Comments on the EU’s (and UK’s) proposed modified tariff quotas

Countries’ and organisations’ reactions show some of the issues Britain and the EU may have to confront when they negotiate their tariff quotas in the WTO

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Brexit divorce

By Peter Ungphakorn
POSTED SEPTEMBER 12, 2018 | UPDATED SEPTEMBER 12, 2018

In May 2018, the European Union’s Commission circulated proposed modified tariff quotas for the post-Brexit EU–27 to be negotiated in the World Trade Organization (WTO). It also invited comments from interested parties. Twenty-one countries and organizations had responded when the comment period was closed in July, offering a foretaste of negotiations to come.

SEE ALSO
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)
Archived: UK, EU, WTO, Brexit primer — 2. Tariff quotas
(2017)
The limits of ‘possibility’: Splitting the lamb-mutton quota for the UK
(2017)
The Hilton beef quota: a taste of what post-Brexit UK faces in the WTO (2016)

Britain will also face those issues in the WTO because the UK’s post-Brexit tariff quotas are linked to the EU–27’s. Both want their separate post-Brexit quotas to add up to the present quotas for the EU–28. (This is explained here***.)

These snapshots of the 21 comments, including short extracts, are hastily put-together and were originally in a Twitter thread.

Follow the links to read the full texts, or find them all on this page.

Very briefly: EU farmers unions broadly support the approach. Exporters (countries and companies) and EU importers oppose it. And some say a similar exercise is needed for tariff quotas in the EU’s bilateral free trade agreements.

1.      European Sugar Refineries Association

— don’t split the quotas

Thus,WTO TRQs should not be split between UK and the EU. The status quo should be maintained, as the commitments in question adhere to the bloc, not to its individual member states. Our position is based on considerations of practicality, fairness, and certainty, and offers the best solution for both the EU-27 and the UK sugar markets

Link to comment

2.      Canada

— opposes method, still too much uncertainty

The proposal to apportion the EU-28 tariff rate quotas will result in the deterioration of market access in the European Union and in the United Kingdom. The methodology employed to split or “apportion” the tariff rate quotas is well-described in the proposal but the modalities employed are arbitrary. The use of the relatively short reference period to demonstrate trade flows may not fully capture the extent of trade, development of commercial interests or the trans-shipment of products within the European Union territory. Canada would argue that under this proposal “current market access levels” are not maintained but diminished.

Link to comment

3.      Uruguay

— opposes method, questions data and base period

In other words, for the other members not to be affected by the Brexit, it is imperative to maintain the current flexibility of being able to channel the total volume of the tariff quota to any member of the EU, otherwise it would result in a loss of commercial relevance of a quota after its distribution between two independent markets.

Finally, we should highlight certain elements that negatively affect the interpretation and would question the bases of the statistics used in the assessment of bilateral trade statistics, like the treatment of the Rotterdam effect, as well as the limited provision of data and the period considered. This is also accentuated by the problems arising from not considering the historical trade data of the TRQs resulting from the Uruguay Round in order to have commercial patterns that more accurately reflect trade flows that are not evident in the proposed three-year period.

To conclude, the unilateral methodology proposed by the EU to split quotas should not prevail over the provisions of the WTO Agreements, when it is also noted the lack of statistical data of public access that ensure to be able to determine exactly the distribution of the TRQs within the EU Member States, so that the results are consistent with the objectives of a rules based multilateral system.

Link to comment

4.      Meat & Livestock Australia

— opposes method, questions data, seeks clarity about Brexit arrangements

While the total volume covered by these TRQs would not be reduced under the proposed shared UK-EU approach, the value and commercial workability of the concessions would clearly be diminished.

The proposal would commercially disadvantage our existing access by removing the current single market flexibility – whereby commercial entities determine the port of entry that is convenient and commercially viable for the collective EU market.

Further impacting the above, is the difficulty of accurately reflecting, in any TRQ apportionment, where in the UK or EU our products are actually consumed. Neither port of entry import data nor import licensing data accurately reflects the final point of consumption.

This inaccuracy, leading to an arbitrary quota split based on port of entry, increases the likelihood of unforeseen negative effects on our trade.

Link to comment

5.      Paraguay

— challenges legal approach, seeks information on the process, expects outcome will not “nullify nor impair” its access to the EU and UK

Regarding the proposed methodology of apportionment, Paraguay considers that splitting the current TRQs bound by the EU among EU 27 countries and the UK ignores the TRQ commitments reflected in the EU schedule, which bind the Union as an entity, regardless of the number of its Member States. Every concession made in the framework of the WTO list of concessions represents a delicate balance between the EU and the rest of the WTO Members.

