LIFTING-THE-BARRIERS REPORT 2014 | FOOD & BEVERAGES INDUSTRY
Published date: December 2014
TABLE OF CONTENT
(Click any topic to read the related section)
- 1. ASEAN Harmonisation in the Food Sector
- 2. Achievements in ASEAN Harmonisation
- 3. Technical Barriers to Trade (TBTs)
- 4. Challenges in the Food Sector
- 5. Recommendations
- 6. Annex 1
1. ASEAN Harmonisation in the Food Sector
ASEAN has made significant progress towards its ambitious goal of establishing an ASEAN Economic Community (AEC) by 2015. It has achieved an 82.1% implementation rate for the AEC Blueprint (2008-2015) as at December 2013 and has prioritised the remaining measures, including harmonisation of standards, to achieve the economic community by the end of 2015.
It has however been acknowledged that some of the greatest challenges of the establishment of the AEC still lie ahead. The Asian Development Bank (ADB) recognised the achievement of ASEAN in its October 2013 Asian Integration Report, noting that ASEAN Member States have made “major strides”, especially in lowering and eliminating import duties. However, it highlighted that “Non-Tariff Barriers (NTBs) are increasingly replacing tariffs as protective measures and, unless addressed, can stand in the way of realising the AEC”.1 Indeed, differences between the regulatory requirements of individual ASEAN Member States are among those that have the greatest impact on trade. Thus, it is critical that ASEAN addresses these issues so that they do not become impediments to the establishment and success of the ASEAN Single Market.
In the agri-food sector, which has been selected as one of the priority sectors for ASEAN integration, the private sector stands prepared to assist in this process, and to support ASEAN’s efforts.
Trade in food significantly impacts the economies of many ASEAN countries. The majority of ASEAN members rely heavily on the agri-food sector for economic growth, trade and investment. Based on ASEAN statistics, 38% of its 620 million population or 235 million is involved in the agri-food sector. This is the largest employment sector for ASEAN, which includes forestry and fisheries. In order for ASEAN to achieve sustainable growth and development, more will have to be done in this sector to raise productivity and to ensure demand.
However, ASEAN members’ exports of agri-food products within the region are only a small part of ASEAN’s total exports, and are increasing slowly.
In addition, ASEAN faces the challenge of meeting changes in consumption and demand as incomes rise with population growth and greater economic prosperity.
ASEAN has clearly identified that ASEAN integration and harmonisation of standards and regulation in this key priority sector will help it to realise its potential.
Food standards and regulations serve many purposes: they protect public health by requiring limits on potentially harmful substances in products, provide requirements to ensure consumers have sufficient information to make an informed choice, and serve to facilitate trade between countries. However, at present, significant differences between ASEAN countries’ regulatory requirements create barriers which have a negative impact on food trade. Harmonisation of standards in the food sector will enable ASEAN to meet the demands of a growing population.
The trend in trade supports the need to accelerate this effort in order to harness the sector’s potential. The value of ASEAN agri-food exports has grown rapidly since 2008, rising from US$38.2 billion in 2008 to US$53.25 billion in 2011 as shown in Table 1. Yet, while the agri-food sector achieved the highest growth rate in 2011, it only commands 4.3% share of the value of total ASEAN exports.2 In 2012, the share dropped slightly to 4% with the exports decreasing to US$49.9 billion.
As the majority of ASEAN countries rely heavily on the agri-food sector for growth, trade, investment and employment, the free flow of agri-food products within ASEAN is necessary. ASEAN will only stand to gain if it accelerates and intensifies efforts to achieve harmonisation of standards:
- Rising wealth and reduction in poverty mean greater consumer demand: Figures based on World Bank data show a marked decline in the headcount poverty rate3 from around 45% in 1990 to about 14% in 2010. The rising middle-income population will spur demand for more variety and more nutritious foods, and more choices at competitive prices. This will in turn require greater flow of goods across ASEAN borders spurring intra-ASEAN trade and the creation of employment.
- Untapped potential for intra-ASEAN trade in agri-food: There is enormous potential for intra-ASEAN trade in agri-food products if ASEAN is able to achieve harmonisation of standards and elimination of the most significant technical barriers. While the intra-ASEAN trade of agri-food products has grown in volume, nearly doubling between 2008 and 2011, its share of total exports is only 2.5%, significantly lower than its share of extra-ASEAN exports of 4.3%. In 2012, the intra-ASEAN share dropped to 2.2% accounting for US$7.05 billion in value.
