UK-Australia trade deal: when a cap on farm goods is not a cap

Once again the British government has over-claimed on the effects of an agreement

Australia-UK deal: more exaggerated cliams

By Peter Ungphakorn
POSTED JUNE 18, 2021 | UPDATED JUNE 20, 2021

“British farmers will be protected by a cap on tariff-free imports for 15 years, using tariff rate quotas and other safeguards,” declared the UK International Trade Department on June 15, 2021.

But will they, though? The text of the agreement-in-principle between Britain and Australia has now been published (also in several formats on the Australian government website).

It is not a final deal. Much of the text is in the future tense — agreement between the two “will include” this that and the other. Negotiations continue.

A note at the end of the text, which the Australian government calls a “disclaimer”, says:

DISCLAIMER: This document reflects what the UK and Australian FTA [free trade agreement] negotiating teams have jointly decided as of 16 June 2021 should be included in the FTA once it is finalised. It does not prejudge the outcome of the FTA negotiations or any further proposals for FTA commitments either the UK or Australia may make after this date. It is also not intended to create any treaty obligations.”

But it does show some of what is intended for agricultural products.

The reason it was announced on June 15 is because British Prime Minister Boris Johnson and his Australian counterpart Scott Morrison wanted a fanfare for their post-G7 meeting, even if the negotiations are incomplete

Bearing in mind that a lot still has to be settled, we can at least look at what is going to happen to some agricultural products that are particularly sensitive for British farmers.

The baseline is duty-free trade between Australia and Britain on almost all products.

For Australia, this is a simple commitment. It will scrap import duties on everything — “full liberalisation of UK originating goods entering Australia”.

For Britain, there’s a bit more: “full liberalisation of Australian originating goods entering UK, while taking account of UK product sensitivities”, followed by a list of tariff quotas.

Those tariff quotas are what the British government refers to when it says “British farmers will be protected by a cap on tariff-free imports for 15 years.”

Continue reading or use these links to jump down the page:

Detail and trade-illiteracy

The tariff quotas
Beef | sheep/goat meat | sugar | rice | dairy (cheese) | dairy (non-cheese)

Detail and trade-illiteracyBack to top

The detail shows that in only two cases (beef and sheepmeat) is the protection for 15 years, and even then the impact of a “cap” is not what it might seem at first sight. For rice, dairy products and sugar, the protection is for zero, five or eight years.

There are even reports that more may need to be done on other agricultural products.

Before plunging into the detail, it’s worth noting that tariffs and quotas do not tell the whole story. Standards and regulations play a key role in agricultural trade too. This is mainly food safety, and animal and plant health (sanitary and phytosanitary measures, SPS), but also other “technical barriers to trade (TBT)” such as labelling and nutritional requirements.

The UK International Trade Department’s press release claims “red tape and bureaucracy will be torn down”.

“Torn down” is pure fantasy. It is remarkably trade-illiterate for a government department dealing with trade.

All products, whether agricultural or not, will inevitably face standards and regulations. We only have to look at sections 1.4, 1.5, 1.6, 1.7 and 1.8 of the in-principle text.

Agreement between the two countries can simplify some paperwork, tests and inspections, but not eliminate them.

Any free trade agreement like this actually creates a new bureaucratic step: proof of origin (section 1.4) — that a product was “made in” one of the two countries and is therefore eligible to be duty-free and to enjoy other conditions on trade between the two.

A tariff quota: in-quota duty = 10%. Quantities outside the 196-tonne quota are allowed, but the duty adds €805 per tonne to the import price
A tariff quota: in-quota duty = 10%. Quantities outside the 196-tonne quota are allowed, but the duty adds €805 per tonne to the import price. Explanation here. Click the image to see it full size
The tariff quotasBack to top

To recap: tariff quotas are where low or zero customs duty is charged on imports within the quota (in-quota), and a much higher duty is charged on imports beyond the quota (out-of-quota).