On the other hand, with regard to the decision to open formal negotiations on the basis of the Article XXVIII of the GATT 1994, WTO members are not yet informed when the EU plans to officially notify its intention to modify its schedule of concessions and if such notification will be joined by any action from the UK. As a matter of fact, Paraguay was not informed whether the UK will also negotiate their modifications under Article XXVIII as well.

Conclusions

Paraguay believes that the fulfilment of current WTO commitments shall be the basis for the outcome of this process, avoiding the situation of leaving the EU’s trading partners worse off.

In that regard, Paraguay is willing to engage in a constructive dialogue with the EU and UK in order to find the most reasonable and legalistic way to deal with the process of UK withdrawal from the EU. Thus, Paraguay expects that the outcomes of that process would not nullify nor impair its current market access to EU and the UK.

Link to comment

6.      Brazil

— EU–28 commitments are for the as an “indivisible” single entity, single market, so splitting quotas is unjustified. Many other objections or questions.

– The proposal for a Regulation of the European Parliament and of the Council on the apportionment of tariff rate quotas (TRQs) included in the WTO schedule of the EU following the withdrawal of the United Kingdom is based on the assumption that “EU’s existing quantitative commitments will require certain adjustments”. Can the Commission provide an explanation on why these adjustments are required, since those commitments were made by the EU vis-à-vis other WTO Members?

– In addition to leaving trade partners in a worse-off situation, the proposed apportionment of the EU´s existing quantitative commitments would also put in question a number of attributes of the EU, such as:

(a) its reliability as a trade partner, insofar as political decisions can downsize commitments previously made by the Union as a single entity;

(b) the reputation of the single market as something greater than the sum of the markets of the Member States it comprises.

Link to comment

7.      New Zealand

— EU–27 shouldn’t amend EU–28 quotas, UK’s position is questionable, no hurry since the UK is staying in the customs union through the transition

6             This approach seems to be grounded in a number of false premises, including:

– that splitting (or “apportioning”) the tariff rate quotas can “ensure that other WTO Members’ current market access levels would be maintained” (paragraph 3 of the preamble to the proposed draft Regulation). This is not the case. Both European importers, as well as the exporters from many of the EU’s closest trade partners, would find themselves seriously disadvantaged if the EU were to pursue this approach; and

– that the UK, as a third country, can compensate Members for the EU’s proposed unilateral reduction of its own commitments, while at the same time asserting that the UK is an independent entity no longer bound by the EU’s collective responsibilities.

Link to comment

8.      Dairy Companies Association of New Zealand

— full range of objections

1.3         DCANZ submits that this is a matter that is subject to World Trade Organisation (WTO) rules and commitments, and any changes to arrangements following the withdrawal of the United Kingdom must not erode New Zealand’s current trade opportunities.

1.4          DCANZ is concerned that the EU TRQ apportionment proposal:

1. Is unilateral in approach, that does not accord with recently signalled EU intensions to initiate good faith negotiations with other WTO members;

2. Is not in accord with WTO rules and commitments; these quota’s form part of the EU’s binding schedule of commitments which represents a balance of benefits and concessions between WTO member countries;

3. Is being advanced while the future shape of the relationship between the EU and UK remains uncertain;

4. Erodes the current flexibility of New Zealand exporters to make use of the full volumes available under the TRQ’s to meet demand in any geographic part of what is the current Union;

5. Uses a methodology that represents a tortuous extrapolation from a limited dataset, which is neither representative of trade which has occurred during the full lifetime of the quota, realistic in terms of modern supply chains and port networks, nor representative of how future trade may evolve;

6. Would not result in an equivalent market access opportunity compared to the current situation and would leave New Zealand dairy exporters demonstrably worse off;

Link to comment

9.      Beef + Lamb New Zealand and the Meat Industry Association of New Zealand

— unacceptable approach, and too hasty

3. The EU proposal to apportion the TRQs established in the EU’s legally binding Schedule of Commitments is unacceptable to the sheep and beef sector in New Zealand. This proposal does not meet the EU and the United Kingdom’s (UK) joint and several legal obligations and commitments to their fellow WTO Members.

4. The Sector has developed a set of key principles to guide its approach to the Brexit related TRQ discussion:

5. The quality and quantity of the WTO access commitments are legally binding;

6. An important aspect that goes to the quality of the EU’s WTO’s commitments is the flexibility New Zealand exporters have to responsibly respond to consumer demand and changing market conditions across EU markets;

7. The Sector expects the EU to undertake genuine and constructive engagement with negotiating partners and stakeholders in order to ensure a mutually workable solution that creates the least amount of disruption to the market.