It is clear that accelerating harmonisation of food standards will increase the opportunity for investment and development of value-added food manufacturing within ASEAN.
2. Achievements in ASEAN Harmonisation
ASEAN has already achieved a number of its targets, especially in the prepared food sector:
2.1 ASEAN Common Food Control Requirements (ACFR): The ACFR provides a good platform as a national food control system to assure the safety and quality of food. It takes into consideration the WTO’s Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBTs) Agreements, which are important to international trade. Under the ACFR and specifically the ASEAN Common Principles of Food Control System (ACPFCS), it is acknowledged that a proper food control and regulatory framework is necessary to ensure effective operation of the food control system. In this regard, the ACPFCS provides a common set of guiding principles for the establishment of food control systems in ASEAN Member States taking into account the WTO’s SPS and TBT Agreements supporting international trade.
2.2 ASEAN Food Reference Laboratory (AFRLs): Under the ACPFCS, analytical labs are seen as an essential component of the food control system. ASEAN should be commended for the progress made at the ASEAN Food Testing Laboratories meeting in 2011. At the meeting, it was established that the ASEAN Food Reference Laboratories (AFRLs)’s main task is to become a center for information, advice and technical training on food analysis and testing to all labs in ASEAN. Consequently, the selected labs will support the national food control authorities on issues related to food and food testing.
The ASEAN Food Testing Laboratories Committee (AFTLC) has been established to monitor and coordinate the food testing activities in ASEAN. The AFTLC has developed the terms of reference for the ASEAN Food Reference Laboratories (AFRLs) and procedures for the establishment of the AFRLs. Six ASEAN Reference Laboratories (ARLs), namely, GMO, Food Microbiology, Mycotoxins, Veterinary Drugs, Pesticide Residues, Heavy Metals and Trace Elements have been established. Proposals have been made for ARLs for Food Additives and Food Contact Materials. The ASEAN Prepared Foodstuffs Product Working Group (PFPWG), while noting the AFRL for Fisheries is being established under the SOM-AMAF, will be developing the ASEAN Guidelines for Food Reference Laboratories.
a) ASEAN Audit and Certification of Food Hygiene and Hazard Analysis and Critical Control Points (HACCP).
b) ASEAN Principles and Guidelines for Harmonisation of Food Import-Export Inspection and Certification System.
c) ASEAN Principles and Requirements for Food Hygiene
d) ASEAN Common Principles and Requirements for the Labelling of Pre-packaged Food
e) ASEAN Common Requirements for Food Control Systems.
Further work is underway in food safety risk assessment, which will assist with harmonisation of food safety requirements for food additives and contaminants. Besides, a proposed study for the Development of a Regulatory Framework for Food Safety in ASEAN has been accepted by the World Bank. The aim of the study is to provide recommendations for the regulatory framework for food safety in ASEAN taking into consideration the existing initiatives for food safety.
The work being done by the ASEAN Experts Group on Food Safety will support the food safety aspects in the region as trade expands. The ASEAN Food Safety Improvement Plan will help to develop and strengthen food safety infrastructures and programmes supporting existing and new obligations and rights related to the safety and quality of food in both regional and international trade.
Other trade facilitating schemes being undertaken by ASEAN will help to strengthen the free flow of goods under the ASEAN Single Market and Production Base, thereby spurring trade and economic growth in the region. These will include the development of the National Single Windows in each ASEAN Member State and the ASEAN Single Window for efficient custom clearance; the self-certification scheme to allow ASEAN-originating products to move freely within the region without the requirements of presenting supporting documents for each consignment and alignment of ASEAN standards with CODEX food standards that is sustainable and conducive for the ASEAN economies and the well-being of the peoples of ASEAN.
3. Technical Barriers to Trade (TBTs)
Despite the progress and achievements, significant challenges remain in the food and agri-food sector, as different national rules and regulations cause TBTs.
Currently, TBTs are a major impediment for the expansion of regional and global trade in processed food. Harmonisation of food regulations will spur intra-ASEAN trade by removing or reducing restriction and costs on trade.
In ASEAN, the food sector faces significant regulatory and technical constraints to trade which can create complexity and delays, impose costs and business risks, compromise food security and safety, and also limit opportunities for SMEs and the development of trade within ASEAN Member States.
