How seriously should we view G20 words on resisting protectionism?

Every declaration by G20 leaders since 2012 has pledged to resist protectionism. Their record has not matched their rhetoric


By Peter Ungphakorn
POSTED AUGUST 31, 2016 | UPDATED SEPTEMBER 6, 2016

G20 countries have increasingly introduced protectionist measures, according to a study released on the eve of the elite group’s summit in Hangzhou, China, September 4–5, 2016, by Simon Evenett and Johannes Fritz of St Gallen University in Switzerland.

Hangzhou_1412
Hangzhou, 1412

Evenett’s and Fritz’s latest Global Trade Alert Report highlights the group’s poor record in combatting its members’ own protectionist tendencies, and particularly those of seven key economies, six of the G7 plus Australia.

This follows the World Trade Organization’s own monitoring with similar if less sophisticated findings, and comes amid calls for the G–20 to make a firm commitment in Hangzhou to curb protectionism.

And yet every year since 2012, the G20 has pledged to resist protectionism. We could even claim a statistical correlation: in 2013 the number of references to protectionism in the leaders’ declaration peaked at five. Since then, as actual protectionism has increased, the references have dropped to one per declaration.

Not that words could ever speak louder than actions

UPDATE — The 2016 Hangzhou communique mentions protectionism four times (see below). We can look forward to GTA’s next report to see if anything has changed in practice

First, some charts from the GTA report
evenettgta20fig1
Figure 1. Correcting for reporting lags, resort to protectionism by G20 members has accelerated since 2012 | GTA report (Click the image to see it full size)

 

evenettgta20fig2
Figure 2. Seven G20 members have implemented more protectionist measures this year compared to their crisis-era annual average 2012 | GTA report (Click the image to see it full size)

Then a look at the G20 summit declarations on protectionism since 2012

Source: Universtiy of Toronto G20 Information Centre

Los Cabos, Mexico, June 19, 2012
  1. We are firmly committed to open trade and investment, expanding markets and resisting protectionism in all its forms, which are necessary conditions for sustained global economic recovery, jobs and development. We underline the importance of an open, predictable, rules-based, transparent multilateral trading system and are committed to ensure the centrality of the World Trade Organization (WTO).
  2. Recognizing the importance of investment for boosting economic growth, we commit to maintaining a supportive business environment for investors.
  3. We are deeply concerned about rising instances of protectionism around the world. Following up our commitment made in Cannes, we reaffirm our standstill commitment until the end of 2014 with regard to measures affecting trade and investment, and our pledge to roll back any new protectionist measure that may have arisen, including new export restrictions and WTO-inconsistent measures to stimulate exports. We also undertake to notify in a timely manner trade and investment restrictive measures. We uphold the inventory and monitoring work of the WTO, OECD and United Nations Conference on Trade and Development (UNCTAD) on trade and investment measures and encourage them to reinforce and deepen the work in these areas, consistent with their respective mandates.
September 6, 2013, St Petersburg
  1. We reiterate our commitments to move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, and avoid persistent exchange rate misalignments. We will refrain from competitive devaluation and will not target our exchange rates for competitive purposes. We will resist all forms of protectionism and keep our markets open.

[…]

  1. We recognize the risks of economic slowdown and trade weakening posed by protectionism. We extend until the end of 2016 our standstill commitment; being fully committed to further progress in removing barriers and impediments to global trade and investment, we reaffirm commitment to roll back new protectionist measures. With these commitments we stress the importance of further curbing protectionism through the WTO, and to this end we will endeavor to make MC9 successful as a step towards a successful conclusion of the Doha Development Round and as an impetus for negotiations on a roadmap to reach this goal.
  2. We value monitoring of trade and investment restrictive/opening measures by the WTO, the OECD and the UNCTAD. We call on them to continue and reinforce this work consistent with their respective mandates so as to better resist protectionism and promote liberalization of global trade and investment. We welcome the WTO’s public website providing transparency over these measures for the benefit of governments, private sector, and civil society.
Brisbane, November 16, 2014
  1. Trade and competition are powerful drivers of growth, increased living standards and job creation. In today’s world we don’t just trade final products. We work together to make things by importing and exporting components and services. We need policies that take full advantage of global value chains and encourage greater participation and value addition by developing countries. Our growth strategies include reforms to facilitate trade by lowering costs, streamlining customs procedures, reducing regulatory burdens and strengthening trade-enabling services. We are promoting competition, entrepreneurship and innovation, including by lowering barriers to new business entrants and investment. We reaffirm our longstanding standstill and rollback commitments to resist protectionism.
Antalya, Turkey, November 16, 2015
  1. We will continue to implement sound macroeconomic policies in a cooperative manner to achieve strong, sustainable and balanced growth. Our monetary authorities will continue to ensure price stability and support economic activity, consistent with their mandates. We reiterate our commitment to implement fiscal policies flexibly to take into account near-term economic conditions, so as to support growth and job creation, while putting debt as a share of GDP on a sustainable path. We will also consider the composition of our budget expenditures and revenues to support productivity, inclusiveness and growth. We remain committed to promote global rebalancing. We will carefully calibrate and clearly communicate our actions, especially against the backdrop of major monetary and other policy decisions, to mitigate uncertainty, minimize negative spillovers and promote transparency. Against the background of risks arising from large and volatile capital flows, we will promote financial stability through appropriate frameworks, including by ensuring an adequate global financial safety net, while reaping the benefits of financial globalization. We reaffirm our previous exchange rate commitments and will resist all forms of protectionism.
Hangzhou, September 5, 2016
  1. In this context, we, the G20, as the premier forum for international economic cooperation, forge a comprehensive and integrated narrative for strong, sustainable, balanced and inclusive growth, and thereby adopt the attached package of policies and actions — the Hangzhou Consensus — based on the following:

––––Vision. We will strengthen the G20 growth agenda to catalyze new drivers of growth, open up new horizons for development, lead the way in transforming our economies in a more innovative and sustainable manner and better reflect shared interests of both present and coming generations.––––Integration. We will pursue innovative growth concepts and policies by forging synergy among fiscal, monetary and structural policies, enhancing coherence between economic, labor, employment and social policies as well as combining demand management with supply side reforms, short-term with mid- to long-term policies, economic growth with social development and environmental protection.

––––Openness. We will work harder to build an open world economy, reject protectionism, promote global trade and investment, including through further strengthening the multilateral trading system, and ensure broad-based opportunities through and public support for expanded growth in a globalized economy.

––––Inclusiveness. We will work to ensure that our economic growth serves the needs of everyone and benefits all countries and all people including in particular women, youth and disadvantaged groups, generating more quality jobs, addressing inequalities and eradicating poverty so that no one is left behind.

[…]

  1. We reiterate our opposition to protectionism on trade and investment in all its forms. We extend our commitments to standstill and rollback of protectionist measures till the end of 2018, reaffirm our determination to deliver on them and support the work of the WTO, UNCTAD and OECD in monitoring protectionism. We emphasize that the benefits of trade and open markets must be communicated to the wider public more effectively and accompanied by appropriate domestic policies to ensure that benefits are widely distributed.

Updates: September 6, 2016 — Hangzhou communiqué added

Picture credit: Picture of Hangzhou from a book in French from 1412 | public domain


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Is the UK government planning dodgy ‘access’ to the EU market?

Proposed special deal with the EU on cars or banking could be illegal

By Peter Ungphakorn
POSTED AUGUST 29, 2016 | UPDATED AUGUST 30, 2016

Reports this bank holiday weekend of the UK Cabinet’s up-coming deliberations suggest ministers could be in danger of violating international trade agreements.

The Daily Telegraph reported on August 28, 2016 that:

Britain will retain access to the single market for financial sector and the car industry while curbing migration under plans being considered by Theresa May.”

Apart from the fact that this implies the EU has no say in the matter, an arrangement that only applies to cars and banking could infringe World Trade Organization (WTO) rules on free trade agreements.

Banking and cars
You cannot have a free trade agreement only for banking or cars

Also strange is the reference to Britain retaining “access to the single market”, a phrase Simon Lester, trade policy analyst at the Cato Institute, has rightly challenged.

SimonLesterTweet28.8.2016

Access to the single market is certain

First let’s get this straight. The UK will have access to the EU single market after Brexit. That’s dead certain. Just as every country in the world does, including North Korea (pdf), which exported €11 million into the single market in 2015, mainly machinery and chemicals.

The UK will have access to the EU single market after Brexit. That’s dead certain

What the UK will not be is part of the single market, unless it accepts free movement of labour alongside free movement of goods, services, and capital. Or unless the EU climbs down.

For the UK, the worst access to the single market would be under the EU’s WTO commitments, which means facing import duties and restrictions on services, just as the US, Japan and China do. That’s still access to the market.

The UK could do better. It could have free access to the single market. It could do this by being part of the single market as it is now, or after Brexit through an arrangement like Norway’s, which brings us back to the problem of the four types of free movement. (Switzerland’s case is up in the air at the moment.)