8. The EU proposal to apportion the TRQ’s established in the EU’s legally binding Schedule of Commitments is completely unacceptable to the New Zealand sheep and beef sector as it erodes New Zealand’s market access rights.

9. The Sector sets out three principal concerns with the EU’s proposal on apportionment:

10. Apportioning the TRQs is not acceptable to the New Zealand meat industry;

11. A three-year reference period from 2013-2015 is a flawed snapshot of the trade relationships;

12. The timing and nature of the EU’s proposal for a regulation to apportion TRQs is both presumptive and unilateral in nature.

13. The timing of the EU’s proposal is pre-emptive, unhelpful and unnecessary. There is considerable detail left to be negotiated between the UK and the EU with respect to the terms of the UK’s departure from the EU. Asking affected parties to assess their interests without a clear understanding of the terms of trade between the EU and the UK is both untenable and unreasonable. The detail of the future EU and UK relationship will significantly determine the impact on trading partners and indeed New Zealand’s trading interests.

Link to comment

10. Starch Europe A.I.S.B.L

— calls for Thailand’s manioc starch quota to be included

Generally speaking, there are two Tariff Rate Quotas of relevance to the European starch industry in the Brexit preparedness exercise:

1. The tariff rate quota of Manioc Starch (10 000 tonnes) opened to all third countries (Erga Omnes) for exporting Manioc Starch at a reduced duty (66€/tonne) to the EU.

2. The tariff rate quota of Manioc Starch (10 500 tonnes) devoted to Thailand for exporting Manioc Starch at a reduced duty (66€/tonne) to the EU.

While the draft COM 2018 (312) proposal reports on the first quota of manioc starch (Erga Omnes) in the Annex to the Commission’s proposal, it does not include the second quota devoted to Thailand.

Starch Europe therefore calls on the Commission to include, in the Brexit preparedness exercise, the existence of this tariff rate quota of Manioc Starch (10 500 tonnes) devoted to Thailand for exporting Manioc Starch at a reduced duty (66€/tonne) to the EU, order number 090125.

We would be grateful if you could take our suggestion on board, and remain available for any question you may have.

Link to comment

11. International Meat Trade Association (UK)

— disagrees with approach for splitting quotas without adjusting overall quantities, questions data

-In principle we don’t agree that the methodology whereby the shares must add up to 100% is a fair approach.

-The flexibility to sell product either to the UK or other member states is an integral part of the market access granted to third countries under the WTO commitments. Whilst using a 3 year period is a convenient mirror of the procedure used for any enlargement of the EU, a member state leaving the EU is not a mirror image given the presence of the single market. Current flexibility to send to the EU27 or to the UK allows importers to respond to market changes & to supply product where it is most required. The EU & the UK are not self-sufficient in meat & need stable sources of imported product from trading partners in order to meet consumer demand, helping balance the market.

-Once imported into a member state the product is free to travel within the single market thus post clearance movement of product is common, responding to changes in price differentials between member states for particular cuts of meat.

We attach a more detailed response.

Link to comment

12. Australia

— concern about value of concessions, data. Calls for EU to use transition period and consider current strain on WTO

Australia believes that the current proposal for apportioning TRW between the United Kingdom and the European Union would diminish the commercial value of Australia’s existing agricultural market access to the EU. While the total ‘volume’ covered by the TRW to be shared between the UK and EU would not be reduced under the approach proposed, the ‘value’ of the concessions would clearly be reduced. The approach would leave Australia at a commercial disadvantage, by removing flexibility in where product is sent year-to-year, and by rendering some country-specific quota allocations too small to be commercially viable.

Australia further notes the difficulty of reflecting accurately, in any TRQ apportionment, whether goods are consumed in the UK or elsewhere in the EU, due to the ‘Rotterdam effect’. Neither import data nor licensing data accurately reflects the final point of consumption for goods within the EU. Such uncertainty in the data increases the likelihood of unforeseen negative effects on trade from the proposed approach.

Australia also notes that key trading partners of the EU and the UK have consistently rejected the proposed TRQ-splitting approach, since it was first proposed in October 2017.

