By Peter Ungphakorn
POSTED AUGUST 10, 2016 | UPDATED NOVEMBER 25, 2016
Developed from part of an original article in AgraEurope
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.
• Contentious talks
• Evolution of the Hilton quota
IN THIS SERIES
• Part 2 — This EU tariff takes the biscuit
• Part 3 — Oranges: a litmus test of UK post-Brexit tariff negotiations
• UK, EU, WTO, Brexit primer — WTO membership (2017)
• A real beginners’ guide to tariff-rate quotas (TRQs) and the WTO (2018)
• What’s really happening on tariff quotas and Britain’s WTO commitments? (2018)
• Comments on the EU’s (and UK’s) proposed modified tariff quotas (2018)
• Archived: UK, EU, WTO, Brexit primer — 2. Tariff quotas (2017)
• The limits of ‘possibility’: Splitting the lamb-mutton quota for the UK (2017)
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.
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.
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.
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.
“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”
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.
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.
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 EU.
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.
- 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.
- 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.
- 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.
• 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”
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.
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.
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.
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”
Montage using photos by Adam Morse and Aaron Van De Pol | Unsplash | Creative Commons CC0
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