The only other way to have free access is through a free trade agreement. This could be an ordinary agreement or, as some suggest, a customs union.

(A customs union is a special kind of free trade agreement where duty-free access for goods has the added condition that all countries in the union charge the same duties on imports from outside the union. But it doesn’t have to be a customs union.)

Free access for cars and banks?

What the news reports are suggesting is that ministers are discussing free access for selected sectors such as cars and financial services.

This is a reminder that all of the UK’s trading relations are subject to WTO agreements.

That includes with the EU, and anyone else, whether or not a free trade agreement is involved

Or, as the Daily Mail reported also quoting a “Treasury source”, maintaining “access to the single market … on a ‘sector by sector basis’.”

But under international agreements, which the UK and EU have both signed, partial free trade is only possible in the broadest sense, such as a free trade agreement in goods, with some minor exceptions, but not services.

You cannot have a free trade agreement in cars or in banking.

Paragraph 8 of Article 24 (XXIV) of WTO’s General Agreement on Tariffs and Trade (GATT), which governs trade in goods, says a customs union or free trade area (ie, a free trade agreement) must cover “substantially all the trade” between its members (not selected sectors):

For the purposes of this Agreement:

(a)      A customs union shall be understood to mean the substitution of a single customs territory for two or more customs territories, so that 

(i)       duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated with respect to substantially all the trade between the constituent territories of the union or at least with respect to substantially all the trade in products originating in such territories, and, 

(ii)      subject to the provisions of paragraph 9, substantially the same duties and other regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union;

(b)      A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories.

For services, the WTO’s General Agreement on Trade in Services (GATS) has similar provisions in paragraph 1 of Article 5 (V), referring to “substantial sectoral coverage”:

This Agreement shall not prevent any of its Members from being a party to or entering into an agreement liberalizing trade in services between or among the parties to such an agreement, provided that such an agreement:

(a)      has substantial sectoral coverage

Apart from anything else, this is a reminder that all of the UK’s trading relations are subject to WTO agreements. That includes with the EU, and anyone else, whether or not a free trade agreement is involved.


Updates: August 30, 2016 adding quote from Daily Mail

Photo credits: Montage — Euros | pixabay.com via pexels.com | Creative Commons CC0; Tesla assembly by Steve Jurvetson | Instagram via Wikimedia | CC BY 2.0


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Book review: How ‘Dialogue of the Deaf’ produced a sound tool for policy-making

This should bury a number of myths. The memoirs of 17 key authors of a WTO agreement plus an editor’s remarks make a unique account of a complex international negotiation almost miraculously producing a deal


By Peter Ungphakorn
FIRST PUBLISHED BY IP-WATCH, OCTOBER 22, 2015 | REPRODUCED HERE AUGUST 26, 2016

International trade agreements are sometimes demonised as the Grand Plan imposed by major powers in cahoots with multinational corporations. Intellectual property rights is a particular target, as is the case currently with the Trans-Pacific Partnership (TPP), and previously with the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

TRIPS book cover_300x456

Watal, Jayashree and Taubman, Antony (eds), The Making of the TRIPS Agreement: Personal insights from the Uruguay Round negotiators, Geneva, World Trade Organization, 2015, pp 361 + appendixes.

Authors, and (for most) their affiliation at the time: Antony Taubman (current WTO Secretariat), Jayashree Watal (India), Adrian Otten (GATT Secretariat), Thomas Cottier (Switzerland), John Gero (Canada), Mogens Peter Carl (EU), Matthijs Geuze (GATT Secretariat), Catherine Field (US), Thu-Lang Tran Wasescha (Switzerland), Jörg Reinbothe (EU), AV Ganesan (India), Piragibe dos Santos Tarragô (Brazil), Antonio Gustavo Trombetta (Argentina), Umi KBA Majid (Malaysia), David Fitzpatrick (Hong Kong), Hannu Wager (Nordics), Jagdish Sagar (India), Adrian Macey (New Zealand), Lars Anell (Sweden, TRIPS negotiations chair)

CHF70.– in print. Free to download here

The Making of the TRIPS Agreement, the insightful, unofficial collected memoirs of 17 of the agreement’s key authors, plus one editor, challenges that view in two ways. This unique account of how a complex international negotiation can almost miraculously produce a deal should also bury a number of other myths. (Most notable is the idea that this was entirely about rich countries versus the poor — there were serious North-North differences and to a lesser extent South-South ones as well — or that negotiators were completely at the behest of industry lobbies.)

First, the conventional view is that WTO agreements are about balancing legal “rights” and “obligations”: they affirm a country’s rights, but oblige it to respect others’ rights as well. That balance comes from compromise, which is necessary for striking a deal. For the 1986–94 Uruguay Round talks, it meant reaching consensus among more than 120 countries. The round transformed the General Agreement on Tariffs and Trade (GATT) into the WTO, producing an expanded and updated set of agreements, one of which was TRIPS.

The TRIPS Agreement has now been in play for over 20 years, and the emphasis has changed. This is not so much about complying with a rights-and-obligations template, but about providing a good policy platform that includes options for dealing with a wide range of social and technological objectives:

“There is considerable opportunity for TRIPS implementation to include attaining public policy goals through sound policy-making, not simply passing legislation to achieve passive, formal compliance with the letter of the law,” writes co-editor Antony Taubman, the present director in charge of intellectual property at the WTO. That’s some distance from the starting point, which was a focus on tackling imported counterfeit goods.

Taubman has described himself as an interloper among the authors since he was negotiating disarmament at the time, perhaps not as different as it sounds. His overview chapter provides a good executive summary of the book.

Key TRIPS dates
Key TRIPS dates (click the image to see it full size)

LearningBack to top

Second, the book reveals how much the negotiators on all sides had to learn and then to compromise before this ground-breaking pact could be agreed. It highlights the critical role of flexibility both in the negotiations and also built into the resulting rules. So much for the Grand Plan.

JUMP TO
Learning
Gobbledygook, fudge and theology
1989 …
… and beyond
Pride, lessons and regrets
Credits

A repeated theme is not only that many trade officials had to learn about copyrights, trademarks, patents, geographical indications and all the other flavours of intellectual property. Even more significantly they had to learn from each other. One of the results, 20 years later, is the clear respect they still have for each other.

It was in Negotiating Group 11 — the one on intellectual property — that Swiss negotiator Thomas Cottier learnt about other countries’ preoccupations, he recalls: “for example those with a strong generics industry, or the fear of abuse of rights, or the need to combine enhanced protection with enhanced transfer of technology and job creation. It was here that I learned about the importance of bringing about a proper balance while defending Switzerland’s core interests.”

Many trade officials had to learn all the flavours of intellectual property. Even more significantly they had to learn from each other

Indian negotiator Jayashree Watal (co-editor of the book) relates how she approached counterparts Mogens Peter Carl (EU) and John Gero (Canada) — both contributors to this volume — on compulsory licensing. The result was a compromise draft text that was largely accepted, India contributing to a solution instead of persisting with its hard line.

Without that understanding and respect, a TRIPS Agreement would not have been possible. The present deadlock in the WTO’s Doha Round negotiations can be blamed on the fact that in some key subjects, many delegations are still not really listening to each other — witness the interminable dialogues of the deaf in current WTO negotiating meetings, such as on geographical indications and biopiracy (among intellectual property topics), and some stalemated issues in agriculture.

“With the passage of time and in the light of the difficulties that the WTO has since had in making headway in its negotiating agenda, the scale of the TRIPS Agreement seems the more remarkable,” writes Adrian Otten, Taubman’s predecessor as director, and the key (GATT) Secretariat official in the TRIPS negotiations.

TRIPS book launch - cropped - Tony, Hannu, Macey - IPWatch Saez
At the book launch October 1, 2015. From left, Antony Taubman (WTO), Hannu Wager (Nordics, now WTO), Adrian Macey (New Zealand) | Catherine Saez, IP-Watch

Gobbledygook, fudge and theologyBack to top

Otten’s chapter will resonate with anyone following current talks. It outlines the story of the negotiations, the key phases, the variety of meetings needed, the criss-crossing of alliances of shared interests in the different subjects, the role of the Secretariat and chair (Lars Anell from Sweden) — both of whose main concerns were to help a deal to be struck, not to push any other agenda — and ultimately what it took to reach agreement.

Other writers fill in the details on the different alliances, how and when countries contributed in groups or individually to each area of intellectual property, what was happening within their governments, and how they responded to compromise. For example, having yielded on listing exemptions for patenting, the US turned to proposals for disciplining them, writes US negotiator Catherine Field. (Her “axioms” for a successful negotiation should be pinned to the desktop of every negotiator’s laptop, tablet or smartphone, and be adopted as the mission-statement of the WTO’s Institute for Training and Technical Cooperation. The whole book should be required reading for the ITTC’s courses on negotiation.)

