How to be a trade champion

A guide for busy politicians

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By Peter Ungphakorn
NOVEMBER 21, 2017 | UPDATED NOVEMBER 21, 2017

By Abraham Storck - Public Domain, https://commons.wikimedia.org/w/index.php?curid=1147660
Size counts: the more you trade, the bigger your clout in the WTO

International Trade Minister Greg Hands has again proclaimed the UK is a global trade champion only needing to “reclaim our position at heart of global trading system”.

I have written a longer piece on this. Here are some key points for busy readers. I’m using the WTO as the context since that’s where “the heart of the global trading system” is.

How to be a trade champion
  1. Have a policy
  2. Sort out the UK’s WTO membership terms
  3. Be large(-ish)
  4. Have a position that resonates with others
  5. Either
    a. be constructive so everyone likes you
    or
    b. be stubborn so everyone has to put up with you
  6. Have a good supply of skilled diplomats and trade officials
  7. Accept that you still might not be at the top table

The WTO operates a consensus system, which means a decision is reached when no one objects.

In theory all 164 members should have the same decision-making power. In practice, there is an unofficial power structure, even though consensus is ultimately needed: the power structure influences the consensus outcome.

At the top: these days it’s the G5 — the US, EU, Brazil, China, India.

Next level down: the “Green Room” or equivalent — 20 to 30 members because of their influence or because they represent constituencies. They include the G5 plus Canada, Japan, Switzerland, Australia, Argentina, and others representing various groups of developing and least developed countries.

This is roughly how they got there and what the UK would need to join them

1. Have a policyBack to top

Obviously. But when politicians talk about the UK being a champion of trade, they are also advocating the UK being much more of a free trader than it is now, particularly in agriculture. This has not been debated properly and is certainly not the official policy of any of the main British political parties. In particular, this government has promised to continue to support farmers at present levels, at least for a time. Moving away from that would involve some substantial changes that have barely been discussed.

If the UK ends up in a customs union with the EU, then its trade policy for goods (not services) will be more or less the same as the EU’s. If it doesn’t, it may have a freer hand, but a lot also depends on how it aligns its regulations. Even though a customs union is not government policy, some still advocate it. Other policies are also still up in the air.

2. Sort out the UK’s WTO membership termsBack to top

The UK (and EU) have only just started talking about establishing their separate commitments in the WTO on tariffs, “tariff quotas” (explained here), farm subsidies, and on opening services and public procurement markets. It’s taken months just to prepare data for the tariff quotas and the real negotiations haven’t yet begun.

These commitments will be needed by Brexit day, March 29, 2019, so that the UK’s WTO membership terms are clear, and it’s going to be hard work. There’s no harm in having a long term vision, but for now the focus should be on the more urgent nitty-gritty.

3. Be large(-ish)Back to top

A key reason for being either in the G5 or the Green Room is economic size, particularly the share of world trade. As a rough guide we can look at WTO figures for goods exports.

Among the G5, the EU would be top if counted as a single entity, followed by China and the US. But the WTO ranks EU member states individually (Germany 3rd, the Netherlands 5th, etc) and this puts India 20th and Brazil 25th.

Among countries in the Green Room, with their ranking, are: Japan (4, after Germany), Canada (12 after a number of EU states, Hong Kong and South Korea), Switzerland (15), Australia (23), and so on.

And the UK? Tenth, putting it well inside the Japan, Canada and Switzerland group.

The factors that affect trading size include the size of the economy (population size and per capita income), the value of products (which goes some way to explaining Switzerland’s high ranking), and also having a large port (as with Hong Kong and Singapore, and to some extent the Netherlands).

4. Have a position that resonates with othersBack to top

Size is not the only reason Brazil, China and India are in the G5. They each speak on behalf of different groups of developing countries. Brazil tries to bridge the differences between agricultural free traders (Thailand, Uruguay) and those wanting to protect their poor farmers (India, Indonesia, Kenya). In different ways China and India sometimes speak on behalf of weaker developing countries.

At the next level are coordinators of various coalitions of shared interests. Australia represents agricultural free traders. Switzerland coordinates a group of more advanced but more defensive agricultural producers. Others represent the African Group, the least-developed countries, and so on.

If the UK sticks to its present trade policy, it could find that the EU still best represents its position even after Brexit.

Or will its trade policy change? For now, that’s unclear. To be a leader of any kind, it would have to develop a new separate policy of its own, and one that would resonate with other members. But the field is already crowded. In agriculture, the UK might have to accept the leadership of Australia or Switzerland, depending on which direction it chooses, or be a lone voice with no followers.

5a. Either be constructive so everyone likes youBack to top

One way of winning friends and influencing people in the WTO is to help break a deadlock by proposing a compromise that everyone likes enough to want to work on it. This requires knowledge, skill and subtlety. It means understanding what might and might not be acceptable to others and the creativity and imagination to produce something new.

Countries rarely do this on their own. In the past few weeks, China has produced a new proposal on disciplining fisheries subsidies on its own, but the paper essentially reflects a Chinese concern and will need to be negotiated. By contrast, the EU and Brazil approached the negotiations on curbing farm subsidies from different directions and proposed a draft compromise. Whether that succeeds remains to be seen.

5b. Or be stubborn so everyone has to put up with youBack to top

India has a decades-old reputation in the WTO for being a blocker although it would argue that it is defending the weak and vulnerable. Most recently, it held up a new agreement on streamlining border procedures (“trade facilitation”) in order to push a separate proposal that would free public stockholding of food from WTO subsidy disciplines.

Anyone can be stubborn. From time to time the US and EU have been too, so size counts as well. There’s no doubt that a large and vocal India was difficult to ignore.

An anecdote. In 1986 the US and EU wanted to launch a major new round of negotiations. Some hardline developing countries led by India, Brazil and Argentina opposed the move. Finally two smallish countries, Colombia and Switzerland decided to take matters into their own hands. They produced a joint compromise proposal (appropriately nicknamed “café au lait”). More and more countries signed on, and that eventually became the basis for launching the “Uruguay Round” talks, which created the WTO.

In that example, constructive compromise trumped stubbornness.

6. Have a good supply of skilled diplomats and trade officialsBack to top

If you’ve read this far, the need is obvious. Trade is technical and political. If a country is to operate effectively and credibly it needs skilled officials who can understand both the technicalities and other countries’ concerns.

