WB	Decreto	15
Colombia	57.2	1.01	0.2	0.35	0.7	0.13		0	0.3	0.09		0	X	X					RHS		16
Paraguay	27.7	0.49	5	18.1	0.2	0.04		0	0.1	0.03		0				X		X			3
Uruguay	41.6	0.74	2.6	6.25	5.1	0.93	0.9	17.6	0.1	0.03		0			7.5%					***	***
SubTotal	894	15.83	31.4	3.51	14.8	2.70	2.1	14.2	4.2	1.30	0	0
Mali	7.5	0.13	0.1	1.33	2.1	0.38	0.7	33.3	0.9	0.28	0.2	22									7
Kenya	27.9	0.49	0.2	0.72	1.9	0.35	0.1	5.26	2.7	0.84	0.1	3.7			10%				RHS		2
Morocco	11.1	0.20	0	0	6.4	1.17	0.1	1.56	1.5	0.46		0				X			RHS		4
Nigeria	27.8	0.49	0	0	4.6	0.84	0.5	10.9	10.2	3.16	0.1	1	X						RHS + WB		18
Tunisia	2.7	0.05	0.1	3.7	5.2	0.95	0	0	0.8	0.25	0	0	X						RHS		5 + 1
Egypt	52.8	0.93		0	2.2	0.40	0.2	9.09	2.5	0.77		0									5
SubTotal	130	2.30	0.4	0.31	22.4	4.09	1.6	7.14	19	5.75	0	2.2
Bangladesh	30.7	0.54		0	0.4	0.07		0	19.3	5.97		0	X						RHS		7
China	556.5	9.85	32.1	5.77	108	19.72	0	0	95.2	29.46	10	11									7
India	358	6.34	0	0	22.5	4.11	0	0	69	21.35	0	0			15% / 60%				RHS + WB + CR	Order	11
Indonesia	33.1	0.59	0.1	0.3	4.7	0.86	0	0	6.6	2.04	0	0			20-30%				RHS	Min. Proposal	12
Nepal	17	0.30	15	88.2	1.4	0.26	0.6	42.9	3	0.93	0.8	27	X						RHS		7
Pakistan	64.3	1.14		0	13.9	2.54	0	0	26	8.04	0	0			20%				RHS	Order	5
Thaïland	62.3	1.10	0.3	0.48	0	0.00	0	0	0	0.00		0			3%				RHS		2
Vietnam	19.8	0.35		0		0.00		0	0.2	0.06		0	X								5 + 1
SubTotal	1142	20.20	47.5	4.16	151	27.55	0.6	0.4	219	67.85	11	4.9
Croatia	2.2	0.04	4.2	191	0.2	0.04	0.1	50		0.00		0									Note
Czeck Repub	13.8	0.24	8.9	64.5	0.1	0.02	0	0	0	0.00	0	0			X				RHS	Request	13
Poland	37.8	0.67	1	2.65	0.2	0.04		0	0	0.00		0			X				RHS	Request	14
Romania	25	0.44	0	0	7.1	1.30		0	0.5	0.15		0									Note
Bulgaria	5.1	0.09		0	1.5	0.27	1.2	80	0.2	0.06		0									Note
Belarus	39.9	0.71	11	27.6	0.2	0.04		0		0.00		0				X	X		RHS		2
Russian Fed.	338.2	5.98	145	42.9	17.4	3.18	6.3	36.2	0.9	0.28		0			20%				RHS	Gov. Decision	10
Kazakhstan	60.8	1.08	2	3.29	10.2	1.86	0	0	0.4	0.07		0			X				RHS	Gov. Decision	17
Ukraine	151.2	2.68	37	24.5	1.9	0.35	0.7	36.8	0.5	0.15		0			20%				RHS		7
Uzbekistan	24.7	0.44	2.9	11.7	3.5	0.64	0.4	11.4		0.00		0	X						RHS		1 + 9
SubTotal	699	12.36	212	30.3	42.3	7.72	8.7	20.6	2.5	0.72	0	0
TOTAL	2865	50.69	291	10.2	230	42.1	13	5.64	245	75.6	11	4.6