It’s easy to mock what happens in the GATT/WTO — after all, the tedium has to be broken somehow. So here goes

The resulting compromise sometimes produced “precise” but “inelegant” syntax, which “to an innocent bystander […] looks like gobbledygook,” acknowledges the EU’s Carl. Sometimes the compromise was quite simply a fudge, recall Matthijs Geuze of the GATT Secretariat, and negotiators Thu-Lang Tran Wasescha of Switzerland and David Fitzpatrick of Hong Kong. The technical term is “constructive ambiguity”, meaning (although they wouldn’t put it so bluntly): “we got what we wanted, we’ll interpret it our own way, and you can take us to court if you disagree.”

In the process, TRIPS negotiators forced each other to suffer too. “It was not unusual to have lengthy ‘theological’ discussions based on one’s own policies and laws,” writes Gero, “but such discussions could not yield negotiated solutions.” He particularly remembers the arguments on enforcement featuring the merits of civil law versus common law. Of course, neither prevailed.

It’s easy to mock what happens in the GATT/WTO — after all, the tedium has to be broken somehow. So here goes. A couple of survival tips for anyone trapped in one of these statement-ridden sessions: look around the room and (1) count how many delegates are NOT listening — a measure of futility — or (2) add up the salaries and calculate how many of the world’s poor could have been fed in each passing hour — a measure of waste.

But there’s the rub. Otten’s account and more recent experience show that a dialogue of the deaf is actually essential, so long as it’s limited to an early phase of a negotiation. It allows countries to declare their interests.

While negotiators can afford to be deaf for a while, those assisting the talks cannot. Breakthrough to the next step needed that bureaucratic monster, the dreaded “synoptic table” compiling the entire range of positions into a single document. Later came a “composite text”, now linear but still containing everyone’s positions in layers of square brackets. Both were produced by the Secretariat and chair. Otten says these compilations allowed negotiations-proper to kick off in 1989, once work in Geneva had rescued the mid-term review that had failed the previous December.

1989 …Back to top

That year, 1989, turned out to be a turning point in a number of ways, several writers observe. In particular, it saw the fall of the Berlin Wall and the switch to market economies in those that had been planned centrally.

Times have changed. Ganesan now sees TRIPS as a ‘blessing in disguise’ for India

In 1989 the US also finally became a party to the Berne Convention on copyright. And in that year the US started to implement its “Special 301” legislation, allowing Washington to act against imports from countries it deemed to be violating intellectual property rights. Several developing countries decided it was better to negotiate multilateral rules that would take their concerns into account, than to face US unilateralism.

Malaysia was one, writes Umi KBA Majid. And it’s why India dropped its opposition to TRIPS, AV Ganesan recalls “candidly”: “Retaliatory action against Indian garment and other exports to the United States was looming large over India like a Damocles’ sword, especially in the last few years of the Uruguay Round.”

But ultimately India’s interests stretched beyond that: “India had a number of scientific and technical cooperation relationships with the United States at both the academic level (e.g. between universities) and the level of government science departments. The need for adequate protection of [intellectual property rights] in India was raised by the Americans as well, if those relationships were to be sustained,” Ganesan writes. Times have changed. He now sees TRIPS as a “blessing in disguise” for India.

Chairman Anell recalls that 1989 was also the year Tim Berners-Lee “implemented the first successful communication between a hypertext transfer protocol [aka http] client and a server.” The Internet was too young to have a major impact on the TRIPS negotiations, but several writers consider it to be important for the agreement’s future.

Book launch
At the book launch October 1, 2015. From left, Thu-Lang Tran Wasescha (Switzerland), Thomas Cottier (Switzerland), Jayashree Watal (India, now WTO) | Catherine Saez, IP-Watch

… and beyondBack to top

Trade negotiations are always a blend of developments inside and outside the talks, and the book provides accounts of both, from many angles. The EU, for example, was represented by the European Commission, which at that time was shielded from lobbying, unlike other delegations and even the EU’s own member governments.

It actually took only about two years of real negotiations to produce the bulk of what is now the TRIPS Agreement

The stories are also often personal and frank. Carl says he was in a minority of one on software protection, even within his own delegation. He admits that when the EU accused others of “usurping” its geographical indications (names identifying the origin and character of products) it was being “somewhat poetic”. (The EU still uses the term.)

It actually took only about two years of real negotiations to produce the bulk of what is now the TRIPS Agreement. This appeared as the intellectual property section of the draft Uruguay Round package produced in late 1991, known as the “Dunkel text”. Arthur Dunkel was GATT director-general at the time and chair of the overall negotiations, but much of the draft he circulated under his own responsibility was produced in the different subject groups — including the TRIPS text.

Two more years were still needed to arrive at a final package. Surprisingly, this book does not mention at all a couple of developments that were critical for lifting the round out of hiatus and towards a conclusion. Without them, there would be no TRIPS Agreement. These were the November 1992 US-EU deal on agriculture known as the Blair House accord, and the subsequent G–7 meetings in 1993.

So, as several authors observe, intellectual property ended up largely negotiated in its own bubble, except briefly when the Montreal ministerial meeting collapsed in 1988. Countries did see trade-offs with agriculture and textiles, but once the talks were underway, this was not overt. TRIPS never came up, for example, in “Green Room” meetings where key ambassadors would negotiate other trade-offs in the round.

The result is an agreement that has fared well for two decades, needing only one minor change (on compulsory licensing for exports of pharmaceuticals). Proposals are on the table for amendments on geographical indications and patents related to biological diversity, although both are far from being agreed. Previously critical activists now see the agreement as a reasonable benchmark to be defended against pressure to raise the bar further — “TRIPS-plus”.

Pride, lessons and regretsBack to top

History is only part of the story. No one can be this involved without having a large amount of pride mixed with some regrets or thoughts about the future. “The TRIPS Agreement is now firmly in place but it must not be overlooked that it addresses concerns of the past,” writes Ganesan. Swift technological change “in almost every field may soon render these concerns obsolete” and may require completely new approaches, he says.

The book ought to have a wider readership. I am not aware of anything else like it, at least on trade

Cottier, for example, calls for maximum standards to be added to existing minimum standards as a defence against “TRIPS-plus” pressure. Carl believes other “trade-related” issues should also be handled in the WTO, including labour standards and environmental issues. Several authors call for good competition policies for when intellectual property leads to monopoly (not always the case). Taubman says it’s time to look beyond trade in goods and services that contain intellectual property, to trade in intellectual property itself.

This fascinating book does have some flaws. The most serious is that it makes no concessions to non-specialist readers. We are expected to be familiar with the Uruguay Round, how GATT and the WTO work, the WIPO conventions, articles of GATT and TRIPS, and concepts such as Gattability, exhaustion and moral rights.

This is a pity because the book ought to have a wider readership. I am not aware of anything else like it, at least on trade. It should provide a valuable case study for anyone interested in how international negotiations can succeed but who may know little either about intellectual property or about the WTO or both. Even adding the odd phrase of explanation would help considerably, although the parts on specific types of intellectual property are bound to be technical. So while some parts are quite readable, others will be tough going for many. Also lacking is an index, which would make research so much easier.

That said, this is an enlightening collection, offering a range of perspectives on the talks, with anecdotes mixed in (apparently there was a 2 am bilateral session under the trees in the GATT car park) to show how personal relationships worked to produce the serious substance.

No doubt some periods of the negotiation were gripping, but a lot of it must have been tedious — much more fun to read about afterwards.

SEE ALSO
New book launched at WTO (IP-Watch)


 

Originally published by Intellectual Property Watch, October 22, 2015.
Photos by Catharine Saez, from this IP-Watch story on the book launch
CC attrib-noncommerc-sharealike 4.0 88x31Reproduced under Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International Licence


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This EU tariff takes the biscuit: Annex 1 — a really nerdy look

The complexity of the EU’s tariffs on bakery products, confectionary and food preparations is in its WTO goods commitments, Annex 1 on ‘composite agrigoods’. Want to know how it really works?

By Peter Ungphakorn
POSTED AUGUST 18, 2016 | UPDATED AUGUST 20, 2016

UPDATE:
The goods schedule for the EU’s enlargement in 2004 to 25 members (EU–25) was certified and circulated in December 2016. Details are here

OK, you’ve been warned. One expert who actually understands this stuff called it the most “horrendous” and “complex” construction in any country’s WTO commitments.

A much simpler comment is here. Full, raw details can be found in this Excel file of the EU’s WTO goods commitments. See the main tariff list for agricultural products (tab 3) and Annex 1 (tabs 5, 6, 7 and 8). The EU does provide an explanation of sorts and an example (tab 5 in the Excel file).

Biscuit heart cropped 40pct pexels-photo-115751 Surajith S via pexels
A “horrendous” and “complex” construction

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Customs codes for tariffs
Two types of tariff and multiple ceilings
Example: the “recipe”
Explanation
So, to summarise
Please note

But please note. This is an attempt to explain the EU’s certified WTO commitment, which was written for when it had only 15 member (before it expanded to 25 members in 2004). Commitments for enlargements since then have not been certified so we don’t know what they are.

In the meantime the EU has revised its own regulation and is applying slightly different tariffs on product categories that are defined slightly differently. What is not revised is the complexity.

