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COMMITTEE ON COMMODITY PROBLEMS |
Sixty-second Session |
Rome, 12-15 January 1999 |
INTERGOVERNMENTAL GROUP ON MEAT |
REPORT OF THE SIXTH SESSION OF THE
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II. ECONOMIC AND POLICY ISSUES
A. Current situation and short-term prospects
B. Analysis of market outlook to the year 2005
C. Policy developments affecting trade in hides and skins
III. INTERGOVERNMENTAL ACTION ON HIDES AND SKINS
1. The Sixth Session of the Sub-Group on Hides and Skins was held in Cape Town from 9 to 11 November 1998 by kind invitation of the Government of the Republic of South Africa. It was attended by delegates from the following countries: Austria, Côte d'Ivoire, Eritrea, Ethiopia, Finland, Germany, Indonesia, Kenya, Lesotho, Madagascar, Mali, New Zealand, Nigeria, Romania, South Africa, Sudan, Tanzania (United Republic of), Uganda, United Kingdom, Zambia and Zimbabwe. Observers attended from the International Trade Centre UNCTAD/WTO, the United Nations Industrial Development Organization (UNIDO), the Common Fund for Commodities (CFC), the Common Market for Eastern and Southern Africa (COMESA), the Confederation of National Associations of Tanners and Dressers of the European Community (COTANCE), the Eastern and Southern Africa Leather Industries Association (ESALIA), the International Council of Hides, Skins and Leather Traders Associations (ICHSLTA), the International Hide and Allied Trades Improvement Society (IHATIS) and the International Livestock Research Institute (ILRI).
2. The Minister for Agriculture and Land Affairs, Mr Derek Hanekom, welcomed delegates to the Sixth Session of the Sub-Group on Hides and Skins convened alongside the "Meet in Africa" leather seminar programme organized by the International Trade Centre UNCTAD/WTO and highlighted the significance of the livestock sector for African economies. The FAO Representative in South Africa, Mrs Florence Chenoweth, responded by thanking the Government of the Republic of South Africa, on behalf of the Director-General of FAO, for its hospitality. The Session of the Sub-Group was opened by Mr W.A. Lamadé, Chief, Basic Foodstuffs Service, on behalf of the Director-General.
3. The Session elected Mr D. Sweetnam (South Africa) as Chairperson, Mr E. Zimmerl (Austria) as First Vice-Chairperson and Mr J. Ladan (Nigeria) as Second Vice-Chairperson.
4. The Provisional Agenda (CCP: ME/HS 98/1) was adopted.
5. The Sub-Group expressed its sincere thanks to the Government of South Africa for hosting its Sixth Session and the hospitality extended to delegates.
6. The Sub-Group reviewed recent developments and the short-term outlook for the world hides, skins and derived products market with the help of document CCP: ME/HS 98/2 and additional information provided by delegates on their countries.
7. The Sub-Group expressed serious concern over the depressed market and consequent decline of prices of hides and skins and particularly the recent collapse of sheepskin prices. It was agreed that the chief factor currently depressing the leather economy at large was the economic difficulties in many countries in Asia, which are major importers of raw hides and skins and/or leather and exporters of leather products, and in the Russian Federation, which is a significant importer of leather products from Asia. Despite the accumulation of considerable stocks, demand for cattle hides and leather made from them had held up better than for skins. This had been largely due to the relative strength of the currency, and hence purchasing power, of China, one of the major importers of these products, coupled with the favourable performance of some end-uses for cattle hides, including automotive upholstery leather. At the same time, high-quality raw material continued to face a better market than lower quality products irrespective of the animal origin albeit only for certain market niches. As a result of generally poor demand, the tanning sector in a number of developed and developing countries faced problems of overcapacity and continued to undergo restructuring. Prospects for a rapid recovery of prices were considered bleak. However, the hope was expressed that in the longer-term the anticipated slow growth in the output of beef, coupled with the possible fashion appeal of novel leather products, in particular garments, could revive the leather economy and generate more remunerative prices.
8. The Sub-Group reviewed the results of the FAO production, utilization and trade projections for hides and skins to 2005 on the basis of document CCP: ME/HS 98/3. It noted that the projection exercise had been completed at the beginning of 1998, when the extent of the economic turmoil in Asia and the Russian Federation could not be anticipated in full. It was pointed out that in light of the most recent developments, some of the regional projection results might have to be modified. In this context, the Secretariat provided clarifications on some methodological aspects that might also have influenced these results. Further, it was noted that even if the projected demand volume would materialize, some developing countries might continue to face difficulties in meeting the gradual shift in demand towards high quality hides and leather products. On balance, the Sub-Group agreed that the present uncertainty regarding the geographical spread of the current economic crisis, its duration and the related impact on future income and demand for leather products rendered an assessment of future prospects for the world hides, skins and leather economy particularly difficult. The Secretariat was requested to further inform members of the Sub-Group on the medium-term outlook once the prospects and their underlying factors had become clearer.