Often the out-of-quota duty is so high that the goods become too expensive to import. Usually this means the only imports are within the quota. But for Australian imports into Britain under the agreement, this is not so certain.

Also to recap: tariff quotas are not always filled. Actual imports via a 100,000-tonne quota can be much less than that, sometimes even zero. It all depends on demand and supply around the world. Australia has not always filled its quotas in the EU and UK. Some analysts think that in the short term at least, these tariff quotas might not be filled, so long as Australia focuses on other markets such as in Asia.

The outline agreement tells us that for most of the sensitive products, British producers (not always farmers) will be shielded from some competition by tariff quotas.

But this stuff is very complicated, so I cannot guarantee that the following is entirely correct. This blog is “beta” after all. We don’t even know the latest state of play with UK tariff quotas on imports from Australia following some renegotiation — only what the EU has published.

So here goes with my best shot. For sugar, cheese and other dairy products, the tariff quotas simply get bigger (or in one case it stays constant) until they disappear completely, leaving unlimited duty-free imports.

Beef and sheepmeat are first protected for 10 years by an expanding tariff quota, followed by five years more of protection through a “safeguard” tariff of 20% when import quantities reach a limit.

The five-year safeguard is the same as a tariff quota except that the out-of-quota tariff is much lower than during the initial 10-year period.

For rice, the tariff quota is scrapped completely on Australian milled short or medium grains. (The tariff quotas on rice are designed to protect British rice millers.)

In other words, to assess the impact, we need to look at

  1. the starting point (2021 tariffs and quotas)
  2. the size and expansion rate of the quotas
  3. how the in-quota tariff compares with the starting point
  4. what the out-of-quota or safeguard tariff is

The starting point — the UK’s 2021 tariff quotas — is in a document on the government website.

Before we praise the British government for being transparent note that the products are only identified by customs code numbers. I spent hours matching up the codes with product names and actual quotas. The result is in this 49-page document. I can’t guarantee that it’s all correct.

The out-of-quota rate (except the “safeguard” version) is the normal tariff charged on that product, and is usually high. It is limited by the non-preferential (“MFN”) ceiling legally bound in the World Trade Organization (WTO). The actual rate applied can be lower but with tariff quotas it is usually still high.

I apologise for not chasing up the out-of-quota rates. They can vary according the sub-categories of products, even within one tariff quota. And many are in pounds sterling per kilogram or tonne, which is difficult to convert to a percentage of the price.

One thing we don’t know: when this will start. We will have to wait until the negotiations finish and the agreement proper is signed.

In the quoted excerpts below, EIF = entry into force. TRQ = tariff (rate) quota. MFN = most-favoured nation (non-preferential equal treatment). All the charts cover 20 years from year 1 (“entry into force”) so the durations can be compared

BeefBack to top

Now

  • 2021 tariff quota = 4,669 tonnes. In-quota duty = 20%. Out-of-quota duty = high.

UK-Australia agreement-in-principle (15 years)
Note that the “safeguard” tariff (effectively an out-of-quota tariff) in years 11–15 is the same as the present in-quota tariff = 20%

  • Year 1 tariff quota = 35,000 tonnes. In-quota duty = 0%. Out-of-quota duty = unchanged
  • Year 2–10 tariff quota = expands to 110,000 tonnes. In-quota duty = 0%. Out-of-quota duty = unchanged
  • Year 11–15 tariff quota = expands to 170,000 tonnes. In-quota duty = 0%. Out-of-quota duty (“safeguard”) = 20% (= 2021 in-quota duty).
  • Year 16 = unlimited duty-free

Note that if the present 20% in-quota duty allows some imports, then a 20% out-of-quota duty for years 11 to 15 should also allow some out-of-quota imports, in principle anyway.