Customs codes for tariffsBack to top

First, a look at tariff code numbers. For import duties (or tariffs), goods are identified by code numbers organised so that the first digits represent broad categories and additional digits subdivide the products in ever more detail. In lists of tariff rates, products defined by these codes are “tariff lines”.

For example, codes starting 19 are “preparations of cereals, flour, starch or milk; pastrycooks’ products”. Subdivision 1905 is “bread, pastry, cakes, biscuits and other bakers’ wares, whether or not containing cocoa; communion wafers, empty cachets of a kind suitable for pharmaceutical use, sealing”.

(WTO agriculture negotiators have enjoyed discussing the EU’s need for trade barriers on communion wafers.)

Drill down to 19053095 in the EU’s commitment (eight digits) and you get “other” sweet biscuits, waffles and wafers (at this level of detail, other countries may use different definitions and final digits in their code numbers).

EU tariff sched biscuits etc
Click the image to see it full size

Normally, that would be the EU’s most detailed level of subdivision, its “eight-digit tariff lines”.

For “composite agrigoods”, the EU subdivides even further, tacking on four digits (“additional codes”) beginning with 7 (they are of the form 7xxx) to make 12 digits.

Each of those additional four-digit codes represents a “recipe” with specific proportions of four ingredients: milk fat, milk proteins, starch or glucose, or various forms of sugar. There are 504 of them.

Meursing table from commitment
“Meursing Table”, apparently named after the EU official who invented it, giving the three digit codes for each recipe. Placing a 7 in front gives 7xxx. (Click the image to see it full size)

In the main list of tariffs (tab 3 of the Excel file) products having these subdivsions are identified by a comment saying “* see annex 1”. There are 27 of these, each subdivided into 504 recipes.

That makes 13,608 different products each potentially having a different tariff rate. (It used to be 27,720.)

Two types of tariffBack to top and multiple ceilings

So far so straightforward (seriously). Now it gets really tough.

The EU has decided that composite agrigoods should be charged composite tariffs: part percentage of the price (“ad valorem”) for the product, part euros per 100kg (a “specific” tariff) for its recipe.

Then, those two tariffs should be added together and brought under a ceiling which seems to be a percentage of the price (requiring a calculation to convert the euros per 100kg to  percentages).

The EU also decided that there would be more than one ceiling and that the lowest one should apply. So additional ceilings have been devised based on sugar or flour content.

Presumably, the EU would claim that these multiple ceilings were designed to appease other countries who complained that without them the tariffs would be too high.

So, a composite agrigood starts with a two-part tariff consisting of both types of tariff rate.

  • At the eight-digit level it has a tariff expressed as a percentage of the price (“ad valorem”)
  • The comment referring to annex 1 takes us to the second component, expressed as currency value per quantity, usually euros per 100kg (“specific”)

There are two types of tariff rates to look at in annex 1. The first is a staight tariff expressed as €/100kg. The next is a maximum identified by code AD S/Z (for sugar) or AD F/M (for flour).

How it works is explained below.

Example: the ‘recipe’Back to top

First, an example of one “composite agrigood” identified by a “recipe” and how its additional tariff of €110.15/100kg is calculated. “TE” is unexplained but seems to mean the additional tariff.

The EU says in its WTO commitment (tab 5):

For example the TE for additional code 7307 (110.15 EURO/100kg) is thus according to Annex 1.c applicable to a “composite agrigoods” containing :

–  6% or more but less than 9% milk fat,
–  4% or more but less than 15% milk proteins,
–  5% or more but less than 25% of starch/glucose, and
–  30% or more but less than 50% of sucrose/invert sugar/isoglucose.

For this recipe the quantity of basic products considered to have been used in the manufacture of 100 kg of the “composite agrigood” is according to Annex 1.a:

–  10 kg of skimmed-milk powder

-TE:

14.85 EURO/100 kg

–  32 kg of whole milk powder

-TE:

65.21 EURO/100 kg

–  45 kg of sugar

-TE:

23.58 EURO/100 kg

–  22 kg of common wheat

-TE:

3.27 EURO/100 kg

–  22 kg of maize

-TE:

3.23 EURO/100 kg

TOTAL TE

110.15 EURO/100 kg

Where do those figures for the “quantity of basic products considered to have been used” (my emphasis) come from?

After a bit of searching, they are found in Annex 1a (tab 6 in the Excel file):

  • For “6% or more but less than 9% milk fat” and “4% or more but less than 15% milk proteins”, look at row 31. The two cells under columns B and C give 10kg of skimmed milk powder and 32kg of whole milk powder.
  • For “5% or more but less than 25% of starch/glucose”, look at row 65. The two cells under columns F and G give 22kg each of common wheat and maize.
  • For “30% or more but less than 50% of sucrose/invert sugar/isoglucose”, look at row 60. The cell under column E gives 45kg of sugar.
Annex 1a extract
Selected rows from annex 1a. (Click the image to see it full size)

In other words, the quantities taken from annex 1a are assumptions. The recipe is assumed to contain fixed quantities (kilogrammes) of each ingredient according to which range of percentages each ingredient falls into. From those percentage ranges we get: 10kg of skimmed milk powder, 32kg of whole milk powder, 22kg each of wheat and maize, 45kg of sugar — a total of 121kg of ingredients for a 100kg product (presumably 21kg of water evaporates in the cooking, or I have misunderstood).

This in turn would determine the total additional tariff (TE) that appears in Annex 1b (tab 7) although where those broken down components come from is unclear (page numbers are included in the column headings, with no indication of what is being referenced).

ExplanationBack to top

The “specific” tariff of €110.15/100kg in the EU’s example comes from the entry for “7307” in Annex 1b (tab 7), in the column “Base rate of duty”. That is presumably the original duty rate for “7307” before any tariff reductions.

Under a separate column “Bound rate of duty”, the figure is €74.27/100kg. This is now the actual additional “specific” tariff for that “composite agrigood” (after tariff reductions have been made), confirmed on page 701 of this 944-page EU tariff regulation from 2001 (pdf).

Annex 1b extract
Recipe (additional code) 7307 in annex 1b. (Click on the image to see it full size)

So that specific duty of €74.27/100kg is added to the percentage (“ad valorem”) tariff for the broader eight-digit product, in the main tariff list, tab 3, where there is the “*see annex 1” comment.

(But, to add to the complexity, note that the EU’s 2001 regulation uses updated tariff code numbers, which no longer correspond to the older numbers in its current WTO commitment — the one certified in 2010 to account for the EU’s expansion in 1995! The one for “other” sweetened biscuits is retained as 19053095 in that commitment; in its own regulation the code number is broken down into several categories beginning 190531. The update reflects changes in the international codes of the World Customs Organization and the EU’s own “streamlining”.)

Two other columns contain even more tariff rates (“AD S/Z” for some kinds of sugar and “AD F/M” for flour). Those codes also appear as components of the tariff rates for “composite agrigoods”  in the EU’s main list of agricultural tariffs (tab 3). They are actually used to set maximums for sugar and flour. How they work is not very clear.

To find an explanation of what they are, we have to go back to the EU tariff regulation (pdf). It says they “[indicate] that the maximum rate of duty consists of an ad valorem duty plus an additional duty for certain forms of sugar or for flour. This additional duty is fixed in accordance with the rules provisions of Annex 1”. (There are further details about whether these are applied in full or not.)

So the tariff charged on a product identified as a “composite agrigood” would have four components:

  • the basic tariff (from tab 3 of the Excel file) plus
  • the duty for the ingredients (such as for those with code number 7307) OR
  • duties in the AD S/Z and AD F/M columns of Annex 1c (tab 8), where applicable — these set maximum rates for sugar (AD S/Z) and flour (AD F/M)

I needed help. So I asked an expert. This (I think) is what I was told:

Take “other” sweet biscuits. As we saw, they have this eight-digit code, 19053095. They have the following entry in the main tariff list under “bound rate of duty” (tab 3):

9.0%* MAX 24.2% + AD S/Z”.

EU tariff sched biscuits etc highlighted
Click the image to see it full size

The 9.0% “ad valorem” duty for the eight-digit product (19053095 = “other” sweet biscuits) is the starting point.

A “specific” (€/100kg) tariff from annex 1 for the 12-digit subdivision then has to be added to it. This is done in two forms and compared. The lower of the two is used.

  • First the straight tariff from annex 1 is added. This is the tariff corresponding to the four-digit additional code beginning with 7 (the 7xxx), presumably converted to a percentage. It is represented by the asterisk (* pointing to the note in the “comments” column)
  • Then, 24.2% plus the component under the AD S/Z heading in the table is calculated and added instead. (The same applies for the code flour AD F/M if it is also included.)

The two are compared. Whichever is lower, says the expert, is the EU’s commitment for the product as defined by all 12 digits. (A WTO tariff commitment is a maximum tariff. In practice, the EU could charge lower duties without violating its commitment.)

In its commitment, the EU explains what it means by “composite agrigoods” (the ones with “* see annex 1” in the comment column (G) of the main tariff list in tab 3):

These are agricultural goods generally of second and higher transformation obtained by combining primary and/or processed agricultural products.