Right now, the UK is in the early stages of rebuilding its capacity to negotiate trade. Its initial focus will be on sorting out its trading relationship with the EU, then on negotiating or renegotiating bilateral free trade agreements with other countries.

Those deals will be important for the UK, but they are not enough to make it a trade champion on the world stage. For some time to come, they will also draw British resources away from work in the WTO.

7. Accept that you still might not be at the top tableBack to top

In fact there is really little chance that the UK will be in the G5 or whatever evolves next. A proper analysis of how countries fit into the power structure is bound to show that.

There is no shame in this. Constructive middle-level roles in the WTO — such as by Canada, Australia, Argentina, Japan, Switzerland, etc — are vital for the trading system. They are all realistic about what they can achieve and they get on with it.

The UK should do the same. Misguided self-importance will only backfire.


Updates: None so far
Photocredits:
• Harbour scene by Abraham Storck, public domain


What WTO leadership means and where the UK would fit in

People who should know better keep talking about the UK becoming a leader in the World Trade Organization. What exactly does this mean and what are the chances?

By Peter Ungphakorn
NOVEMBER 8, 2017 | UPDATED NOVEMBER 8, 2017

Brexit will allow Britain to lead the World Trade Organization (WTO), the Legatum Institute claims in a new paper published on November 4, 2017.

The paper, “The Brexit Inflection Point: The Pathway to Prosperity”, is new but the claim is not — not entirely.

“Britain stands ready to take a leading role within the WTO,” International Trade Secretary Liam Fox said in a speech at the WTO almost a year earlier on December 1, 2016.

Major General Wellesley (mounted, the future Duke of Wellington) commanding his troops at the Battle of Assaye (J.C. Stadler after W.Heath) Public domain, National Army Museum
No invisible hands here: the British East India Company won monopolies and trading power partly through war such as at the Battle of Assaye in 1803

And further back in September 2016, Fox talked about “corralling coalitions of the willing” in a speech at Manchester Town Hall:

If other nations are hanging back, then the UK will happily lead the charge for global free trade. We will corral coalitions of the willing who share a belief that a more open and free trading world is the one which will provide the brightest economic future for our citizens.

The UK is a full and founding member of the WTO, though we have chosen to be represented by the EU in recent years. As we establish our independent position post-Brexit, we will carry the standard of free and open trade as a badge of honour.

JUMP TO
In Legatum’s extraordinary words
WTO leadership: from Quad to G5
Next level leadership
Liberalising agenda
Why?

SEE ALSO
How to be a trade champion:
a guide for busy politicians

This should be a minor distraction. It isn’t. Although Legatum’s paper deals with a wide range of issues, it makes leadership in the WTO an over-riding objective, determining for example whether the UK should be in a customs union with the EU and what kind of regulatory system it should adopt.

Legatum is forever optimistic — nothing wrong in that so long as the optimism is justified. Its paper covers a wide range of topics including regulations, standards, customs cooperation, options for an interim or transition period for Brexit, and so on.

Much of it has been questioned. That includes a number of Twitter threads, for example by barrister George Peretz, law professor Steve Peers, and commentator Frances Coppola. And then there’s pro-Brexit Richard North, who wrote on his blog that Legatum was confused about regulations, standards, mutual recognition and conformity assessment. And Martin Sandhu in an FT article, who called the paper “a confidence trick”.

Many of the criticism are about the details. More broadly Legatum is also accused of painting a picture of a future that is too rosy and a past that was not as glorious as it claims — certainly not a model for modern trade:

A century ago, Britain was the “free trade nation”, a cause that brought crowds of tens of thousands to the streets in its defence, being vital both to the livelihoods of Britons and to the economic miracle Britain gave the world in the century to 1914. But in the century since, our trade — and the world’s — has been subsumed into a restrictive system that creates poverty. The global economy is essentially stuck (page 5).

Many have commented that much of the UK’s trade dominance was actually acquired by force and empire-building. As for the future, “free trade is not an unalloyed good, and we do have to consider the costs as well as the benefits” said Frances Coppola in an exchange on her Twitter thread.

She echoed a more general assessment by Friends of the Earth’s Sam Lowe, who tweeted in May 2017 that Legatum’s papers are “all upside, little acknowledgement of the down. The remotely possible portrayed as plausible.”

I’m not saying the paper is all wrong. Far from it. But I’ll leave it to others to debate the rights and wrongs of other details. Many of these are either beyond my expertise or are based on debatable assumptions about the future, about how the EU and others will react to particular positions.

What follows here is about that over-riding objective in the paper, leadership in the WTO, developed from my own Twitter thread.

In Legatum’s extraordinary wordsBack to top

There is a subtle difference between taking “the lead” in the WTO (Legatum) and “a leading role” (Fox). What did Legatum mean, and what other leading roles might be available to the UK?

These are some extracts from Legatum’s paper. It calls for much more than simply “a leading role”. In fact, what it proposes is pretty extraordinary.

It says that one of the UK government’s immediate actions should be:

Taking the lead in World Trade Organisation (WTO) membership and explaining why the UK and WTO members now share a trade liberalising agenda. (Page 4, and similar on page 10, my emphasis here and in other quotes).

Suddenly, it seems, according to Legatum, the UK can be at the peak of the WTO’s power structure. (Who is currently there? We’ll look at power politics in the WTO in a moment.)

But more than that, the UK will “explain” why all of a sudden Britain and all other WTO members “now share a trade liberalising agenda”.

Legatum does not clarify how, simply because the UK is leaving the EU, this remarkable change can take place. It could not possibly do so. After all, “WTO members” includes the EU and its member states (for now including the UK) as well as the 135 non-EU, non-UK WTO members. Brexit doesn’t change that.

There’s no earthly reason why the diverse agendas of all the 164 members (including the EU’s) should suddenly align once the UK has left the EU and “explained” the need for a different direction.