Link to comment

13. European Association of Fruit and Vegetable Processors (PROFEL)

— supports some quotas, questions figure for agaricus mushrooms and seeks smaller quotas for canned fruit

1. Dried onions: the EU sector of dried onions can support the current proposal

2. Mushrooms of the species Agaricus, prepared, preserved or provisionally preserved: after coordination with the European Group of Mushroom Growers (GEPC) we would like to point out that the 2 volumes mentioned are not consistent with the volumes of the regulation No 1979/2006, which are to date: 30 400 T for EU imports from China (28 950 T + 800 T with the accession of Bulgaria, Romania – Reg. No. 637/2014 and + 650 T with the accession of Croatia – Reg. 2016/2244) and 5030 T for EU imports from other third countries. On the principle, the EU sector can accept to keep the current quota as the UK has imported very few canned mushrooms from China these last years.

3. Preserved pineapples, citrus fruit, pears, apricots, cherries, peaches and strawberries: the European sector of canned fruit can support the current proposal to adapt the WTO quota and stresses the importance of reducing the EU’s import quota for canned fruit in the context of Brexit. For the European sector, it is of utmost importance to adapt also the bilateral quota in the free trade agreements between the EU and third countries, such as the quota for canned fruit in the agreement with the South African Development Community (SADC) of 57.156 tons. Given that around 26% of the EU imports of canned peaches from South Africa are destined for the UK market, these volumes need be reduced from the EU quota when the UK leaves the European Union.

Link to comment

14. Argentina

— opposes method, asks about UK-EU trade in the quotas

In addition, we would like to express our profound substantive concern about the methodology of the proposed apportionment. Simply splitting the current TRQs bound by the EU among EU 27 countries and the UK raises a number of issues. This methodology ignores the fact that the TRQ commitments reflected in the EU schedule, which represents a delicate balance of concessions and entitlements between the EU and the rest of the WTO Members, bind the Union as an entity regardless of the number of its Member States.

The apportionment methodology negatively affects the quality of the TRQ market access rights by creating a market segmentation that was not present at the time the TRQs were negotiated. This simply denies the current right of exporters to decide to which EU Member State to export and to take advantage of variations of internal prices. Besides, on the representative three-year period, the EU plans to use the 2013-2015 period because it allegedly reflects better the situation before the UK’s withdrawal. However, the EU did not submit any evidence supporting the premise that more recent periods suffered from indirect effects of the UK’s withdrawal from the EU.

Regarding future trade flows between the EU and the UK, there is neither information the new UK schedule and its tariff (bound or applied), nor on whether the goods that are currently imported into theEU-28 through TRQs will continue to enjoy DFQF between the EU-27 and the UK

(DFQF = duty-free, quota free)

Link to comment

15. International Beef Alliance

— opposes method, questions haste

Market stability and predictability is paramount. It is important for the beef producers and consumers in Europe, as well the beef producers within our countries. Trade relationships and important commercial relationships have been established over decades of successful trade between all of our countries. It is essential that any outcome at the WTO preserve this stability and continues to promote open trade. An important contributor to this market stability is the ability of exporters to trade into either Continental Europe or the United Kingdom, without further restrictions. Many of our exporters take advantage of distribution networks by using a port as a centre of distribution into a number of European markets. We value this flexibility which is eroded by the EU’s proposal to “apportion” quotas.

Apportionment of quotas also compromises the quality and quantity of quotas, and in the case of smaller quotas, apportionment renders some almost economically unviable. We encourage the EU to approach this task in the spirit of greater trade liberalization, and work with trading partners to come to a mutually beneficial solution that overcomes these challenges.

We also question the timing of this proposal from the EU given the significant uncertainty around the terms of trade between the UK and the EU after March 2019. There remains a significant amount of detail left to be negotiated between the EU and the UK, and it seems presumptuous to propose a regulation before adequate consultation and negotiation has occurred between affected WTO Members.

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16. EPEGA (poultry meat importers)

— EU–27 keep unchanged quotas, UK negotiates new ones

As regards the arrangements for the tariff quotas of poultry meat from third countries after withdrawal of the UK from the EU, EPEGA sees no need for action, to behave generously towards the United Kingdom. The United Kingdom leaves the European Union voluntarily and should be aware of the consequences of the withdrawal.

EPEGA favours the option of maintaining poultry meat quotas unchanged in the EU 27 after the withdrawal of the United Kingdom and that the United Kingdom renegotiates its quotas with the third countries.

A percentage allocation of the quotas between the EU and the United Kingdom constitutes a discrimination of importers in the member states remaining in the EU and could provide incentives for potential imitators.

Furthermore, it is of vital importance that trade or import certificates (reference quantities for the quotas that were generated by other EU Member States in the United Kingdom before the Brexit ) will be mutually recognized after the Brexit.