*1997*	Bovine				Sheep & lambs				Goats & Kids				Type of restriction						Products	Regulation	Source
Unit:000 tons	Production Exports				Production Exports				Production Exports
	% %				% %				% %				EB	EQ	ET	EL	MEP	DFB
Europe	836	14.79	742.3	88.8	78.2	1.38	48	61.8	5.9	0.10	2	34
Austria	11.7	0.21	36.3	310	0.3	0.05	0.1	33.3	0	0.00	0	0				X			RHS	Reg.2777/2000	OJn°L321
Bel-Lux	24.4	0.43	40.1	164	0.2	0.04	4	2000	0	0.00	0.1	0
Denmark	15.3	0.27	18.5	121	0.1	0.02	0.1	100	0.1	0.03	0	0
Finland	7.6	0.13	10.1	133	0	0.00	0.2	0	0	0.00		0				X			RHS	Reg.2777/2000	OJn°L321
France	126.5	2.24	156.5	124	8	1.46	7.8	97.5	0	0.00	0.4	0				X			RHS	Dec.208/2001	OJn°L73
Germany	134.5	2.38	129.6	96.4	1.7	0.31	5.1	300	0.1	0.03	0	0				X			RHS	Nat. Reg.	7
Greece	7.9	0.14	0.5	6.33	4.7	0.86	1.6	34	2.4	0.74	0.6	25
Ireland	62.4	1.10	40.1	64.3	5.7	1.04	1.7	29.8	0.1	0.03	0	0				X			RHS	Nat. Reg.	7
Italy	133.7	2.37	28.5	21.3	7.2	1.31	1.8	25	0.2	0.06	0.1	50
Netherlands	44.6	0.79	104.2	234	0.7	0.13	1.6	229	0.1	0.03	0	0				X			RHS	Dec.223/2001+Nat. Reg.	OJn°L82
Norway	6.2	0.11	8.3	134	1.3	0.24	1	76.9	0	0.00	0	0
Portugal	8.8	0.16	0.2	2.27	1.8	0.33	0.2	11.1	0.1	0.03	0.1	100
Spain	48.9	0.87	23.3	47.6	12.8	2.34	4.5	35.2	1.2	0.37	0.4	33				X			RHS	Nat. Reg.	7
Sweden	9.9	0.18	14	141	0.1	0.02	0.3	300	0	0.00	0	0				X			RHS	Reg.2777/2000	OJn°L321
Switzerland	16.9	0.30	18	107	0.3	0.05	0.2	66.7	0	0.00	0	0
UK	54.2	0.96	71.4	132	21.8	3.98	14.6	67	0	0.00	0.2	0				X			RHS	Dec.190/2001	OJn°L67
TOTAL	714	12.63	700	98.1	36.8	6.72	20	53.8	1.3	0.4	1	54

Statistical data source: World statistical compendium for raw hides and skins, leather and footwear, FAO,

Abbreviation: EQ: Export Quota - EL: Export Licences/Control - ET: Export duties, taxes, surcharges - MEP: Minimum Export Price/Reference Export Price - EB: Export Ban - DFB: De-Facto Ban -

Sources: 1: CEEI Study 96 - 2: CCP: ME/HS 96/4 - 3: Mission of Paraguay to EU - 4: Matraia Study 96 - 5: EU Delegation - 6: MOFTEC/WTO - 7: Private Source - 8: Thai Embassy in Belgium - 9: UNIC -

11: Notification No. 40 (RE-00)/1997-2002, of 20.10.2000 issued by Director General of Foreign Trade, Ministry of Commerce & Industry, GOI - MNS n°20/2000 - 12: Just-Style.com 13.03.01 - 13: LEATHER -

14: Leatherbiz.com - 15: Decreto n°3.684 of 7.12.2000 - 16: MNS n°17/2000 + cueroamerica.com 22.03.2001 - 17: World Leather Feb/Mar - 18: MNS n°1/1999 + MNS 3/1999

*** Uruguay: Law 15646/84 + Dec456/84, 765/88, 634/77, 240/78, 495/78, 269/79, 30/92 + Law 16739/96

Note: CEEC except Croatia have committed to liberalise exports as of 1/1/98; Poland as of 1/9/98.

COMMITTEE ON COMMODITY PROBLEMS

INTERGOVERNMENTAL GROUP ON MEAT

SUB-GROUP ON HIDES AND SKINS

Seventh Session

Rome, 4 - 6 June 2001

TRADE RESTRICTIONS ON HIDES AND SKINS

Table of Contents

I. INTRODUCTION

FAO

I. BACKGROUND

II. DESCRIPTION OF TYPES OF EXPORT TRADE RESTRICTIONS PRESENTLY IN FORCE

A. NON-ECONOMIC EXPORT TRADE RESTRICTIONS

IN CONCLUSION

B. ECONOMIC EXPORT TRADE RESTRICTIONS

IN CONCLUSION

III. ANALYSIS OF THE ADVERSE EFFECTS OF EXPORT TRADE RESTRICTIONS

A. DEVIATION OF TRADE

B. IMPAIRMENT OF THE PRINCIPLE OF THE BEST ALLOCATION OF RESOURCES

C. IMPACT OF EXPORT TRADE RESTRICTIONS TO THE HIDES AND SKINS SECTOR OF THE DEVELOPING AND DEVELOPED COUNTRIES

IV. CONCLUSIONS