The idea of UK leadership is repeated through the paper, for example this on a customs union and the European Free Trade Association (EFTA):

Interim proposals are now being floated to remain in the Customs Union, part of it, or join EFTA and accede to the EEA Agreement. This is very dangerous: the EU will use such uncertainty to maximise its leverage, while other trading partners will re-focus their energies on the EU. The UK will lose its opportunity for trade leadership at the WTO, and the consequences will be serious. (Page 7)

And this on regulations:

The UK must therefore be able to regulate differently from the EU in areas like standards and regulatory issues. If it is locked into the EU regulatory model, it will not be able to make the adjustments necessary in order to sign comprehensive free trade deals with other countries, nor will it be able to lead in the WTO and other multilateral fora. (Page 21, and similar on page 23)

And this on tariff commitments and again a customs union:

Without control over tariff schedules [ie, lists of commitments in the WTO], time in the Customs Union prevents UK leadership within the WTO. (Page 29)

Also repeated is the notion that the UK’s role in the WTO is to “explain” what the world should do:

Beginning at the WTO, the UK needs to frame its case by explaining that making the global economy more prosperous over the long-term requires the urgent liberalisation of world trade. (Page 9)

Before Fox considers “corralling coalitions of the willing” in the WTO — or taking up Legatum’s fantasy of the UK leading and explaining — he might like to look at the many coalitions that already exist and how power is structured in reality in the organisation.

WTO leadership: from Quad to G5Back to top

Once upon a time, there was the “Quad”, occupying the summit of the power pyramid. They were the US, EU (including the UK), Canada and Japan, at that time the four largest traders.

Roughly speaking, nothing would be agreed if it couldn’t pass the Quad. But more importantly, if they could negotiate a breakthrough among themselves then the rest of the membership could be covered, provided some flexibility or opt-outs were included for smaller countries.

One historical breakthrough in November 1992 was bilateral, between the US and EU (the so-called Blair House accord on agriculture). Not even Canada and Japan were involved. Even in that structure, the UK on its own would hardly be the leader. But that structure no longer exists anyway.

The Quad dominated throughout the Uruguay Round — the 1986–94 negotiation that created the WTO in 1995 — and into the WTO’s early years. Then, as the century turned, trade was changing. By 2015, Canada and Japan had been jettisoned. In came Brazil, China and India.

At the peak, the Quad has been replaced by the “G5”, which was responsible for the breakthrough at the WTO Ministerial Conference in Nairobi in December 2015, when members agreed to scrap agricultural export subsidies.

Ironically, the UK was represented in that G5 — by EU commissioners Cecilia Malmström (trade) and Phil Hogan (agriculture). After Brexit, it’ll be on its own.

Next level leadershipBack to top

At a pinch the UK might have been able to get a seat in the old Quad beside Canada and Japan, but not now. In the WTO, the UK will be in the second or third tier of the power structure.

There’s nothing wrong with that. Many countries at that level play constructive roles and have won the respect of fellow-members.

However, none of them did it by marching in and proclaiming “I’m a leader now, let me explain.” Not even the US can get away with that.

Nor did they have to be major traders. New Zealand has supplied a succession of chairs in the crucial agricultural talks, its trade diplomats having acquired a reputation as professional, skilled, honest brokers.

(One of them, Crawford Falconer, is now a senior official in Fox’s department. He is also on Legatum’s Special Trade Commission, a move that did raise eyebrows.)

A more effective way of being heard in the WTO is to join an alliance. WTO alliances already have coordinators, so in another sense, the WTO already has lots of leaders.

Australia coordinates the Cairns Group campaigning to liberalise agriculture. Switzerland (an EFTA member) does it for the G–10, which is more defensive on agricultural trade. Brazil set up the G–20 group of developing countries. Taiwan (officially “Chinese Taipei”) coordinates a group of countries that recently joined the WTO. And so on. The WTO website has a long list of alliances in its trade negotiations.

What should the UK do? Take agriculture. If it really is keen on liberalising agriculture, it could join the Cairns Group, but not as its leader. Australia and the others would not appreciate that.

If on the other hand it wants to keep the more defensive policy it now applies as an EU member, it could join the G–10, but Switzerland, Norway and Japan would also not accept it as a leader.

Or, it could go it alone. Only the US and some countries with a minor interest in agriculture have done that, for example Singapore, Hong Kong and some Middle Eastern states. The UK would have a voice, but not a very loud one.

Coalitions in the WTO agriculture negotiations
Where would the UK fit in? The graphic is slightly out of date but it still shows how complex WTO power is, in just one subject (Click the image to see it full size)

But before it embarks on any of this, Britain will have to sort out what kind of trade policy it wants. Take agriculture again. What should the policy be?

Low import duties and low subsidies? Broadly speaking, consumers would gain, many farmers would lose (some would gain) and subsidies for protecting the environment might also be lost.

Continuing with present high duties and some subsidies? Food would remain fairly expensive but farmers would stay in business and British production would be sustained (although Brexit itself might affect that too).

Or something else? The discussion has barely begun.

The UK might face another struggle if it wants to be influential in the WTO. Several non-UK officials have remarked that the UK used to be respected as a sound, pragmatic player in trade and other issues. Brexit, they say, means the UK is now seen as confused, floundering and ineffective.

If that reputation can be repaired, then the UK could find itself among over a dozen second-tier “leaders” in the WTO. It would not have a seat at the summit, but it could be invited to unofficial meetings of 20–30 members (sometimes called “Green Room” meetings) alongside the “G5”, Canada, Japan, Australia, Switzerland, Norway, Argentina, South Africa and whoever chairs various groups of developing countries.

To be clear, for a country of the UK’s size and clout, there would be no disgrace in joining that group. It would also be more realistic than talking of leadership.

Nairobi delegates scrutinise final declaration 19.12.2015
Is Doha dead? Is it alive? Delegates at the WTO’s Nairobi Ministerial Conference scrutinise the final declaration, December 19, 2015
Liberalising agendaBack to top

Tied in with idea of leadership is the notion that Britain outside the EU can launch its independent WTO membership by “explaining that making the global economy more prosperous over the long-term requires the urgent liberalisation of world trade.”

The truth is that in the WTO a call to liberalise trade is a meaningless cliché. The UK can “explain” as much as it likes but the real difficulty is that there is little agreement on how and what to liberalise, what the downsides are for a widely divergent membership, and how urgent the need is.