In a rapidly changing and very competitive economic environment, ASEAN needs greater cooperation and integration among Member States in order to remain competitive. Addressing issues relating to standards and harmonisation goes hand-in-hand with ASEAN’s goal of establishing the AEC. If TBTs are not adequately addressed, they will prove to be a major hindrance to trade in the region, and will adversely impact ASEAN’s plan towards the establishment of a single market.
4. Challenges in the Food Sector
The ASEAN Food and Beverage Alliance (AFBA) ran an industry survey to identify the most significant barriers to food trade within ASEAN faced by the industry. The results established five priority areas for harmonisation:
- Nutrition labelling
- Pre-market product registration
- Import/Export certification
- Authorisation of food ingredients, additives and flavours
- Contaminant limits and analytical methods
As detailed above, these technical barriers directly impact the economic opportunities available to ASEAN businesses – small, medium and large – as well as the availability of safe, nutritious and competitively priced food for ASEAN consumers.
- Nutrition labelling: There are significant variations in terms of product categories and the underlying criteria. Some of the common challenges include variances in mandatory and voluntary labelling requirements; different minimum and maximum limits for vitamins and minerals; variances in tolerance levels; and variances in Nutrition Reference Values (NRVs) used for packaging claims (Figure 2) and Nutrition Information Panel (NIP) formats. This has a negative bearing on regional competitiveness with the industry having to bear the brunt of a multitude of costs for redeveloping products and/or packing, resulting in reduced costs for consumers, less trade, slower growth in some markets and overall loss of regional competitiveness.
If nutrition labelling is harmonised, the benefits will include reduced costs for businesses, consumers and governments, and clarity of information based on international and scientific standards that would allow consumers to make informed choices as well as increased product availability as a result of greater investment incentives for the private sector.
2. Pre-market product registration: Product registration is required by some ASEAN countries before a product can be marketed, which can be either pre-market registration or post-market notification (Figure 3). Pre-marketing registration requires a government agency process to assess and approve food composition and package labelling of finished products to ensure that products comply with food safety and regulatory requirements before products are permitted for retail sale.
Pre-marketing registration can adversely impact businesses to a greater degree than post-market notification as it significantly delays bringing product to market; ties up resources and hinders efficient supply chain, especially for smaller companies; and hinders the region’s overall competitiveness in the global arena. SMEs particularly, have limited resources to invest in multiple registration processes or to be able to finance extended delays in bringing product to market.
It would be advantageous if registration in one member country would be considered sufficient to be exempt from registration in other member countries, possibly through a process of mutual recognition. Ultimately, moving to post-marketing notification would further reduce this particular TBT.
3. Import/Export certification: Import/export certification is largely managed by customs authorities, with requirements to assess food safety being considered under quarantine requirements for animal and plant health, as well as compliance with food standards. The Codex Committee on Food Import and Export Inspection and Certifications Systems (CCFICS) has developed principles and guidelines related to food import and export inspection and certification systems with a view to harmonising methods and procedures between trading partners, and the PFPWG has taken this into consideration when developing ASEAN guidelines.
Currently, companies that import or export food products across multiple ASEAN markets are required to complete inspection and certification requirements for each market in which product is traded. Requirements that ensure the product meets quarantine and safety requirements, while substantially similar, vary between countries and add additional cost and time for industry seeking product import and export, as shown in Figure 4. This significantly impacts on resources, timescales and manufacturing costs, especially for smaller companies, and hinders the region’s overall competitiveness in the global arena.
It would be advantageous if food import and export inspection and certification systems were harmonised so that export facilities would need only one inspection process and product specification details could be provided on one form, acceptable to all ASEAN markets. While this does not guarantee that product will be deemed acceptable in all ASEAN markets on SPS grounds specific to a country’s needs, it would significantly reduce the cost and administrative burden in the import/export of products.
4. Authorisation of food ingredients, additives and flavours: There is no standard approval process enabling an ingredient (including food additives and flavours; enzymes; processing “aid” and new ingredients) authorised in one country to be marketed/placed in another country. Consequently, the impact on regional competitiveness as a result of excessive delays and additional costs result in a considerable burden on company resources and can potentially hinder private sector competitiveness; and also have a direct impact on market growth and the region’s overall ability to compete with the global arena.
Some of the common challenges include delays of many months to years resulting in inefficiency, reluctance to invest in R&D, and lack of competitiveness in global markets. These are caused by:
- multiple authorisation procedures and overlapping responsibilities,
- variances in registration timeframes with risk assessments and lengthy authorisation procedures;
- differences in compositional standards requirements;
- no mechanism to adopt authoritative work of Codex and the Joint FAO/WHO Expert Committee on Food Additives (JECFA).
