Chicken and Products to EU, 2007: Hindrances Lay in Import Quotas (Business Brief No.1898)

On September 15, 2006, the European Union announced that import quotas on all shipments of salted chicken, turkey meat and processed chicken would be introduced in the coming year. Subsequently, the EU entered into discussions with Brazil and Thailand, who are large exporters of chicken to the EU market, on quota compensation after the World Trade Organization (WTO) ruled that salted Thai and Brazilian chicken had been shipped to the EU were declared using improper customs tariff codes, thus causing the two countries to be subject to unnecessarily high import tariffs. While the EU and Brazil were able to reach an agreement on quota compensation for salted chicken, turkey meat and processed chicken in October 2006, Thailand has to wait until the final round of discussions slated for November 21-22, 2006. Thus, the future of Thailand's processed chicken and broiler industry will hinge on the import quotas to be granted by the EU.

The EU is regarded as the most significant market for Thai processed chicken. However, the value of Thai processed chicken shipments to the EU in 2005 trailed behind that to Japan. During the first nine months of this year, the EU resumed its status as the largest importer of Thai processed chicken. This proves that the EU remains a key market for this Thai product. Since early this year, imports of chicken and products to the EU have been increasing steadily. This is particularly true for imports of Thai processed chicken, despite the spread of the bird flu and the EU's ban on Thai chilled, frozen and fresh chicken shipments. Looking ahead, the EU's imports of chicken and products in 2007 are expected to continue rising thanks to the WTO's rule on tariff reductions for salted chicken shipped from Thailand and Brazil, as well as Thailand's rising production of processed chicken.

The recovery in production and marketing of chicken and products to the EU will be a good omen for Thai exporters of chicken and products. Even so, hindrances seem to exist in the EU's imposition of import quotas on all shipments of processed chicken, salted chicken and turkey meat as part of their effort to protect their own producers. Although import tariffs levied on quota shipments were kept intact, non-quota shipments will be subject to hefty import tariff rates. Soon the EU will add an import quotas on Brazil and Thailand, key exporters of chicken and products and both of which are WTO members. The negotiations with Brazil carried an article referring to salted meat, turkey meat and processed chicken; those talks have been concluded. At present, Brazil is the top exporter of salted chicken to the European Union. Thailand sends only salted and processed chicken, which are in the process of negotiations. It is expected that the European Union will announce their decision on import quota restrictions and higher tariff rates around February - March 2007, having delayed adjudication on this matter from the former schedule of January 1, 2007.

Import Tariffs and Quotas on Salted Chicken, Turkey Meat and Processed Chicken

Source: EU Commissioner for Agriculture and Rural Development

Note: European Union is only compensating quotas for Thailand and Brazil.

At this time, almost all exports of Thai chicken and products are processed chicken because the International Office of Epizootic Diseases has not certified that Thailand is a bird flu-free zone. Therefore, Thailand cannot export frozen chicken. The EU is the main market for processed chicken breasts, and Japan is the main market for boned chicken legs, thighs and drumsticks. As a result, negotiations on import quotas for processed chicken for Thailand will be a key factor that will determine the future of processed chicken. If Thailand is allotted only 140,000-150,000 tons, broiler exporters and industries will have a period for adjustment of only 1-2 years during which they will be able to export their utmost under quotas. In addition, they have to find new markets in order to compensate for limiting quotas and adjust quantities in order to match export volume. If Thailand is successful in the negotiations and gets a quota up to 200,000 tons, the adjustment period for broiler exporters and related industries will be stretched to 3-4 years. By that time, it is expected that there will be other supporting factors aside from the adjustment. In other words, Thailand should become a bird flu-free zone. As a result, Thailand could then export frozen chicken again.