In 2001, sixteen years ago, the start of a new set of negotiations was agreed. They are unofficially known as the Doha Round or the Doha Development Agenda (DDA). Launching the talks, WTO trade ministers declared:

We are determined, particularly in the light of the global economic slowdown, to maintain the process of reform and liberalization of trade policies, thus ensuring that the system plays its full part in promoting recovery, growth and development.

Sixteen years later, WTO members have failed to agree on how to achieve that, except in a limited number of issues such as cutting red tape at the border (“trade facilitation”) and scrapping agricultural export subsidies (whose use is now dwindling).

Worse, WTO members cannot even agree on whether the Doha Round is over or not. This is what their ministers declared at their last biennial conference in Nairobi in December 2015:

30. We recognize that many Members reaffirm the Doha Development Agenda, and the Declarations and Decisions adopted at Doha and at the Ministerial Conferences held since then, and reaffirm their full commitment to conclude the DDA on that basis.  Other Members do not reaffirm the Doha mandates, as they believe new approaches are necessary to achieve meaningful outcomes in multilateral negotiations. Members have different views on how to address the negotiations. We acknowledge the strong legal structure of this Organization.

Given how diverse opinions and interests are among WTO members, the notion that they will take heed when the UK “explains” is bizarre.

Why?Back to top

There are a number of other questionable assertions about the UK and the WTO in Legatum’s paper.

They include a claim that other WTO members will want a say in a future UK-EU trade agreement (there’s no precedent for this because WTO disciplines on free trade agreements are weak, except for blatant violations).

And Legatum says the UK should talk to other WTO members alone, without the EU, when setting up Britain’s WTO commitments on tariff quotas (difficult to achieve since processes for the UK and EU are intertwined, and British officials are far less experienced than the EU’s in negotiating tariff quotas). In any case the two are already working together.

One of the problems with Legatum’s obsession with WTO leadership is that it diverts attention away from the real issues it should be considering.

For example, the question of whether the UK should be in a customs union with the EU is really about a trade-off. The benefit is smoother trade (in goods) between the two. The downside is that the UK would not be free to set its own tariff rates and negotiating free trade agreements with other countries would be almost impossible.

And the argument in favour of having a customs union temporarily during a transition period is to give business more time to adjust to the final UK-EU relationship.

Legatum ignores all of those arguments on the grounds that the UK needs to grab WTO leadership and to do so fast. It does not say what the benefit of leadership will be other than the questionable claim that it is needed so other countries can take the UK seriously. And of course that it will bring pride and the futile hope that the world will be spurred into creating a free trade paradise.

If this were just about a paper from an ill-informed institute, it would not matter much. The problem is that misguided jingoism is common in the debates about Brexit. Legatum’s line feeds straight into Fox’s preoccupations, for example.

There are real trade-offs and real dilemmas that have to be tackled. Talk of UK leadership in trade is unrealistic, unhelpful and a distraction.


Updates: None so far

Photocredits:
• Major General Wellesley (mounted, the future Duke of Wellington) commanding his troops at the Battle of Assaye (J.C. Stadler after W.Heath). Public domain, National Army Museum

• Delegates at the 2015 Ministerial Conference, in Nairobi, © WTO. Courtesy of Admedia Communication


Who put the boot into Canadian dairy and why?

When journalists don’t understand WTO work they jump to wrong conclusions. The questions Canada faced in the Agriculture Committee were not a geopolitical attack. They were more important than that

By Robert Wolfe and Peter Ungphakorn
POSTED JUNE 23, 2017 | UPDATED JUNE 24, 2017

Agriculture attachés from around the world may be surprised to learn that Vladimir Putin has taken an interest in their work in Geneva and is targeting Canada’s supply-managed dairy industry.

Or maybe they won’t as they realise a huge amount of journalistic licence has been injected into this account of a routine but important meeting at the World Trade Organization (WTO) on June 7 (The Globe and Mail, “Countries pile on in attack of Canada’s dairy regime”, June 18, 2017).

Dairy cow Canada
Canada has faced 156 sets of questions about its dairy policies, in almost every meeting except for a four-year lull

Does the Russian president really think the price of ultra-filtered milk is of such geopolitical significance that he ordered his agriculture officials at the WTO to intervene?

“Whoa. What? Russia — architect of central economic planning in the Soviet era — is lecturing Canada about the evils of supply management?

“That can’t be good.

“That Russian President Vladimir Putin has found common cause with some of Canada’s closest trading partners is a measure of the powerful forces lining up against this country’s embattled dairy industry.”

The Globe & Mail June 18, 2017

What really happened in that June 7 WTO meeting is much less dramatic and far more important than that. Canada should welcome Russia’s intervention, but for completely different reasons.

There were actually two separate issues in the meeting. One was an annual look at how countries are keeping their 2015 promise to scrap export subsidies. Canada still subsidises butter exports, which aroused comment from a number of countries.

But Russia “lecturing Canada about the evils of supply management” was no more withering than: “We’re interested too”, more or less.

(In fact, Russia did do a bit more than that. It joined Canada and other members of the “Cairns Group” of successful agricultural exporters in circulating a paper on export subsidies (pdf). There is no reference to anything related to supply management.)

Canada’s supply management (actually, milk classes) featured separately in 80 questions from New Zealand, Australia and the US. On this, Russia said nothing. Perhaps it should have.

Let’s take a step back. The WTO operates a system of agreements that its member countries have negotiated and signed. One of them is about reforming agricultural trade. WTO committees are where all its members can monitor how well the agreements are being implemented.

The Agriculture Committee does this three or four times a year. Questions and answers are key.

There are lots of them. Since the WTO was created in 1995, Canada alone has submitted 1,131 sets of questions on all agricultural trade issues in all but a couple of the 84 meetings. Canada did not lecture any other WTO member but occasionally asked whether a country’s policy was wise or legal.

In the same period, Canada has faced 156 sets of probing questions about its dairy policies, again in almost every meeting, except for a lull between 2000 and 2004.

And yes, the reason for those questions in both the WTO Agriculture Committee and in other meetings is surprise that a country supposedly in favour of liberalizing farm trade maintains strong protection for dairy. Such questions are not an “attack”, but Canada did have to defend the high import duties and subsidies that protect supply managed products in the stymied Doha Round negotiations.

In the June 7 meeting, the 80 questions Canada faced were grouped into 13 sets, one from New Zealand spread over five pages. Almost all were about Class 7 or other milk classes.