The benefits of harmonisation will include regulatory clarity for businesses and increased product availability; better protection of companies’ trade secrets; and cost benefits for businesses, governments and consumers.
5. Contaminant limits and analytical methods: There are no uniform maximum levels for contaminants amongst the Member States. Some common challenges include variances in limits for heavy metals (Figure 5); differing analytical methods; delays in procurement and flow of supply chain; and variances between member states and international limits (Figure 6). Consequently, the impact on regional competitiveness as a result of the lack of uniformity includes adverse impacts on cross-border trade and major constraints for companies making investment in the region.
The benefits of harmonisation will include enabling companies to reduce costs and simplify product reformulation and development – in fact, Codex has already set a standard for contaminants in food that serves as a guidance for its 185 member countries and this uniform standard would ensure not only consumer protection across ASEAN, but also enable cross-border trade to thrive. This will reduce cost and increase the benefits for consumers, businesses and governments.
In order to address these challenges, we would like to recommend the following:
- Mutual Recognition Agreements as a first step to removing regulatory and technical barriers: Technical regulations that differ significantly between ASEAN member countries become an impediment to trade. While ASEAN has adopted a number of approaches using international standards and in alignment with the WTO/TBT obligations, it is still hindered by the lack of progress in those areas that are directly and indirectly related to technical barriers including licensing and registration, harmonisation of product standards and also customs procedures.In addressing technical barriers in the food sector, ASEAN should consider the use of Mutual Recognition Agreements (MRAs) already in place in the other priority integration sectors, such as the Electrical/Electronic sector MRA recognising certifiers, the Cosmetic regulatory Scheme MRA recognising product registration, or the MRA for Manufacturers of Medicinal Plants GMP certificates and/or inspection reports.Currently, the ASEAN Consultative Committee on Standards and Quality (ACCSQ) is working towards harmonising national standards and implementing MRAs on conformity assessment to achieve its goal of “One Standard, One Test, Accepted Everywhere”.MRAs are an effective and ‘lower-cost’ model used when the difficulty of negotiating harmonised standards is likely to be high. MRAs help to find a mechanism to recognise equivalence in outcomes despite regulatory differences between jurisdictions.The industry’s suggestion is to apply MRAs to support trade in food across all ASEAN countries, as a first step toward harmonisation and greater economic integration and cooperation between jurisdictions. The current proposal by the PFPWG is that an MRA be used for inspection and compliance assessment. Although it is a good start, more is needed – including on the following:a) MRA on standards, additives and contaminants, so that products which comply with one country are deemed to comply with all countries; and
b) MRA on labelling so that the information provided to make an informed decision is deemed sufficient for a product which is traded in other countries, and without obligation to re-print or over-label for other/specific markets.
More details of the industry’s recommendation in this regard are contained in Annex 1.
- Public-Private Partnership – The benefits of industry consultation: The industry’s role in the harmonisation process should be explored and the following could be considered as a pathway for MRAs in collaboration with the industry:a) supporting application of MRAs to food standards;
b) reviewing ‘best practice’ application of MRAs;
c) supportive industry environment to engage SME stakeholders on application;
d) transition arrangements and realistic timelines, which minimise cost impact; and
e) developing an implementation plan with industry to support SME competitiveness.The industry is committed and ready to work with ASEAN in addressing the multifaceted issues in the spirit of public-private collaboration that ASEAN is supporting in building a viable and people-oriented AEC.At the policy level, more attempts could be made by ASEAN to promote industry participation and involvement especially in terms of engaging them more on NTB/TBT matters as a stakeholder that has been affected directly by these barriers.By allowing the industry to observe and participate at ASEAN technical level meetings, as in the cosmetic and pharmaceutical sectors, ASEAN could tap into industry’s knowledge and expertise on international standards.
- Strengthen ASEAN institutions and good regulatory practice:
ASEAN Secretariat: At the structural level, the industry recognises the role and contribution the ASEAN Secretariat (ASEC) could make to the harmonisation process as the coordinator of measures and communication among the 10 ASEAN Member States. In terms of efficiency and practicality, it could potentially be a good conduit for addressing issues between the public sector and the private sector that would otherwise be too cumbersome and difficult to deal with on an individual basis.