Chart showing proposed tariff-quota for beef, Australia-UK deal
How the UK’s import tariff quota for Australian beef will grow. Click the image to see it full size

Text: “increasing TRQ volumes on beef over 10 years, with access to a duty-free transitional quota of 35,000 tonnes on EIF, rising in equal instalments to 110,000 tonnes in year 10. In the subsequent 5 years (year 11-15 after entry into force) a product specific safeguard will be applied on beef imports exceeding a further volume threshold rising in equal instalments to 170,000 tonnes, levying a safeguard duty of 20% for the rest of the calendar year. Out of quota tariffs will remain at MFN until year 10 and then be eliminated

Sheep/goat meatBack to top

Now

  • 2021 tariff quota = 15,349 tonnes. In-quota duty = 0%. Out-of-quota duty = high.

UK-Australia agreement-in-principle (15 years)

  • Year 1 tariff quota = 25,000 tonnes. In-quota duty = 0%. Out-of-quota duty = unchanged
  • Year 2–10 tariff quota = expands to 75,000 tonnes. In-quota duty = 0%. Out-of-quota duty = unchanged
  • Year 11–15 tariff quota = expands to 125,000 tonnes. In-quota duty = 0%. Out-of-quota duty (“safeguard”) = 20%
  • Year 16 = unlimited duty-free
Chart showing proposed tariff-quota for sheepmeat, Australia-UK deal
How the UK’s import tariff quota for Australian sheepmeat will grow. Click the image to see it full size

Text: “increasing TRQ volumes on sheepmeat over 10 years, with a duty-free transitional quota of 25,000 tonnes on EIF rising in equal instalments to 75,000 tonnes in year 10. In the subsequent 5 years (year 11-15 after entry into force) a product specific safeguard will be applied on sheepmeat imports exceeding a further volume threshold rising in equal instalments to 125,000 tonnes, levying a safeguard duty of 20% for the rest of the calendar year. Out of quota tariffs will remain at MFN until year 10 and then be eliminated

SugarBack to top

Now

  • 2021 tariff quota (“raw cane sugar for refining) = 4,964 tonnes. In-quota duty = variable around £82.01/tonne depending on quality. Out-of-quota duty = high.

UK-Australia agreement-in-principle (8 years)

  • Year 1 tariff quota (same? or all sugar?) = 80,000 tonnes. In-quota duty = 0%. Out-of-quota duty = unchanged
  • Year 2–8 tariff quota = expands to 220,000 tonnes. In-quota duty = 0%. Out-of-quota duty = unchanged
  • Year 9 = unlimited duty-free
Chart showing proposed tariff-quota for sugar, Australia-UK deal
How the UK’s import tariff quota for Australian sugar will grow. Click the image to see it full size

Text: “tariffs on sugar will be eliminated in equal instalments over 8 years with a duty-free quota of 80,000 tonnes on EIF rising in equal instalments to 220,000 at year 8

RiceBack to top

Now

  • 2021 tariff quota (short, medium grain milled) = 273 tonnes. In-quota duty = 0%. Out-of-quota duty = high
  • 2021 tariff quota (long grain) = none. In-quota duty = not applicable. Out-of-quota duty = high

UK-Australia agreement-in-principle (immediate)

  • Permanent (short, medium grain) = unlimited duty-free
  • Permanent tariff quota (long grain) = 1,000 tonnes. In-quota duty = 0%. Out-of-quota duty = high

Text: “there will be a permanent duty-free quota of 1,000 tonnes per year for long-grain milled rice, with tariff elimination on EIF for short and medium-grain milled rice

Dairy (cheese)Back to top

This is complicated. We don’t even know which products are covered. Before Brexit, Australia’s tariff quota for imports into the EU (including the UK) was for “cheese for processing” and “cheddar”. This was in the EU’s commitments in the WTO, which had to be split between the UK and EU27 after Brexit.

In the reference period used to split the EU28 quotas into EU27 and UK, none of Australia’s cheese was imported through the quotas into Britain. Therefore, the initial split was 100% for the EU27 and none for the UK.

This seems to be reflected in the UK’s 2021 tariff quotas where nothing is given specifically to Australia, although it can compete with other countries for quotas that are open to everyone.