Canada wasn’t idle either. It asked 19 sets of questions, seeking answers from the US, EU, Ukraine, Panama, India and Turkey on a range of issues.

The meaning of questionsBack to top

A lot of these questions are just seeking information: what a new programme does, how a programme works and so on. Some focus on particular policies, such as Canada’s milk classes, because the countries asking the questions — mainly New Zealand, Australia, the US and EU — are worried that these policies are a sneaky way of hiding subsidies.

In the WTO the questions can only really be turned into an “attack” if New Zealand and co believe Canada is subsidising beyond the limits it has agreed. Canada has only ever faced two legal challenges on dairy products, both in 1997 and both involving milk classes (this and this).

This kind of work is crucial if trade negotiations are going to have any meaning. You don’t just wake up, negotiate, sign an agreement and go back to sleep.

The agreement has to be implemented and the countries that negotiated the deal have to be able to see that everyone is honouring it.

This is hard work. For agriculture, all countries have to share information with each other (technically, they “notify the WTO”) on how much they have subsidised each year, what policies they have that might affect prices, production and exports, and what has been happening with imports, particularly if quotas are involved.

Just compiling and sharing the information can be a huge task. Once it’s available it becomes an absolutely essential way for countries to ask each other about the data so they can understand better, to monitor how level the playing field is in agriculture, and for the world at large to do the same.

Treating questions as attacks is therefore about as useful as a teacher complaining about questions from the class. This is about understanding and feedback.

So Russia’s involvement should also be welcomed. Russia is a new WTO member. It only joined in 2012. It’s still learning how the WTO works. The greater the interest it pays to WTO proceedings, the more it will be able to be a responsible WTO member. If it can ask 1,131 questions in the next two decades it will be as good a world trade citizen as Canada.

Who knows? President Putin might even learn something too.


Robert Wolfe is Professor of Policy Studies at Queen’s University in Kingston, Ontario and co-editor of a new IRPP book, Redesigning Canadian Trade Policies for New Global Realities. Follow him @BobWolfeSPS

Updates: June 24, 2017 — added text and links on joint Cairns Group and Russia paper on export subsidies; added clarification that probing questions about Canada’s dairy policies do reflect concern

Photocredits: Public domain CC0 except Holstein cow in Nova Scotia 2015 by Dennis Jarvis, Halifax, Canada CC BY-SA 2.0


UK, EU & WTO — a presentation

A look at the UK, EU and WTO with an eye on Brexit. Includes a brief explanation of the WTO system, a taste of how negotiations work in the WTO, and the implications for the UK (and EU) as they prepare for Brexit and beyond

By Peter Ungphakorn
POSTED MAY 25, 2017 | UPDATED MAY 25, 2017

This page contains a link to download a handout on the UK, EU and WTO as Brexit approaches. It is slightly modified from a presentation given on May 20, 2017.

It was part of a series of lectures on “Policy in Practice”, under the London School of Economics’ Executive Master in Public Administration programme.

Champions of free trade

Presentation cover The presentation can be downloaded as a handout here (pdf).

It is intended as a taster. It does contain a lot of detail, which can be explored further. But the main purpose is to provide a feel for how the detail and the bigger picture relate.

This is what the presentation contains, in three parts on the WTO, WTO negotiations and Brexit:

The WTO - basics

1. The WTO: BasicsBack to top

Negotiations as the starting point. Rights and obligations (reciprocal and non-reciprocal). Space for sound policy-making. Rules and commitments.

WTO negotiations - a taster

2. WTO negotiations: A tasterBack to top

Consensus. Member-driven. The Doha Round. Negotiating coalitions (in agriculture). Concentric circles — when it’s impossible to negotiate properly in a large crowd. More than just an affair between governments: there are also negotiations at home.

Brexit and the WTO - before during and after

3. Brexit and the WTO: Before, during and afterBack to top

UK and EU “schedules” of commitments. What schedules are. How to establish the UK’s and EU’s schedules post-Brexit. The EU’s complex tariff profile. Tariffs (shoes and oranges). Tariff quotas (lamb, mutton). Domestic support for agriculture (trade-distorting). Agricultural export subsidies. Services. The cliff-edge and worse: what if there are no acceptable schedules by Brexit day?

Free trade agreements: UK-EU; UK-other WTO members. WTO rules on free trade agreements. Shallow to deep arrangements.

UK as champions of free trade. Policy choice from liberal to protectionist. Impact on bilateral free trade negotiations. UK positioning in WTO — current policy on agriculture puts it closer to the more protectionist group; handling the WTO agendas on regular work and negotiations.


Recommended reading: Oliver Ilott, Ines Stelk, Jill Rutter: Taking back control of trade policy. Institute for Government, May 17, 2017

Download the presentation as a handout here (pdf).


Updates: None
Photocredits
: See presentation


Questions on Brexit, agriculture, WTO schedules, standards, free trade agreements

Written replies to questions for the inquiry of the UK House of Lords EU Energy and Environment Sub-Committee’s inquiry on ‘Brexit: agriculture’, February 8, 2017

By Peter Ungphakorn
POSTED FEBRUARY 9, 2017 | UPDATED FEBRUARY 9, 2017

On February 8, 2017 the UK House of Lords EU Energy and Environment Sub-Committee’s inquiry on Brexit: agriculture published two sets written replies to questions.

My answers are below. They can also be found on the Parliament website: here (ABR0001) and pdf.