9. The possible impact of trade restrictions on shipments of hides, skins and leather was reviewed on the basis of document CCP: ME/HS 98/4, which incorporated contributions by ESALIA and COTANCE. The Sub-Group welcomed the information provided in the document and requested that this information be updated periodically. The Sub-Group noted that export restrictions on raw hides and skins had several adverse effects on trade and had notably distorted competitiveness, both domestically and on import markets. Some delegates recognized that export restrictions had a particularly negative impact on the economies of developing countries implementing them. At the same time, it was noted that there may be cases where restrictions could be justified exceptionally and on a temporary basis, in order to encourage investment in processing facilities in the context of the development of infant industries provided they were transparent. While recognizing the validity of import measures based on animal and human health grounds, some delegates expressed concern at the protective effect which some such non-tariff barriers could have on trade when setting unnecessarily stringent technical requirements. In particular, the recent Balai Directive of the European Community was the subject of some debate. Some delegates pointed out that the Directive was introduced purely for legitimate animal and human health concerns. Many delegates considered it virtually impossible to meet the Directive's stringent conditions, given the structure of livestock husbandry and slaughtering in Africa. It was observed that, as a result of the introduction of this Directive, some exports from African countries had already been diverted to non-EC destinations.
10. The Sub-Group requested the Secretariat to undertake an analysis of the linkages among restrictions on the trade of hides, skins and leather; sanitary regulations, and voluntary measures, such as ecolabelling; and environmental issues.
11. The Sub-Group discussed the possible linkages between the trade in the hides, skins and leather sector and the environment on the basis of document CCP: ME/HS 98/5. It recognized that environmental protection and the related sustainability of hides, skins and leather production and transformation, including the ensuing health and safety effects on humans, were of concern to developed and developing countries alike. It noted that one of the reasons for the shift of processing activities to the developing countries was the stringency of environmental regulations in the developed countries. By the same token, the absence of a less severe regulatory framework addressing environmental problems in developing countries could have resulted in greater pollution problems there. The Sub-Group was informed that the increasing stringency in regulations had stimulated the development of cleaner technologies in the tanning operations in the developed countries. These technologies could enhance profitability in the processing sector and, at the same time, contribute to the sector's long-term sustainability. However, the application of cleaner technologies by the developing countries was often constrained by the high initial costs of the investment required. In some cases, investors in developing countries had adopted rudimentary tanning technologies with little regard for the environment in order to obtain quick returns on their capital. The Sub-Group recognized, therefore, that technical and financial assistance was needed to foster the introduction of more environmentally-friendly technologies in countries with poor economic resources. In this context, the Sub-Group noted that a great deal of information on technical aspects of pollution control had been accumulated by UNIDO, the International Council of Tanners (ICT) and the International Union of Leather Technologists and Chemists Society (IULTCS), which could be used in any further assessments of the economic effects of pollution and environmental regulations.
12. The Sub-Group reviewed this item with the support of Secretariat document CCP: ME/HS 98/6 and document CCP: ME/HS 98/7 prepared by UNIDO. Delegates addressed the problems of the hides and skins industry in African countries, emphasizing the inadequate infrastructure, such as poor facilities for dipping and lack of level slaughter slabs, as well as the incoherent policies for the industry. The Sub-Group noted that, in these circumstances, leather and leather product associations had played an important role. The Sub-Group agreed that despite the progress of the footwear and leather goods sector in the last two decades, considerable potential for further development existed given the ample supply of raw materials and favourable labour costs. To this end, it was suggested that cooperation between government and industry as well as intensified training of workers, supervisors, technologists and designers could contribute to the development of the sector in the future. In particular, the Sub-Group considered that the successful activities of the Tanning and Production Centre for the Shoe Industry in Kenya could be repeated in other African countries as a "best practice" example. Considerable preoccupation was expressed, however, over the flooding of African markets with low-priced, used footwear supplied by charity organizations in developed countries. As a result, progress in the above development efforts had been compromised and tanneries and shoe manufacturing activities had closed down in several countries.
13. The meeting was informed that UNIDO had, in the past nine years, implemented technical assistance programmes in a number of African countries. The programmes included Revolving Fund Operations (RFO) in some countries, a mechanism especially developed to channel self-replenishing financial assistance to private industry. It was also noted that trade associations, such as the Eastern and Southern Africa Leather Industry Association (ESALIA), can assist governments in formulating policies for promoting development in the hides, skins and leather industry, play a catalytic role in the formulation and implementation of projects and promote the sharing of information and expertise between member countries.
14. Many delegates reiterated the extremely complex set of animal husbandry, livestock marketing and slaughter structures in Africa, preventing price premia for better quality hides from being passed on to the small livestock holders and from acting as an improvement incentive. The Sub-Group concluded that while continued efforts to improve the quality of hides and skins were essential, the development of the African leather sector at large could not stop there, but had to extend to subsequent processing stages. In this context, it noted that the EC and its associated ACP countries were currently in the process of redefining their cooperation agreement, the Lomé Convention. The Sub-Group recommended therefore, that the negotiating partners, in re-drafting the Convention, should pay particular attention to the problems of the African hides and skins and leather economies with a view to facilitating the adoption of appropriate development strategies.