Link to comment

17. COPA & COGECA

— supports the EU and UK approach including possible unilateral apportionment

Copa and Cogeca are supportive of the joint offer made by the EU and the UK to the World Trade Organisation (WTO) members regarding the adjustment of the EU’s WTO bound Tariff Rate Quotas (TRQs). We agree that this proposal is in the interest of maintaining clarity and predictability in the mutual trading system.

Furthermore, we believe that the methodology proposed by the EU and the UK to maintain the existing levels of market access available (through an apportionment of the EU’s existing commitments) to other WTO members is appropriate. The methodology is compatible with the EU’s obligation under the WTO Agreement.

While the EU’s schedule commitments will continue after the withdrawal of the United Kingdom from the European Union, the existing quantitative obligations need to be adjusted. Full absorption by the EU27 of all current EU’s WTO bound TRQs would lead to significant imbalances within the single market.

If necessary, and given the limits imposed by this process of negotiations, Copa and Cogeca supports the Union to proceed unilaterally to the apportionment of the tariff rate quotas.

Link to comment

18. National Farmers’ Union

— supports the EU approach, flexible on base period

TRQs are a sensitive trade issue for our members; our priority is to ensure that any negotiated outcome does not unfairly disadvantage UK producers. The NFU supports the Commission’s proposal for a regulation on the apportionment of tariff rate quotas (TRQs) included in the WTO schedule of the Union following the withdrawal of the United Kingdom from the Union.

We are supportive of the process and methodology that the EU and UK have agreed and presented to the other WTO members. Apportioning the EU28 TRQs based on how they were used in the three years prior the EU Referendum in the UK represents a defendable position at the WTO negotiating table. However, if it becomes apparent that the chosen reference period is unrepresentative of the current trade flows we reserve the right to ask the UK Government to consider a more recent reference period. We will keep this under close review.

Link to comment

19. Deutscher Bauernverband (German Farmers Association) (DBV)

— broadly supports the EU’s approach

Full adoption by future EU-27 of all WTO tariff quotas for agricultural products in the current EU-28 would significant market pressures in the EU single market and would be unacceptable to us.

The adjustment of the EU’s bound WTO tariff quotas requires a sharing of the existing volumes between the UK and the EU, which will take effect at the time when the UK is no longer covered by the EU’s WTO list. The DBV expressly welcomes the fact that the EU has started talks with the WTO trading partners to this effect.

The DBV also believes it is necessary to agree bilaterally with the UK on a common approach in the framework of the necessary talks with WTO trading partners.

We point out that the allocation of tariff quotas should be based on existing trsde flows for each tariff quota in a current representative period.

If necessary, we support the request of the European Commission to be able to unilaterally allocate tariff quotas. Ensuring legal certainty and smooth and continuous settlement of imports into the Union and the UK under the tariff quotas must be of the utmost importance.

(via Google translate)

Link to comment

20. Spiegeleer Consulting

— must include quotas in bilateral agreements too, base on real trade

As drafted, the explanatory memorandum of the proposal implies that the principle of sharing cannot exclude any category of import quotas.

This principle must logically apply equally to quotas arising from bilateral free trade agreements and especially to the free trade agreements recently concluded or being negotiated.

The universality of this principle seems reasonable in view of the fact that all international commercial commitments have been sized for a Europe of 28. If they were concentrated in a market reduced to 27, they would increase the burden borne by the latter and break the general equilibrium sought by the trade agreements concerned.

Finally if it wants to be fair and useful, the distribution requires that the import flows recorded by zone (UK and EU-27) be related to the real total imports, and not to the hypothetical nominal quota potential.

(via Google translate)

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21. Anonymous (France)

— EU–27 quotas should be based on actual imports even if quotas unfilled, do the same for bilateral free trade agreements

The Commission’s calculation modality is surprising: the entire EU-28 quota is allocated to the EU-27 less the use made by the United Kingdom. But it is to forget that the entire quota has not been used every year. This means entrusting the EU-27 more than reality. Why not calculate the percentage upside down, ie allocate to the EU-27 what the EU-27 actually used between 2013-2016? The calculation method chosen is against the EU-27

In any case this draft regulation is welcomed, and invites to quickly build an identical project, but concerning the bilateral FTA!

(via Google translate)

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Updates: None so far
Photocredits: Montage using public domain (CC0) components


Author: Peter Ungphakorn

I used to work on trade issues and am now retired. I am an occasional freelance journalist, focusing mainly on international trade rules, agreements and institutions, with periodic analyses for AgraEurope www.agra-net.com/agra/agra-europe. This blog is for trialling ideas on trade and any other subject, hence “β”. You can respond by using the contact form or tweeting @CoppetainPU — Copyright © Peter Ungphakorn except where stated