Australia has now renegotiated a reduced quota with the EU27. With no information on the UK side, the assumption is that Britain had agreed matching increases in its quotas for Australia — otherwise Australia would not have agreed cuts in the EU27 quotas. However, the agreement-in-principle says Australia will drop all objections to the UK’s proposed post-Brexit commitments in the WTO.

“Both sides formalise their agreement on splits of TRQs at the WTO and Australia withdraws its objections to the UK’s goods schedule (including AMS [trade-distorting domestic farm support]) in order to provide certainty to traders in both countries.”

So this is a guess:

Now

  • 2021 tariff quota for Australia = zero. In-quota duty = not applicable. Out-of-quota duty = high, varies according to type of cheese.
  • 2021 tariff quotas for all except EU (“cheese for processing”) = 8,266 tonnes. In-quota duty = £698.78/tonne. Out-of-quota duty = high

UK-Australia agreement-in-principle (5 years)

  • Year 1 tariff quota (“cheese”) = 24,000 tonnes. In-quota duty = 0%. Out-of-quota duty = high, varies according to type of cheese
  • Year 2–5 tariff quota = expands to 48,000 tonnes. In-quota duty = 0%. Out-of-quota duty = unchanged
  • Year 6 = unlimited duty-free
Chart showing proposed tariff-quota for cheese, Australia-UK deal
How the UK’s import tariff quota for Australian cheese will grow. Click the image to see it full size
Dairy (non-cheese)

Butter — now

  • 2021 tariff quota = zero for Australia. In-quota duty = not applicable. Out-of-quota duty = high

Butter —UK-Australia agreement-in-principle (5 years)

  • Year 1 tariff quota = 5,500 tonnes. In-quota duty = 0%. Out-of-quota duty = high
  • Year 2–5 tariff quota = expands to 11,500 tonnes. In-quota duty = 0%. Out-of-quota duty = unchanged
  • Year 6 = unlimited duty-free
Chart showing proposed tariff-quota for butter, Australia-UK deal
How the UK’s import tariff quota for Australian butter will grow. Click the image to see it full size

Non-cheese — now
We do not know whether this includes everything, or a selection of products. To fit liquid milk into the same tariff quota as solid dairy products requires converting litres to tonnes or vice versa.

  • 2021 tariff quota for all except EU, skimmed milk powder = 5,620 tonnes. In-quota duty = £397.51/tonne. Out-of-quota duty = high

Non-cheese — UK-Australia agreement-in-principle (5 years)

  • Year 1–5 tariff quota (annual) = 20,000 tonnes. In-quota duty = 0%. Out-of-quota duty = high
  • Year 6 = unlimited duty-free

Text: “tariffs on dairy will be eliminated in equal instalments over 5 years. There will be a duty-free transitional quota for cheese of 24,000 tonnes rising in equal instalments to 48,000 tonnes in year 5. There will be a duty-free transitional quota for non-cheese dairy of 20,000 tonnes. There will be a further duty-free transitional quota for butter of 5,500 tonnes rising to 11,500 tonnes in year five


Updates:
June 20, 2021 — tariff-quota charts replaced to correct a typo and improve clarity
June 19, 2021 — adding link to uploaded document matching customs codes with product names; adding reference to the “disclaimer” at the end of the text of the agreement in principle; minor edits

Image credits:
• Globe showing Australia | Sigmund, Unsplash, CC0
• Sheep in front of a cattle grid — looking over the Duddon estuary, Cumbria (used in tariff quota illustration) | SKITTZITILBY | Wikimedia commons CC BY 2.0
• Charts by the author CC BY-SA 3.0

Author: Peter Ungphakorn

I used to work at the WTO Secretariat (1996–2015), and am now an occasional freelance journalist, focusing mainly on international trade rules, agreements and institutions. (Previously, analysis for AgraEurope.) Trade β Blog is for trialling ideas on trade and any other subject, hence “β”. You can respond by using the contact form on the blog or tweeting @CoppetainPU