Multi-Sectoral Taskforces: In addition to working with existing working groups, ASEAN may also want to explore the option of creating a multi-sectoral taskforce that brings together the senior officials/experts of all the relevant ministries, thus making it more efficient and practical to address cross-cutting issues in the agri-food sector. The multi-sectoral task force should ideally comprise officials from the standards, economics, health and agriculture departments. The task force(s) should be seen more as a facilitator/ medium to working more effectively and efficiently with ASEAN’s other working groups. The concept of a multi-sectoral taskforce can be modeled on the ASEAN Coordinating Committee on Connectivity (ACCC) which brings together transport, energy, trade, tourism, finance, social and cultural and other areas.
Good Regulatory Practice: With the establishment of the AEC, the region has a unique opportunity to shape regulatory standards and frameworks that can meet international benchmarks of Good Regulatory Practice (GRP). Regulatory frameworks play a key role in promoting trade and investment and are undoubtedly strengthened in their effectiveness via the application of GRP.
In addition, the use of GRP is critical to ensure that national regulation only has a negative impact on the furthering of ASEAN integration where it is absolutely essential.
To this end, we urge ASEAN to consider the promotion of the core principles of GRP to its Member States when designing and implementing new legislation, and to urge them to consider the impacts on trade with other ASEAN member countries arising from unilateral decisions concerning national food laws.
6. ANNEX 1
Mutual Recognition Agreements (MRAs) for the Agri-Food Sector in ASEAN
In terms of objectives, the following could be considered:
- accelerate harmonisation by using mutual recognition of country standards as a first step toward full regulatory harmonisation;
- promote a risk-oriented, science-based approach, supported by international standards to develop an equivalence framework and approval processes;
- improve multi-stakeholder dialogue on regulatory developments providing predictability to regulatory decisions, and protection against accusations of arbitrary technical barriers that impact businesses.
By reducing regulatory barriers to trade, MRAs could be expected to increase trade volumes through reducing costs and complexity in accessing multi-ASEAN markets. The development of MRAs that could be explored to reduce technical barriers to trade within ASEAN include:
- Regulatory food safety standards – determining that food found to meet safety requirements in one jurisdiction is able to be sold in another jurisdiction without additional assessment of safety.
- Regulatory standards on product labelling – recognising similar essential information required in one jurisdiction is sufficient to allow consumers in another jurisdiction to make an informed choice; and
- Inspection or certification systems to validate and verify production systems – recognising products meet standards and country requirements.
In establishing MRAs, the level of protection should adhere to international benchmarks wherever possible, based on international recommendations from expert committees that have applied science and evidence based risk assessment to determine acceptable limits. Some examples of international bodies include Joint FAO/WHO Expert Committee on Food Additives (JECFA), International Committee on Food Microbiology and Hygiene (ICFMH), and possibly World Health Organization (WHO) and Food and Agriculture Organization of the United Nations (FAO) as well.
The industry’s suggestion is to apply MRAs to facilitate trade in food across all ASEAN countries, as a first step toward harmonisation and greater economic integration and cooperation between jurisdictions. The current proposal by the Prepared Foodstuff Product Working Group (PFPWG) for MRA is that its application is to be used for inspection and compliance assessment. While it is a good start, more is needed – including on the following:
- MRA on standards, additives and contaminants, so that products that comply with one country are deemed to comply with all countries; and
- MRA on labelling so that the information provided to make an informed decision is deemed sufficient for product traded in other countries and without obligation to affix additional labelling for other/specific markets.
However, it is acknowledged that there are great challenges to achieving MRA equivalence. Gaps in food control infrastructures and regulatory frameworks within ASEAN include the following:
- Food legislation;
- Food control management;
- Inspection and verification system; and
- Laboratory capacity.
In addressing the above, an industry suggested mechanism could be as follows:
- Support for the ability to sell foods in multiple jurisdictions that are lawful and compliant in the jurisdiction of origin without additional impediment. The industry proposal would be to consider MRAs recognising equivalence of food standards, safety standards, labelling requirements, audit and inspection requirements, certification and registration; and
- Support for the ability to transport, store and use foods and ingredients that are lawful and compliant in the jurisdiction of origin without additional impediment. The industry proposal would be to consider MRAs recognising equivalence in transport vehicle permits and license, storage containers, warehousing, and the approval for use of ingredients and chemicals in the manufacture of foods.
1 National regional govt initiative needed to cash in on AEC, says ADB, The Nation
2 World Trade Organization, 2013
3 The head count poverty rate: the ratio of people with income below US$1.25 per day per capita