Why such a complex way of writing out its tariffs? The EU says it cannot list everything separately by tariff line because there are too many (13,608 items). It says:

The quantity of basic products used in the manufacture of the “composite agrigoods” cannot be shown for each tariff line because of their diversity. The quantities of notional basic products in a standard recipe composition are shown in Annex I.a [tab 6 in the Excel file]. The TEs [tariffs] for these “composite agrigoods” are shown in Annex 1.b [tab 7] by reference to an additional code composed of the figure 7, followed by three figures according to the composition of the “composite agrigoods” as shown in Annex 1.c [tab 8]

So now you know. Of course, the EU could have dispensed with such a complicated scheme from the start. But that’s another story.

There is help online such as this interactive UK government page, or this Polish one, useful for exporters and importers but even less transparent.

And just in case anyone wants to blame the EU and not the UK, remember that for decades the UK was as responsible as any other EU member state for this tariff scheme.

So, to summarise:Back to top
  • Check if the product concerned is one of the 27 having “* see annex 1” as a note in column G of the main list of agricultural tariffs (tab 3 of the Excel file)
  • If it is, start with the content of milk fat, milk protein, starch/glucose, and sugar (in various forms)
  • Look at Annex 1c (tab 8) to find the corresponding three-digit code number, and add a fourth digit — 7 — in front, to make 7xxx
  • Look up the additional “specific” tariff (€/kg) from Annex 1b (tab 7) corresponding to that 7xxx code number. Observe the maximum tariffs for sugar (AD S/Z) and flour (AD F/M) for that code
  • Add that to the corresponding “ad valorem” (%) tariff rate from main list (tab 3). (Both components are “bound rates of duty”, meaning they are the maximums that the EU has agreed to charge. It can charge a lower duty without violating the commitment, but not a higher one.)
  • If the symbols AD S/Z (sugar) or AD F/M (flour) appear with the tariff for the product at eight-digit level (in tab 3), then they are used to compare with the previous figure and the lowest is the actual bound duy rate (details above).


Please note the “beta” in the blog title. It’s quite likely there are errors in this post. Comments are welcome, in this case particularly corrections, via the contact form

Updated:

  • August 20, 2016: text revised slightly to improve clarity. Links added to online calculators for Meursing codes (the 7xxx codes)

Photo credit : Surajith S via pexels.com | Creative Commons CC0


Back to top

This EU tariff takes the biscuit

If Brexit manages to get rid of this EU monstrosity, it will indeed be an achievement. Exploring post-Brexit tariffs: part 2

By Peter Ungphakorn
POSTED AUGUST 18, 2016 | UPDATED AUGUST 20, 2016

UPDATE:
The goods schedule for the EU’s enlargement in 2004 to 25 members (EU–25) was certified and circulated in December 2016. Details are here

If you make biscuits in Britain and hope to continue to export to the EU after the UK leaves, you’re in for a treat. Ditto if you make bread, cakes, chocolate, breakfast cereals, food preparations or anything similar

The common assumption is that if the UK leaves the single market and the customs union without any form of free trade agreement with the EU, then British exports will face EU import duties under Brussels’ World Trade Organization (WTO) commitments.

sweet-almond-biscuits-cookies cropped 25pct - pexels - lifeofpix
EU customs used to have 27,720 categories of these. Now they have 13,608

The treat? Discover and marvel at the inventiveness that created these EU tariffs.

Then prepare for indigestion, of nightmare proportions. One neutral expert on tariffs calls the scheme “horrendous”.

IN THIS SERIES
• Part 1 — The Hilton beef quota: a taste of what post-Brexit UK faces in the WTO
• Part 3 — Oranges: a litmus test of UK post-Brexit tariff negotiations

In its WTO commitment, the EU classifies bakery and confectionary products, food preparations and more as “composite agrigoods”. They are not just defined as “biscuits” or “chocolate” but have additional definitions based on the percentages of their ingredients.

This allows an extra set of import duties to be charged depending on how much of four agricultural ingredients are used to make the product: milk fat, milk proteins, starch or glucose, or various forms of sugar.

The result used to be 27,720 categories of composite agrigoods for the purposes of charging import duties. That’s 54 products each having a possible 504 recipes using different combinations of those ingredients. So, 54 x 504 = 27,720.

The figure has now been trimmed to 27 products, still with 504 recipes, in the EU’s current WTO commitment, leaving only 13,608 categories of biscuits, bread, chocolate, etc, each potentially charged different import duty.

That’s quite a feast for customs officers, although I doubt if even they have the stomach for calculations like these.

It could have been worse. They could have added eggs, dried fruit, nuts, you name it.

So, how do you know which tariff category (or “tariff line”) your product falls under? You look it up here.

Meursing table from commitment
Click the image to admire it full size

This is what you do.*

  • Based on the amount of the various ingredients in your recipe, identify its three-digit number from that table and add a 7 as a fourth digit on the front.
  • Next, consult another table listing additional tariff rates for each of those four-digit numbers beginning with 7. Find your four-digit number and its corresponding tariff rates. There could be up to three of them: one in general and one each for flour and sugar. The first is a proper tariff rate, the other two are maximums for sugar and flour. Memorise them all.
  • Finally, go to another table and look up the normal eight digit code number for your product (the four additional digits now make it a 12-digit number). Find the corresponding tariff rate for the eight-digit product and add the first of the additional tariffs you memorised.
  • If there is an appropriate note, then cut off the sugar or flour tariffs (or both) at the maximums you have memorised.

Et voilà.

  • And of course if you add more sugar or reduce the milk fat, don’t forget to start all over again.

That’s how you find out what import duty your biscuits will face as they enter the EU.

What could be simpler?

How about these for starters: football’s offside rule (pdf, pages 108–118); baseball’s infield fly rule; or the Duckworth-Lewis method for calculating who’s won a cricket match that’s been interrupted by rain.

OK, there are online calculators to help you, but they just add to the scheme’s obscurity.

All of this is designed to protect European farmers as well as biscuit makers. The EU has promised to strip it back to “less than 300” categories as part of the WTO’s Doha Round negotiations. But the talks are moribund if not stone cold dead.

The system is so complex that as the UK heads out of the EU, it could do the world a service by binning it before it shuts the door behind it.

How? The UK and EU will have to renegotiate their WTO commitments: the UK to separate its own from the EU’s, and the EU because it is losing a member.

The UK should unilaterally declare it will not use such a devious scheme to set its own tariffs. And as a WTO member in its own right, it should join forces with the rest of the world to refuse to agree on any revised EU commitment that includes the scheme.

After all, as an EU member, the UK has been shamelessly complicit in this monstrosity for decades.


* At least I think that’s what you do


P.S. By the way, the above describes the EU’s WTO commitment. In practice, the EU applies a revised version of that nightmare through its own internal regulation.

P.P.S: If you must, you can see an attempt at an explanation of how the system works here.


Updated: August 20, 2016: adding links to online tool for calculating Meursing codes, and WTO news report on EU presentation to agriculture negotiations; removing bullet point on converting €/100kg tariffs to percentages because it’s unclear whether this is needed.

Photo credit: Sweet almond biscuits | lifeofpix.com via pexels.com | Creative Commons CC0

Second bite — how simple is the UK-WTO relationship post-Brexit?

Much of the divergent opinion boils down to differing assumptions. We can probably do better than ‘just take your pick’ because there is evidence available to assess at least some assumptions

By Peter Ungphakorn
POSTED AUGUST 17, 2016 | UPDATED AUGUST 20, 2016

Since the June 23, 2016 referendum, the debate about the UK’s post-Brexit status in the World Trade Organization has become more intense.

Back in March, AgraEurope’s first and detailed look at it attracted little attention (part 1 and part 2 are for subscribers; additional facts, free to view).

WTO Director General Roberto Azevêdo’s comments before the referendum did raise a few eyebrows — but not much.

The_Watermelon_2nd Crop_Elyse_Ashton_eating_cherries
The first bite at the cherry is here

IN THIS ARTICLE

ASSUMPTIONS SCRUTINISED
Nothing simple:
• UK revising commitments, some transposed from EU’s
• tough negotiations to keep entitlements to protect agriculture
• current EU commitments not known
• trade continues but possible disruptions

Not complicated (one or several of these)
• “let’s be Singapore” — UK to be a free unilateral free trader (easier WTO talks)
• “we need you” — other WTO members willing to accommodate UK’s demands in order to keep trading
• “call my bluff” — little risk of legal challenge so UK has legal grounds to go ahead and submit its own WTO terms

Even more complicated (one or both):
• “the blank paper” — UK renegotiates everything from scratch, nothing transposed automatically from EU
• “accession route” — UK negotiates new commitments as if a new WTO member

PLUS What Azevêdo said

All that has changed. Demand has risen for what is now part of a special report for AgraEurope subscribers, and a debate has developed in academic and media comment, and on social media.

The WTO is more than the default set of rules in a UK-EU bilateral trading relationship after Britain leaves the single market or customs union.