Also published were replies and statements from Christian Häberli of the World Trade Institute, Bern, Switzerland: browse, or pdf

Full coverage including transcripts and videos of the hearings is here.

alanmatthews-josephmcmahon-sub-ctte-7feb2017-from-web-page
Alan Matthews (left) and Joseph McMahon speaking to the House of Lords EU Energy and Enviornment Sub-Committee, February 7, 2017. Click the image to watch the session

THE QUESTIONS

1.    Can the UK unilaterally construct its own WTO Schedule of Commitments in agricultural products after Brexit? If the UK does construct its own Schedule, will this be legally binding on other WTO members, including the EU?
2.    To what extent is it possible to determine the EU-28’s current commitments in agricultural products in the WTO for (a) Tariffs (b) Tariff rate quotas (c) domestic support and (d) export subsidies for agricultural products? What impact might this have on (a) the UK’s negotiations with the EU and (b) the UK’s negotiations with other WTO members?
3.    What, if any, are the legal and political challenges of splitting the EU-28’s WTO Schedule of Commitments on agriculture between the UK and the EU? To what extent can this issue be settled (a) by applying WTO law in dispute settlement proceedings before the WTO panels and/or Appellate Body and (b) by political negotiations between the UK and the EU and between the UK/EU and the other WTO members? Could the ‘Czechoslovakia’ example act as a precedent?
4.    To what extent can the UK restrict the import of agricultural products because they do not meet the same quality and safety standards as those produced in the UK? If the UK adopted a precautionary approach to the import of agricultural products into the UK, to what extent would such an approach be compatible with WTO rules?
5.    Why do free trade agreements rarely include agricultural products? What are the main challenges the UK would face when negotiating new free trade agreements covering agriculture with (a) the EU, (b) the USA, (c) Australia, (d) New Zealand and (e) other WTO members? What are the key lessons learnt by the EU or other WTO members negotiating such FTAs?
6.    Which of the EU’s FTAs with other countries include agriculture? Will the UK be able to negotiate continued access to these agreements after Brexit?

  1. Can the UK unilaterally construct its own WTO Schedule of Commitments in agricultural products after Brexit? If the UK does construct its own Schedule, will this be legally binding on other WTO members, including the EU? Back to top

No, to both questions. First, the UK can and should draft its own schedules of commitments in agricultural products (and all other sectors). But they will not be legally secure until they have been certified by all WTO members — meaning until there are no WTO members with any objection. Once certified, they will be legally binding.

Second, a country’s schedules are not binding on other WTO members. They are commitments that the country has made to the rest of the membership. Other countries have their own schedules.

It is possible to trade without certified schedules. The EU continues to trade even though its goods schedule for the May 1, 2004 enlargement from 15 to 25 members was only certified 12 years later on 1 December 2016. The schedule for further enlargement to 27 and 28 members has not been certified.

The EU appears to operating with de facto schedules, for example revised tariff quotas appear in EU regulations. And it can trade without disruption, apparently because it has talked to key trading partners and adjusted its tariff quotas accordingly. The latest regulation for the lamb and mutton tariff quota states that the quota has been expanded for New Zealand, to accommodate Bulgaria and Romania becoming new EU members (but not yet for Croatia).

In other words, unilaterally creating the UK’s draft schedules without taking on board what other countries say could cause problems. Some negotiation will be needed so that the drafts are made reasonably acceptable to the UK’s trading partners, including the EU. But until the schedules are certified, the UK will be on legally uncertain ground, at best requiring complex legal arguments to defend the schedules’ contents. We don’t know how other countries would react.

  1. To what extent is it possible to determine the EU-28’s current commitments in agricultural products in the WTO for (a) Tariffs (b) Tariff rate quotas (c) domestic support and (d) export subsidies for agricultural products? What impact might this have on (a) the UK’s negotiations with the EU and (b) the UK’s negotiations with other WTO members? Back to top

Strictly speaking, the EU’s legally binding WTO commitments are only its certified schedules, the latest for goods being for the EU-25 (WTO document WT/LET/1220 and attachments available by going to https://docs.wto.org and searching for WT/LET/1220).

This was only certified two months ago (effective from December 1, 2016 but circulated on December 14, 2016). Because it covers 10 new member states, it should be much closer to the schedule for the EU–28 than the one in force until the end of November (for the EU–15).

What about the EU–27 and EU–28? The current situation with the EU’s goods schedule is on the WTO website here: https://www.wto.org/english/tratop_e/schedules_e/goods_schedules_table_e.htm#eec, although at the time of writing this has not been updated to include the certified EU–25 schedule.

The 7th column lists a number of documents used in negotiations for the EU’s enlargement to 27 members, the latest being G/SECRET/32, “currently underway” — presumably referring to the status of negotiations on that draft. Documents in the series G/SECRET/… are so restricted that even WTO Secretariat staff cannot access them, except for a few key people.

There is no mention of any negotiation over the enlargement to 28 members when Croatia joined, which could be a problem when discussing the post-Brexit schedules of the UK and EU with other WTO members.

Before that, the WTO Secretariat’s report for the Trade Policy Review of the EU (the latest review, in document WT/TPR/S/317/Rev.1 of 21 October 2015) said:

The current certified tariff schedule is the EU-15, effective 27 October 2012.[1] The EU’s tariff concessions and agricultural commitments regarding agricultural market access, domestic support, and export subsidies to reflect the enlargement from 15 to 28 member States have not yet been formally agreed in the WTO. The EU submitted its EU-25 schedule for certification on 25 April 2014[2] and has initiated the procedures for the EU-28 schedule (section 3.1.4.1). With regard to the certified EU-25 services schedule, 18 EU member States have ratified the schedule.[3] ”

As an EU member, the UK government ought to have access to the uncertified de facto schedules for the EU-28 both from Brussels (if not London) and any drafts at the WTO (although none appear to be with the WTO at the time of writing). This can be confirmed with government officials who ought to be able to provide better answers than I can on these points.

The public can detect the contents of the de facto schedules, but not always easily. There are two possible sources, both requiring work to compile the contents into one document: the EU’s own regulations, and its notifications to the WTO (under “The Agriculture Committee and official documents”, in the agriculture section of the WTO website, http://www.wto.org/agriculture#work).

  • Tariffs: these should be available from customs authorities, EU Trade or the UK Department of International Trade (bearing in mind applied tariffs can be lower than the legally bound rates). Most of them are unlikely to be very different from the tariffs in the schedule for the EU-15.
  • Tariff rate quotas: each of these should be available in separate EU regulations. They are also available in EU notifications on agricultural tariff quotas, but without the details from the schedules of how the quotas are divided among individual supplying countries.
  • Domestic support: the commitment is only one figure, for total aggregate measurement of support (AMS). The EU reports this in its domestic support notification along with an explanation of how much it has added for each expansion up to 28 members.
  • Export subsidies, also in the EU’s notifications. The latest for marketing year 2014/15 says the commitment is for the EU-25 while the actual reported subsidies are for the EU-28. Since the actual subsidies are considerably less than the limit, this difference is unimportant.

