Three driving characteristics shaped the committee’s activities during the year: an unusually high level of trade policy landmark initiatives, important anti-dumping decisions from the General Court in Luxemburg and the drive towards implementation of the EU’s Third Energy Package.
Trade policy landmarks included a wave of EU Free Trade Area negotiations, a new determination to strengthen the EU’s unilateral trade policy via the Generalised System of Preferences (GSP) scheme, and the opening of trade defence reviews. On the multilateral front, after nearly two decades of negotiations, Russia joined the WTO in August. Hearings at the General Court in Luxemburg addressed four Russian complaints on earlier Fertilizer Europe anti-dumping cases concerning ammonium nitrate and UAN. The EU’s drive to implement the Third Energy Package represented a new competitive challenge in the light of the USA’s full-blown exploitation of shale gas.
The European Commission’s DG Trade Directorate countered the failure of the Multi-lateral Doha Trade Round with a fast-forward on several key trade policy features, notably the opening of a whole series of new Free Trade Areas (FTAs). For the EU fertilizer industry, most important were the “near neighbourhood” partner country negotiations with the Former Soviet Union and Euro-Med countries. Fertilizers Europe contributed position papers to discussions with Egypt, Ukraine, Kazakhstan and Georgia, while Morocco and Algeria required simpler monitoring activity.
Fertilizers Europe strongly welcomes the new FTA emphasis. Unlike the Doha Round, which is constrained by polarised positions now often found in such international forums, the EU’s deep and comprehensive FTA model better addresses the EU fertilizer industry’s critical “level playing field” issues (i.e. energy pricing and market structures, equal or equivalent carbon and climate change commitments, and the harmonization of health, safety and environmental law).
By December 2012, release of the agreed draft EU-Ukraine Partnership & Co-operation Agreement II (which includes a comprehensive FTA) contained a landmark energy chapter outlawing dual pricing and promoting energy priced on market forces. The draft treaty further cements the energy market structure already started with Ukraine’s membership of the European Energy Community. It also addresses the approximation of its HSE laws and intellectual property and investment rights. However, Ukraine did not commit to join the EU’s Emission Trading Scheme (ETS) and the whole project has been delayed by the Justice and Human Rights chapters due to the controversial imprisonment of Mrs Tymoshenko and her ministers.
While there was partial breakdown on the Ukraine negotiations, there was a breakthrough with the USA. The announcement that the EU-USA would seriously engage in FTA negotiations set off a further round of considerations. Fertilizers Europe alerted the Commission to the considerable “gas price gap” that had developed between the EU and the USA and the possible need for a “back loading” of tariff reductions on certain key products.
Moreover, freeing-up US LNG exports to the EU also became an issue as “resource nationalism” arose in certain parts of the US establishment and business community. Fortunately, the EU moved quickly to engage in an “energy chapter” to ensure free and fair trading of energy products. Together with a “regulatory cooperation” forum, this will now give important legs to the whole EU-USA FTA venture.
In April, The European Commission launched a major trade defence review. Proclaimed as a “modernisation” initiative, it set out an apparently “balanced” package, improving the rights of both importers and exporters. On one hand, importers would win a “shipper’s clause” including pre-notification of anti-dumping measures and better refund mechanisms on duty payments. On the other, producers would get ex-officio openings for politically sensitive cases and removal of the lesser duty rule on subsidy cases. All parties were also intended to benefit from new transparent, quasi-legal guidelines on key issues such as union interest, analogue markets and injury margin calculations, which include profit ratings.
Fertilizers Europe joined forces with other major manufacturing sectors to argue for faster provisional measures, the removal of the lesser duty rule on anti-dumping cases where there are obvious raw material distortions, more modern profit-rating tools and techniques and higher profit ratings. On the latter issues, it has long been argued that the ROCE ratio should be added to the Commission’s toolbox and that the empirically confirmed profit rating for capital intensive industries such as fertilizers is realistically 12 to 15% and not the 5 to 8% it currently uses.
The Commission’s formal proposal was released in April 2013. A major success was the removal of the lesser duty rule but future progress through the European Council and Parliament is likely to be prolonged and possibly troubled.
EU institutions also agreed a new GSP regime governing EU import tariff levels for many developing or emerging economies. The outcome that stood out was the exclusion of countries with GDP per capita incomes higher than US$ 4000. Thus, major competitors in the Arab Gulf, as well as Russia, Belarus and Kazakhstan, were excluded from the regime. In contrast, Ukraine retained its GSP advantage. The GSP Scheme is due to come into force on January 1, 2014, from when it will start to impact trade patterns.
Russia’s accession to the WTO in August 2012 included a gas “cost plus profit plus investment” deal, signifying its recognition that it is no longer justifiable to regularly sell gas below cost. The practical effect of the deal is that gas prices to Russian fertilizer producers may well rise to more than US$ 6 to 7 MMBTU in the coming years.
There are already signs, however, that Russia’s interpretation of the deal differs from that of the other WTO members and it cannot be ruled out that only a WTO dispute settlement case can definitively settle the issue. There is absolutely no doubt, however, that a “cost plus profit plus investment” gas deal is written into Russia’s WTO Accession Treaty.
Over the winter months of 2012 and 2013, four judicial hearings on Russian complaints to anti-dumping cases concerning ammonium nitrate and UAN were held at the General Court in Luxemburg.
The foremost issue addressed was the use of a “market gas adjustment” taken from Waidhaus, Germany, to replace Russia’s local state-fixed gas price. Another significant complaint concerned the appropriate profit ratings. By February 2013, the Court judged that the Council, the Commission and Fertilizers Europe had all conducted the correct market gas price adjustments and profit ratings.
The four judgments made by the General Court on February 7, 2013 are:
In 2012, the European Commission’s DG Energy, assisted by ACER - the new Agency for Co-operation for European Regulators - set about an impressive implementation programme for the Third Energy Package. Supplementing this effort to create a competitive Internal Energy Market in Europe, DG Competition opened a potential landmark anti-trust investigation into “excessive pricing” of gas in Europe by OAO Gazprom in September.
Fertilizers Europe fully engaged in the implementation programme, holding a gas seminar in September 2012 where Ms. Inge Bernaerts, DG Energy’s Head of Unit for the Electricity and Gas Markets made a reference presentation.
The Gas Working Party also released its gas publication at the seminar. This was followed by the Commission’s own review in November 2012 and a further Gas Working Party review in January 2013.
At the same time, Europe’s growing dependence on expensive imports of natural gas, while the USA enjoys a “fertilizer investment boom” due to low cost indigenous shale gas, means that Fertilizers Europe continues to support the development of shale gas in Europe. This position particularly manifested itself in a joint position-paper on shale gas with IFIEC, the representative body of energy intensive users in Europe, and a fertilizers chapter in Cefic’s reference position paper.
While competitive pressures grow as Europe’s gas prices remain high compared to those of our major international competitors, 2013 will be the vital year for the implementation of the Third Energy Directive - and the promise of better gas prices.