The WTO will be the basis for all of the UK’s trade relations as a non-member of the EU — with the EU itself in any form, with any other country signing a free trade agreement with the UK, and with just about anyone else.

A key question is how easy it will be for the UK to extract its own WTO commitments currently bundled with the EU’s, essential if the UK is to be a WTO member in its own right.

The replies range from “sorry, it’s not complicated at all”, to “actually, this could take years to sort out”. Like the various economic forecasts of Brexit’s impact, much depends on the assumptions.

My own view is somewhere between the two. A lot remains uncertain, but there is evidence from past experience in the WTO to assess the competing assumptions.

Time for a second bite at the cherry.

Nothing simpleBack to top

RELATED ARTICLES
Nothing simple about UK regaining WTO status post-Brexit
The Hilton beef quota: a taste of what post-Brexit UK faces in the WTO
Three thoughts on the Brexit referendum

My original argument in this blog post (reproduced by ICTSD) was that it would not be simple, briefly, because of:

  • the possible need to spend time sorting out the legal basis for establishing the UK’s status — new or revised commitments? They would come under different WTO legal provisions. Incidentally, one would be top secret, the other more open
  • the prospect of tough political negotiations with other WTO members (including the EU)  with conflicting interests, particularly over agricultural tariff-rate quotas (discussed in detail here) and subsidies.
  • the huge volume of work even in areas where UK commitments and regulations would simply be transposed from the EU’s without any negotiation  (described here)
  • the EU having to renegotiate its own revised commitments as it loses a member state — these talks will be tied to the UK’s. It will be difficult to conclude one without the other
  • the absence of current approved EU commitments meaning the UK would not know what it was extracting its own commitments from

UPDATE

The goods schedule for the EU’s enlargement in 2004 to 25 members (EU–25) was certified and circulated in December 2016. Details are here

The assumptions are, briefly:

  • the UK will not be creating new commitments but working to extract its own from the EU’s — an assumption based on what a majority of lawyers seem to believe
  • many EU commitments can be transposed to the UK’s even if a lot of work is involved — again, a majority view
  • the UK will not unilaterally become a free trader, although it might tone down some of the protectionism it inherits from the EU — this assumes some strength in domestic lobbying for protection, but the outcome is still unclear
  • other countries (EU and non-EU alike) will not accept UK demands quickly even if they want to because of their own special interests — based on past experience with the EU’s tariff-rate quotas, and more generally in WTO negotiations, particularly in agriculture
  • the UK will face lengthy talks with uncertain outcomes — based on the EU’s past struggles. It took 15 years for WTO members to agree on the EU’s 1995 enlargement from 12 to 15 members. Adjustments for the 2004, 2007 and 2013 enlargements to the present 28 remain in limbo
  • trade can continue nevertheless, as it has with the EU, but it could be disrupted, and some deals could be struck behind the scenes — again based on the EU’s experience

Union flag_2nd crop_Corner_of_Downing_St_and_Whitehall,_London_-_May_2008

‘It’s simpler than you think’Back to top

Three points of view challenging the complexity of those arguments are worth considering. (A fourth is ignored: “Brexit is Brexit. Live with it.”)

‘Let’s be Singapore’ — UK, free traderBack to top

It’s possible that the UK could unilaterally become a free trader. This would indeed simplify the UK’s WTO negotiations because a new set of low-tariff, low subsidy commitments would face little resistance from the membership.

The WTO is more than the default set of rules in a UK-EU bilateral trading relationship after Britain leaves the single market or customs union.

The WTO will be the basis for all of the UK’s trade relations as a non-member of the EU — with the EU itself in any form, with any other country signing a free trade agreement with the UK, and with just about anyone else

Farmers’ groups seem to be preparing for it, but have not given up.

Most observers discount the chances, even though some Conservative Party politicians might fancy the approach.

The government’s assurance that it will continue to foot the bill for EU-financed programmes suggests support for farming will continue, although further moves away from price and income support cannot be ruled out.

The National Trust, for example, has urged the government to replace these subsidies (many already “decoupled” from production) with support for environmental protection (known as “greening” in the jargon).

Meanwhile, vulnerable industries such as steel will probably continue to seek protection.

Some also argue that by taking the free trader route, the UK would be yielding bargaining leverage in a system where one country normally removes a barrier in return for another doing likewise (a bit like disarmament).

Unilateral liberalisation doesn’t seem to have handicapped countries like Singapore, although 21st century trade agreements tend to be more about streamlining regulation and recognising each other’s standards and procedures than lowering tariffs and subsidies.

It may depend on how quickly the UK wants a deal. WTO director general Roberto Azevêdo, a former chief negotiator for Brazil, warned in June: “If you need to complete a deal quickly when the other side can wait, you are negotiating from a very weak position.”

So the major question seems to be about the UK’s own trade policy. The jury’s still out.

‘We need you’ — countries want to help UKBack to top

Will countries bend over backwards to make life easy for the UK in the WTO? The assumption is that they consider trade with Britain to be too important to disrupt. Some such as Australia might take that view.

But each of them — even Australia — will still have specific interests: access to dairy, beef and poultry quotas, visas for professionals — a priority for India — and so on.

Despite the best will in the world, the negotiations could eventually become complicated as the UK (and the EU) struggles to balance conflicting interests among its trading partners, as well as internally.

Others might be less accommodating. China, for example, could end up disgruntled if its investments in the UK are held up. It has already repeatedly complained about the EU’s attempts to revise a WTO commitment (on poultry).

Remember, we are talking about negotiations in the WTO, not bilateral free trade agreements. Consensus among all 164 WTO members would be needed.

History, particularly the EU’s experience, suggests this assumption is too optimistic.

‘Call my bluff’ — UK simply submits its termsBack to top

Some lawyers argue that the UK should go ahead and announce its “schedules” (its lists of commitments) even if they have not been certified. The UK could justify these commitments, so long as they are no more protectionist than the EU’s.

The UK would be legally secure, according to this view. If other countries didn’t like it, they would have to prosecute the UK in the WTO’s dispute settlement system. There might be no litigation, and even if there was, the UK would stand a good chance of winning.

The legal basis is an “international rule applicable to succession of states, which is that obligations are inherited [in this case the UK inheriting schedules from the EU], especially where they affect the territory of the seceding country, and apportioned where necessary”, according to this summary.

There would be questions about allocating shares of the EU’s tariff-rate quotas and subsidy entitlements to the UK but if the UK gets the allocations right it will escape litigation, the argument goes.

If the strategy works, it will indeed be simple. There are two problems.

First, it’s an argument based on law, largely ignoring politics. (One expert quipped: “Btw: My interest in football is only and exclusively about the offside rule.”)

Or as the WTO’s Azevêdo said in a July 27, 2016 press conference, the UK will have to negotiate its commitments “with everybody else. You don’t unilaterally decide what your commitments are.”

Time and again countries have shown in WTO negotiations that they resent being presented with “take-it-or-leave-it” or fait accompli proposals.

So the UK would face a choice: build confidence and cooperation with other WTO members by being willing to negotiate, or risk alienating them — surely to be avoided for a country that would essentially be a novice in the WTO.

Second, litigation is not the only action open to other countries. If they don’t like a tariff, a tariff-quota or a subsidy announced by the UK, they could declare the measure to be illegal since the UK’s schedules had not been certified, and raise their own trade barriers in retaliation.

It would then be up to the UK to prosecute the other countries, a lengthy and expensive process. The UK might win in the end (I’m not a lawyer but I wonder even about that), but trade would be blocked for years until the cases are settled. The disruption would be far worse than anything experienced while the EU re-negotiated its tariff quotas.

Blank paper_2nd crop_Pexels CC0

‘It’s more complicated than you think’Back to top

I think the “more complicated than that” argument is too pessimistic because other countries are in no mood to haggle over everything. They’ll pick the issues they really want to fight over. But I could be wrong.

It does have many implications, not least because lengthy and complicated negotiations in the WTO mean that the UK’s potential partners in free trade agreements — the US, Canada, Australia, New Zealand, etc — will probably wait until they see what the UK’s commitments in the WTO are, before negotiating bilaterally with London.

‘The blank paper’ — everything re-negotiatedBack to top

Some argue that the UK would have to renegotiate its entire set of commitments on goods and services — or almost all of it — no matter what legal basis applies. That means nothing or almost nothing could be transposed directly from the EU’s commitments.

The WTO’s Azevêdo’s comments about Brexit have sometimes been interpreted this way.

In his July 27 press conference, he spoke of the UK having no commitments: “We have no precedent for this,” he said. “We would have a WTO member without a schedule of commitments.”

But perhaps that was not as firm (or legalistic) as it sounded.The fact is, the UK does not have bits of paper labelled “Goods Schedule of the United Kingdom” — whatever the legal situation — and one way or another those bits of paper will have to be written.

Azevêdo has repeatedly said the situation is uncertain. Earlier, on June 7 he told a conference in London: “Key aspects of the EU’s terms of trade could not simply be cut and pasted for the UK. Therefore important elements would need to be negotiated.”