I would assume the UK’s negotiations over its schedules, both with the EU and other countries, ought to be based on the de facto schedules currently in use, because both the EU and the UK should have access to them.

We don’t know yet whether other countries would be willing to negotiate from the de facto pre-Brexit EU-27 schedules (with apparently nothing existing yet for the EU-28), but at this stage there seems to be no indication that they would object. Any that are holding back on certifying the schedules might have some reservations, but we don’t know what their objections are.

  1. What, if any, are the legal and political challenges of splitting the EU-28’s WTO Schedule of Commitments on agriculture between the UK and the EU? To what extent can this issue be settled (a) by applying WTO law in dispute settlement proceedings before the WTO panels and/or Appellate Body and (b) by political negotiations between the UK and the EU and between the UK/EU and the other WTO members? Could the “Czechoslovakia” example act as a precedent?Back to top

The only areas where the UK and EU would split their commitments are tariff quotas (or tariff-rate quotas, TRQs) and agricultural subsidies. Most of the rest of schedules can remain unchanged. For example the UK can simply continue with the thousands of tariff commitments it currently has as an EU member. So my reply focuses on the quotas and subsidies.

I’m not a lawyer and cannot respond definitively to the legal points of (a). I do know that opinion is split. Some lawyers believe the UK can construct its schedules using legal principles and that if other countries object, the UK would probably prevail in any legal dispute. Some other lawyers disagree. The argument seems to be based on the idea that the entire UK schedule is obtained by using criteria based on WTO case law, leading to “rectification” (a more or less technical correction of the UK’s schedule implied in the EU’s schedule).

Many who have first-hand experience of how the WTO works, beyond the jurisprudence of dispute settlement cases, doubt whether other WTO members would accept the UK’s legal arguments, and whether the legalistic approach would be enough. I share that view.

For example, to account for current UK-EU trade in sheep and goat meat, almost 100,000 tonnes would be added to the combined UK and EU-27 tariff quota, around 33% more than its present size. That seems to stretch the idea of “rectification” (a technical correction) too far.  It’s an adjustment arising from terminating a free trade deal (along with withdrawal from the rest of the single market), and introduced in order to take into account the volume of that duty-free trade between the UK and the EU.

Judging by recent experience in WTO negotiations, there may even be bargaining over which representative period to use as a basis for calculations. Possible options include averages over the last three or five years, including or excluding the highest and lowest numbers (an “Olympic average” excludes extreme points), and so on. I look at all of these points in detail here: https://tradebetablog.wordpress.com/2017/01/06/limits-of-possibility/

Generally, therefore, the UK and EU quotas should be settled by negotiation, where both political and commercial interests would play a part. Legal precedent would be a useful starting point, but probably not the conclusion. This would minimise any resentment and any trade disruption that might result from it.

Experts with inside experience of these processes have told me the Czech-Slovak split is not a suitable model. The split was under the General Agreement on Tariffs and Trade (GATT, the WTO’s predecessor), and before the agriculture and services agreements were added to the multilateral trading system. The two countries swiftly set up a customs union, meaning little changed in goods trade between the two and between them and the rest of the world. As a result, the rest of the GATT membership had few problems with this, at a time when they also wanted to ease former Soviet bloc countries into the multilateral trading system. The two then became EU members. The sizes of the UK and EU and the scale of the tasks they face are quite different.

  1. To what extent can the UK restrict the import of agricultural products because they do not meet the same quality and safety standards as those produced in the UK? If the UK adopted a precautionary approach to the import of agricultural products into the UK, to what extent would such an approach be compatible with WTO rules? Back to top

No WTO member can restrict imports purely on quality grounds. The WTO has criteria for requiring imports to meet certain safety, health and other standards. They are set out in the WTO agreements on Sanitary and Phytosanitary measures (SPS, dealing with food safety and animal and plant health), and Technical Barriers to Trade (TBT, other standards, regulations, labelling, etc).

Broadly, the criteria include having to provide scientific evidence or a risk assessment that the standard or measure is necessary for health or safety, or adopting an internationally-recognised standard. (WTO members have also agreed non-binding codes of good regulatory practice.) So long as the standards meet the legally binding criteria the UK can (and does, through the EU) require imports to meet the same standards as its own products. It cannot set stricter standards on imports than on domestically-produced products. This is known as applying “national treatment”.

WTO agreements don’t mention a “precautionary principle” specifically. However, some experts see article 5.7 of the SPS Agreement as a means of adopting the principle at least temporarily until the government obtains “additional information necessary for a more objective assessment of risk” and reviews the measure “within a reasonable period of time”.

  1. Why do free trade agreements rarely include agricultural products? What are the main challenges the UK would face when negotiating new free trade agreements covering agriculture with (a) the EU, (b) the USA, (c) Australia, (d) New Zealand and (e) other WTO members? What are the key lessons learnt by the EU or other WTO members negotiating such FTAs?Back to top

Many if not all free trade agreements actually include agricultural products on way or another, but they may have exemptions or delays on scrapping import duty on these products.

Agriculture is a particularly sensitive sector for various reasons: politics, culture, concerns about rural society, food security, and so on. It is often one of the last areas to be liberalised whether multilaterally or through free trade agreements. The most sensitive products have ended up with tariff quotas using prohibitively high out-of-quota tariffs. Some free trade agreements also have tariff quotas.

In general, the challenge the UK will face with all of those countries is to strike a balance between:

  • the demand for support and protection from the UK’s own farmers
  • the demand from UK consumers and processors for cheaper food and raw materials
  • the demand from exporters in the other countries for access to the UK market
  • the trade-off with UK producers in other sectors (such as services) wanting access to the other countries’ markets, which might entail opening up UK agriculture

For example, the UK might be willing to give Australia a larger quota for meat or dairy products in return for Australia allowing better access for British financial services or protecting British geographical indications such as Melton Mowbray pies or Scotch whisky. Some geographical indications are covered by bilateral agreements between the EU and the US, Australia and others. They mainly deal with wines and spirits since “new world” producers resist tightening protection for food and other products. It’s unclear whether those agreements will automatically apply to the UK. The full list is here: https://ec.europa.eu/agriculture/gi-international_en. Some of the EU’s free trade agreements also include chapters on geographical indications, for example the one with South Korea.