15. The Sub-Group took note of the efforts made by the Secretariat to secure assistance for commodity development activities from the Common Fund for Commodities (CFC), on the basis of document CCP: ME/HS 98/8. It reviewed the project proposal "Raw Hides and Skins Grading and Pricing Systems in Selected African Countries" (CCP: ME/HS 98/CRS.1) and considered three new project ideas, "Hides and Skins Recovery and Export Development in Selected African Countries" (CCP: ME/HS 98/CRS.2); "Improvement of Leather Goods Manufacturing in Small Scale/Traditional Manufacturing Units in Selected COMESA Countries" (CCP: ME/HS 98/CRS.3); and "Développement du Partenariat Intra et Inter Professionnels de la Filière Cuirs et Peaux en Afrique de l'Ouest" (CCP: ME/HS 98/CRS.4). The representative of the CFC provided the Session with a tentative and non-committal response on the compatibility of the three project profiles with the CFC's mandate and project criteria, emphasizing, in particular, the emerging shortage of grant money which necessitated a gradual shift to loan-funded projects.
16. Based on the considerations above, the Sub-Group took the following decisions:
a) It endorsed the project contained in document CCP: ME/HS 98/CRS.1. The Sub-Group was informed that the project had already been approved by the Executive Board of the Common Fund for Commodities.
b) The three project profiles contained in documents CCP: ME/HS 98/CRS.2, 3 and 4, should be advanced by the following procedure:
i) the governments/institutions which had submitted the profiles to the Sub-Group would modify them by taking into account the informal indications provided by the representative of the CFC and resubmit revised versions to the Secretariat of the ICB;
ii) member countries would also make available their suggestions on the profiles to the Secretariat. The Secretariat would incorporate these comments into the profiles and commence a dialogue with the CFC Secretariat with a view to obtaining a response from the Consultative Committee on them;
iii) proposals receiving favourable comments from the Consultative Committee would then be developed into full-fledged project documents; project documents ready before the next session of the Sub-Group would be formally transmitted to the Fund for consideration by its Executive Board.
c) The Secretariat was authorized to take the most suitable steps to ensure that supervisory responsibilities of the Sub-Group are met, including through the use of expert knowledge as appropriate.
17. The Sub-Group recalled that at its Fifth Session in 1996 it had requested the Secretariat to initiate a revision of Chapter 41 of the international trade classification so as to better reflect the composition of global trade flows in hides, skins and leather in their various forms. It reviewed progress of the proposal for revision on the basis of document CCP: ME/HS 98/9, together with document CCP: ME/HS 98/CRS.5 which provided information on recent developments. The Sub-Group endorsed the proposed revision in principle, and urged that it be adopted by the World Customs Organization as soon as possible.
18. The Sub-Group noted that an improved classification system would result in the availability of more detailed data on trade and would therefore be conducive to the further development of the FAO database on hides, skins and leather. In this context the Sub-Group urged the Secretariat to continue to improve this valuable and unique set of information and to publish it in the World Statistical Compendium for Raw Hides and Skins, Leather and Leather Footwear.
19. The Sub-Group recalled the recommendation of the CCP that its sessions be held back-to-back with those of the Intergovernmental Group on Meat. It therefore agreed to hold its Seventh Session at the time of the Eighteenth Session of the Intergovernmental Group on Meat in about two years' time. The exact date and place of the Session would be determined by the Director-General in consultation with the Chairperson.
LIST OF DOCUMENTS
CCP: ME/HS 98/1 Provisional Agenda
CCP: ME/HS 98/2 Current situation
CCP: ME/HS 98/3 Projections to the year 2005
CCP: ME/HS 98/4 Trade restrictions on hides and skins
CCP: ME/HS 98/5 Trade in hides and skins and environment
CCP: ME/HS 98/6 Development of the hides, skins and leather sector in Africa
CCP: ME/HS 98/7 Sectoral associations promoted by the UNIDO Leather Programme for Africa
CCP: ME/HS 98/8 Commodity development activities: a review of project proposals
CCP: ME/HS 98/9 Revision of the international trade classification
INF. DOCUMENTS
CCP: ME 98/Inf.1 Information note on arrangements
CCP: ME/HS 98/Inf.1 Statement of competence and voting rights submitted by the European Community (EC) and its member states
CCP: ME/HS 98/Inf.2 List of delegates and observers
CRS DOCUMENTS
CCP: ME/HS 98/CRS.1 Common Fund project proposal: raw hides and skins grading and pricing systems in selected ESALIA countries
CCP: ME/HS 98/CRS.2 Common Fund project proposal: hides and skins recovery and export development in selected African countries
CCP: ME/HS 98/CRS.3 Common Fund project proposal: improvement of leather goods manufacturing in small scale/traditional manufacturing units in selected COMESA countries
CCP: ME/HS 98/CRS.4 Proposition de projet: développement du partenariat intra et inter professionnels de la filière cuirs et peaux en Afrique de l'ouest
CCP: ME/HS 98/CRS.5 Revision of the international trade classification