In other words part but not necessarily all of the commitments would need to be renegotiated. He did not say which parts. “The only certainty is uncertainty,” he said.

At least three assumptions support the “even more complicated” argument, even if technically the UK were just “revising” the commitments it currently has embedded in the EU’s.

One assumption is that other countries could want the revisions to take into account the major changes in world trade that have taken place since the original commitments were crafted in the 1990s.

For example, new producers are now exporting. They would demand new or additional access to the UK and EU markets. And the composition of goods and services traded has also changed, also justifying adjustments.

This would reduce or eliminate completely the range of commitments that could be transposed from the EU’s to the UK’s. Everything would be up for negotiation.

Is the assumption valid? We don’t know.

A stock defence for the UK and EU would be that major changes to the commitments have to come from negotiations across the WTO such as the Doha Round. Other countries could counter that those talks are moribund.

A lot would depend on how much other WTO members would want to pick a fight with the UK and EU, or would find themselves under domestic pressure to do so. We’ll have to wait and see.

The second assumption is that the tools used to protect the 28-member EU’s producers cannot be defended for both the UK and the 27-member EU after Brexit.

For example, there is no justification to carry over to the UK the trade barriers that protect Mediterranean products, no reason to copy the EU’s tariffs on these products into the UK’s separate commitments.

The third assumption is more subtle. It’s the reverse of the sum being  greater than the two parts — the separation into two makets leaves less than the original single maket.

If the UK leaves the single market (and customs union), new trade barriers are raised between the two. This may alter the access that the rest of the world has to the UK and EU.

For example, non-UK, non-EU financial services companies established in London would no longer have automatic access to the EU through the single market. The EU’s current market access commitment and the UK’s future commitments transposed from the EU’s would be less valuable to them.

Their parent countries could demand adjustments to both commitments because in effect the separation will have made both markets less valuable and more protectionist.

In other words, this assumption challenges even the view that the EU’s commitments on services can be transposed to the UK’s.

Again, we won’t know how valid this assumption is until the talks actually take place.

And if they take place under WTO provisions for revising commitments we still might not know until a deal is eventually struck, because WTO members have agreed that these negotiations must be top secret.

‘Accession route’ — as if a new memberBack to top

Some lawyers argue that the UK would have to negotiate as if it were becoming a new WTO member because it does not have its own WTO commitments, only those of the EU. It will be creating entirely new commitments.

This seems to be a minority view among lawyers. It does have the practical implication of a more open procedure in the WTO than revising commitments.

“There is no precedent for [Brexit] — even the process for conducting these negotiations is unclear at this stage,” WTO chief Azevêdo said in his June 7 speech.

The fact that this difference of opinion does exist means WTO members themselves might also spend time debating the question, delaying the start of the real negotiations.

The WTO has no independent procedure for sorting out legal questions like this, only agreement by consensus among all its 164 members.

This assumption still waits to be tested.

SEE ALSOBack to top

And on this blog


What Azevêdo saidBack to top

First, an extract of WTO director general Roberto Azevêdo’s speech at the World Trade Symposium in London on June 7, 2016:

Azevedo HoDs Cropped square 25.7
“Time will tell where all of this leads”

In addition, the UK would also need to re-establish its terms of trade within the WTO. The UK, as an individual country, would of course remain a WTO member, but it would not have defined terms in the WTO for its trade in goods and services. It only has these commitments as an EU member. Key aspects of the EU’s terms of trade could not simply be cut and pasted for the UK. Therefore important elements would need to be negotiated.

There is no precedent for this — even the process for conducting these negotiations is unclear at this stage.

I can say that negotiations merely to adjust members’ existing terms have often taken several years to complete — in certain cases up to 10 years, or more. However, as far as the UK’s case is concerned, it is impossible to tell how long it may take.

Upon leaving the EU, rights that the EU secured for its members would arguably no longer automatically apply to the UK. This includes the right to restrict certain aspects of the free movement of people and to protect public utilities from competition. The UK might need to negotiate with other WTO members to maintain these rights.

No WTO member can unilaterally decide what its rights and obligations are.

I don’t have a crystal ball to assess the outcome of these various different negotiations — and nor does anybody else. The only certainty is uncertainty. However, I have spent my life as a trade negotiator and now as WTO Director-General it is my job to broker trade deals between nations, so I can try to offer some insight.

To begin with, I would say that trade negotiations are highly complex. Conducting multiple negotiations simultaneously would bring a further level of complexity.

In addition, you need willing partners. Other countries already have their negotiating priorities and may not be ready to shift resources to a new negotiation overnight. Of course, speaking of resources, all of this presumes that your own resources and negotiating infrastructure are already in place and fully operational.

Moreover, if you need to complete a deal quickly when the other side can wait, you are negotiating from a very weak position.

So, on this basis, it could take quite some time before the UK got back to a similar position that it has today in terms of its trading relationships with other countries.

Time will tell where all of this leads.

And these are some quotes from his press conference at the WTO on July 27, 2016:

We have no precedent for this,” he said. “We would have a WTO member without a schedule of commitments.”

He described membership as “a contract.  Members have contracts with each other. We would have a member of the organisation without a very important part of that contract which is the list of commitments. That would have to be negotiated with everybody else. You don’t unilaterally decide what your commitments are.”

He went on: “How do you get there? It can be simple and straightforward or it could be very convoluted and complicated. It depends on a whole number of things.

How long will it take? “I don’t know. Nobody knows.”


Updated:

  • August 19–20, 2016: adding links to articles on EU farm support (CAP Reform.eu) and post-Brexit agricultural policy (Farm Futures) under “see also”; “The Watermelon” photo credit corrected

Photo credits, from top:

  • Elyse Ashton in a scene from “The Watermelon”, romantic comedy written by Michael Hemmingson, produced by Lorenda Starfelt, and directed by Brad Mays, 2009 |  Brad Mays | Creative Commons Attribution-Share Alike 3.0 Unported license
  • Corner of Downing St and Whitehall, London, May 2008 | Wikimedia Commons | CC0
  • Blank paper | Pexels | CC0
  • Roberto Azevêdo chairing a heads-of-delegations meeting July 25, 2016 | WTO

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The Hilton beef quota: a taste of what post-Brexit UK faces in the WTO

Bear with me. This can be pretty complicated, if not downright murky. Exploring post-Brexit tariffs: part 1

By Peter Ungphakorn
POSTED AUGUST 10, 2016 | UPDATED NOVEMBER 25, 2016
Developed from part of an original article in AgraEurope

UPDATE:
The goods schedule for the EU’s enlargement in 2004 to 25 members (EU–25) was certified and circulated in December 2016. Details are here

“Tariff-rate quotas” are among the most difficult challenges facing the UK as it re-establishes its World Trade Organization (WTO) membership, the basis of all its post-Brexit trading relationships with the EU, free trade agreement partners and most of the rest of the world.

TRQ_Aaron Van De Pol, Cologine Germany Unsplash CC0

Tariff-rate quotas (or simply “tariff quotas”) are where quantities within the quota are either duty-free or are charged a low tariff, while the duties on quantities outside the quota can be so high they can make importing impossible.

JUMP TO
Contentious talks
Evolution of the Hilton quota
Disclaimer

The EU has almost 100 of them (depending on how you count), 86 for agricultural products.

They exist because they are on products that are politically contentious. In the EU’s case that’s cheese, butter, beef, poultry, other meat, live animals, sugar, citrus and other fruit, fruit juice, eggs, cereals and more.

Farmers’ lobbies demand to be shielded from having to compete with imports, hence the prohibitively high tariffs.

“This is not an argument for or against Brexit. Either way we cannot assume that becoming an independent WTO member will be simple and quick for the UK”

— Nothing simple about UK
regaining WTO status post-Brexit

On the other side, the country’s trading partners demand some real market access. Compromises were struck in the give and take of the much broader 1986–1994 Uruguay Round negotiations, which set up the WTO.

In order to allow some imports to enter their markets, the EU and other countries agreed to charge much lower duties on limited quantities of agricultural products, as an exception to the general high tariffs — they created tariff quotas.

For example, the EU has a tariff quota for high quality beef, nicknamed the “Hilton quota”. The EU’s current official commitment is 37,800 tonnes (see disclaimer below) charged 20% import duty. Outside the quota, the duty is much higher: €2,700–€4,700 per tonne.

IN THIS SERIES
• Part 2 — This EU tariff takes the biscuit
• Part 3 — Oranges: a litmus test of UK post-Brexit tariff negotiations

The Hilton quota is only one of the EU’s tariff quotas. It has been the subject of complicated negotiations over the years as have most of the others.

These tariff quotas were included in the lists of legally binding commitments that each WTO member agreed. They are known as “schedules” — as well as listing the new commitments, they provided a timetable for introducing them.

Hilton TRQ_eu-15_
(Click the image to see it full size)

Contentious talksBack to top

The quotas and the struggle to update the EU’s commitments provide an indication of how long it might take for the UK to establish itself as a WTO member independent from the UK.

The UK is a WTO member in its own right but its commitments are merged with the EU’s. It would need to have its own separate commitments.

To achieve that, one of the most difficult tasks facing the UK would be to extract for itself shares of the EU’s quotas. This would have to be negotiated, and it would be particularly tough (but not impossible) because the quotas are so political and complex.

For the Hilton beef quota, the countries immediately concerned would be at the very least Argentina, Australia, Brazil, Canada, New Zealand, Paraguay, Uruguay, the US – and the EU itself.

The UK could scrap the quota, applying the 20% tariff to unlimited quantities. British beef producers would resist that.

The UK is more likely to keep the quota. The most obvious solution would be to stick to the original quota size, with for example the UK pledging to set a quota that is 10% of the original, leaving the EU with 90%. Legally, speaking, both the UK and EU would be revising their commitments.

But that is not as simple as it sounds. This is where you really have to bear with me.

TRQ1_EU28

  • In effect WTO members would be negotiating two sets of revised commitments simultaneously — the EU’s as well as the UK’s. It’s difficult to imagine one being agreed before the other.
  • At the very least we can expect WTO member countries to haggle over how a quota is divided between the UK and EU depending on which market is more important for their exports — 10%–90%? 15%–85%? And so on. The UK and EU themselves might not agree on the proportions although the present shares of imports going to each ought to be a default position.
  • Each of the supplying countries (Argentina, Australia, Brazil and so on for Hilton beef) would also haggle over the shares allocated to them individually for their exports, out of the EU’s and UK’s respective tariff quotas. These might not be the same because — hypothetically — for this particular product, New Zealand might be more interested in the UK market, while Argentina might be more interested in Germany and the rest of the EU.
  • Then there is cross-channel trade (and across the Irish border): the UK and EU would want to continue to sell the beef to each other even if the UK leaves the single market. If the UK and EU restrict each other’s products’ access to their markets, this could also put pressure on how the present EU quota is divided between the two. For example, in some cases UK is a net exporter of a particular product to the EU. Trade barriers introduced between the two after Brexit would make the EU portion more attractive to exporters in the rest of the world. They might negotiate to increase the proportion of the quota retained by the EU.

TRQ2_UK+EU27

  • Some quantities might also have to be added to the total of the UK and EU quotas since UK-EU trade would also come under the two quotas — unless covered by a bilateral UK-EU free trade agreement (or single-market pact) outside the WTO and kept outside the WTO tariff quota. So more haggling.
  • Other countries might also demand that the combined UK+EU quota size is expanded because of changing patterns in trade, with new suppliers coming on to the market.

TRQ3_UK+EU27

  • They might also demand changes to the tariff rates (inside or outside the quota) — for example challenging the UK’s need to restrict imports of citrus fruits — but let’s stop there for now.

To complicate matters even more, the EU had to revise its commitments as it added new members, first in 1995 (the year after the Uruguay Round talks ended, when it expanded from 12 to 15 members), then in 2004 (to 25), 2007 (to 27), and 2013 (to the present 28). The negotiations have proved lengthy and complicated. The revisions have to be approved (“certified”)  by a consensus of WTO members.

The one for 1995 was not certified until 2010 — it took 15 years to account for the addition of three countries. The Hilton quota was increased from 34,300 to the present 37,800 tonnes. The revisions for the 2004, 2007 and 2013 enlargements remain in limbo.

In other words, the UK will be negotiating shares of officially unknown tariff quotas for the present 28 EU members.

See also:
A possible two-stage negotiation on tariff quotas (and other agriculture issues) in
this piece by Alan Matthews

• Chris Downes: “The Post-Brexit Management of EU Agricultural Tariff Rate Quotas

Evolution of the Hilton quotaBack to top

The 37,800-tonne Hilton quota comes under the commitment for 1995–2003 when the EU was 15 countries.

WTO members have agreed that negotiations to revise commitments have to be completely secret until the results are confirmed. However, some evidence of what is discussed does seep out, or it seems to.

Brussels has to tell the WTO annually how much has been imported within the quota. For comparison, the information has to include the size of the commitment. Two years after the 2004 enlargement the notified quota size for the 2006/07 season crept up by less than 1% from 37,800 to 37,950 tonnes. It has stayed at that level up to now.

The figure is unexplained. The WTO has a table with details of the latest situation of its members’ lists of commitments on goods (the “goods schedules”). The EU’s entry includes numerous documents that remain secret, reflecting a lot of activity with no final result.

But the 2004 enlargement increased the EU’s membership by 67%, with three more added in 2007 and 2013.

And, in practice the EU’s Hilton quota has increased considerably, although this remains an internal EU regulation with no commitment or notification in the WTO — countries are allowed to open their markets wider than their WTO commitments.

Under this regulation, since 2013 the EU’s actual quota is almost double the figure committed in the WTO, at 66,750 tonnes (plus a bit more for buffalo meat) rising to 67,250 by 2014/15. The countries eligible for shares of this are now: Argentina, Australia, Brazil, Canada, New Zealand, Paraguay, Uruguay and the US.

In other words it took several years of negotiations outside the WTO with an expanded string of suppliers to reach a level that would satisfy them and presumably avoid a WTO legal challenge in the absence of certified commitments.

In this case, a practical approach ruled. The EU successfully kept trade flowing and avoided litigation by continuing to talk and carefully keeping its trading partners on side. But it has taken an awfully long time.

There’s more. The EU has a newer additional tariff quota for high quality beef that overlaps the Hilton quota. It is compensation for the EU losing a legal dispute in the WTO. This quota is more attractive because imports within its limits are duty-free. It’s an entanglement that may also come into play in the UK-EU-WTO talks.

But perhaps that’s enough mental agony for one blog post.

Next up: a second bite at the cherry — a look at the assumptions underlying differing opinions on what the UK faces in the WTO.


DISCLAIMERBack to top

The details of the tariff-rate quotas for high quality beef are correct to the best of my knowledge.

The lists of commitments (the “schedules”) are difficult to decipher because products are split into thousands of subdivisions under numerous criteria used to charge import duties, from different types of tariff — percentages, <euros/dollars/other currency> per <tonne/litre/other quantity>, and combinations of these — to the products’ starch, fat and sugar content, and even the season when the imports arrive.

Tariff-rate quota commitments are even more complicated to read, with some subdivisions of a product listed separately from the broader category.

Many have detailed qualifying notes, such as this one in the EU’s schedule for the 15 member states pre-2004, the current certified schedule. It’s probably designed for a particular, unnamed, supplying country:

“High quality” meat answering the following definition: “Special or good-quality beef cuts obtained from exclusively  pasture-grazed animals, aged between 22 and 24 months, having  two permanent incisors and presenting a slaughter liveweight  not exceeding 460  kilograms, referred to as ‘special boxed  beef’, cuts of which may bear the letters ‘sc’ (special cuts)”. Qualification for the quota is subject to conditions laid down in the relevant Community provisions.

(OK, go on then, Google “boxed beef”.)

That  description applies to an 11,000-tonne quota (with a 20% in-quota tariff) for subdivisions of the main categories of meat and offal of “high quality” beef.

Slightly different descriptions are used for three more very similar quotas of 5,000, 4,000 and 300 tonnes. These four add up to 20,300 tonnes. (These additional four are “minimum access quotas” rather than “current access quotas” — don’t ask).

I have assumed they are not part of the “Hilton quota”, which I have identified as the 37,800 tonnes in the EU’s goods schedule. The customs code numbers match those for the 66,750 tonnes rising to 67,250 tonnes in the EU Commission’s Implementing Regulation No 593/2013 (pdf) of 21 June 2013 (CN codes 0201, 0202, 0206 10 95, and 0206 29 91. “For the import periods 2012/2013, 2013/2014 and 2014/2015 the total amount is 67,250 tonnes”).

There are only five supplying countries in the WTO commitment.

As for “the relevant Community provisions”, I’m not even going to try to investigate them. Almost 40 years ago I started a PhD, and eventually gave up. I’m not about to embark on another one now.

Mutton-lamb TRQ_eu-15
(Click the image to see it full size)

If you want to see it for yourself, the EU’s latest certified goods schedule is here (Excel),while here (Excel) you can see a table where I’ve tried to use formatting to separate and to number the tariff quotas.

(Among the rewards is the revelation that the tariff charged within one quota can vary according to the subcategory — the “tariff line” — within the more broadly-defined product. Oh joy!)

Comments welcome via the contact form.

Complex combination of EU tariffs and tariff quota on oranges
(Click the image to see it full size)

Updated:
November 25, 2016: adding link to Chris Downes’ article on “The Post-Brexit Management of EU Agricultural Tariff Rate Quotas”
August 28, 2016: adding image of orange tariffs and tariff quota
August 20, 2016: adding link to Alan Matthews’ article on “WTO dimensions of a UK ‘Brexit’ and agricultural trade”

Credits:
Montage using photos by Adam Morse and Aaron Van De Pol | Unsplash | Creative Commons CC0 

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