The range of sensitive agricultural products is extensive: dairy, meat, fruit and vegetables, various cereals, sugar, and so on. Canada (not listed in the question) also has interests and sensitivities in the dairy sector.

Large books have been written about the lessons learnt. Some of the issues most frequently mentioned in current conversations include:

  • Agreement can be held up by complex ratification processes in federal systems (the Walloon parliament on the Canada-EU agreement, for example) or where parliaments are strong (the Trans Pacific Partnership was under threat in the US Congress even before President Trump pulled the plug)
  • Many agreements include investor-state dispute settlement (ISDS) provisions, which are deeply unpopular because, rightly or wrongly, they are seen to give large companies power over governments. Some experts think the mega-regionals (TPP and TTIP) would be easier to conclude without ISDS. The EU is proposing an alternative multilateral arbitration system, but it’s unclear whether this will be more acceptable
  • When negotiations are secret, they are an easy target. To gain public support, they should be more transparent, while allowing new ideas to be floated in confidence until they become more established.
    (To declare an interest: I worked on information at the WTO Secretariat, where I think we were reasonably successful in striking a balance in the Doha Round negotiations. For example all the chairs’ drafts and other texts have been published as they have evolved, and the WTO website contains broad-brush accounts of the negotiating sessions, along with many of the members’ proposals. After the protests in Seattle in 1999, the WTO was rarely accused of secrecy, unlike with the negotiations under its predecessor, GATT.)

  1. Which of the EU’s FTAs with other countries include agriculture? Will the UK be able to negotiate continued access to these agreements after Brexit?Back to top

The answer is more complex than the question suggests. Most if not all EU FTAs include agriculture in one way or another, including exemptions for specific products or lengthy phase-in periods, and various provisions on rules as well as tariffs. Experts who have studied the many agreements in detail may be able to answer better than I can.

On its website, http://ec.europa.eu/trade/policy/countries-and-regions/agreements/, the EU lists 44 agreements currently in place (including the one with Canada, which has been signed but still needs final parliamentary approval). Some agreements cover goods alone, others both goods and services. Here are two examples:

  • The EU-South Korea FTA lists all agricultural products, with tariffs generally at zero immediately or gradually over periods of up to 21 years, depending on the product and whether it is imported into the EU or South Korea. In addition, some products escape tariff reductions completely, such as rice in both markets.
  • The customs union with Turkey includes a section on agriculture with the “common objective to move towards the free movement of agricultural products” and even to have a common agricultural policy, under a 22-year timetable in an “additional protocol” originally signed in 1970 but still not yet achieved.

As far as I can see, there is nothing to stop the UK negotiating continued access to these agreements provided the FTA partners also agree. Whether those negotiations lead to identical terms, or something different, depends on the negotiations. For some, the criteria will clearly be different. It’s hard to see the present EU agreements with Iceland and Norway being replicated with the UK, not least since they include the four freedoms of movement and contributions to the EU budget.

I have not seen any legal argument suggesting transferring the agreements to the UK will be automatic or a legal right.

Perhaps the most important question is what happens to the UK’s trade under the EU’s FTAs while the UK’s new FTA negotiations have not been concluded.

For all of these points, take for example an FTA between the UK and South Korea. This could be based on the EU-South Korea FTA, a 1,432-page document which includes the following:

  • around 70 pages of detailed terms, conditions and regulations for trade in goods and services, and intellectual property rights
  • well over 1,000 pages of commitments by the two sides on goods, including a number of tariff quotas
  • annexes on regulatory convergence and conformity on electronics, motor vehicles and parts, and pharmaceutical products and medical devices
  • an annex on agricultural safeguards. These are temporary tariff increases to deal with import surges — the present trigger levels are for imports from the EU, which would have to be adapted if separate figures are to be established for the UK and EU27
  • around 250 pages of commitments on services
  • a couple of pages on public procurement and build-operate-transfer contracts
  • about 25 pages on geographical indications for food (none of it British) as well as wines and spirits
  • institutional arrangements, including arbitration
  • other annexes containing, for example, definitions or criteria

Creating a UK version of this agreement has many similarities with creating the UK’s WTO schedules out of the EU’s plus any changes the UK and South Korea might want to make to the regulations.

That is just one of 44 agreements, but perhaps one of the most detailed. To ensure continuity, the UK should reach agreement with all of the EU’s 44 FTA partners by the time it leaves the EU. That sounds like extremely hard work, since during the same 2-year period the UK will already be negotiating with the EU, potential new FTA partners such as the US, Australia, New Zealand, India and others, and with all WTO members over its schedules.


EU-South Korea FTA:  http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2011:127:FULL&from=EN

EU-Turkey Customs Union:  http://www.avrupa.info.tr/fileadmin/Content/Downloads/PDF/Custom_Union_des_ENG.pdf

EU-Turkey Additional Protocol: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A21970A1123(01)

2 February 2017


[1] WTO document WT/Let/868, 30 October 2012.
[2] WTO document G/MA/TAR/RS/357, 25 April 2014.
[3] WTO document S/C/M/111, 21 November 2012.


Updates: none so far
Photocredit
: Screenshot from UK Parliament TV


Why UK is already under WTO rules, and why that matters for Brexit

If we want to understand the UK’s trade relations with the EU after Brexit we cannot say that without a UK-EU deal they will “fall back on WTO rules”

By Peter Ungphakorn
POSTED FEBRUARY 8, 2017 | UPDATED FEBRUARY 15, 2017

Now that the UK is about to start negotiating its departure from the European Union, it’s important to understand the meaning of World Trade Organization (WTO) “rules”.

Why? Because people are talking about WTO rules as if they only kick in if the UK and EU fail to reach agreement on their future trade relationship — that only then would the UK and EU “fall back on WTO rules”. They are wrong.

The truth is: WTO rules already apply to the UK’s present trade relationship with the EU.

They will also apply to any future trade relationship between the two, whether there is a deal of some kind, or no deal at all — so long as the UK and the EU and its member states are members of the WTO.

WTO offices lakeside
WTO offices, Geneva: WTO rules affecting the UK and EU are wide-ranging
Falling back on WTO “terms”Back to top

So what will the UK and EU fall back on if they cannot agree and the UK still leaves the EU?

They will fall back on commitments they have agreed in the WTO for trade with all other WTO members — except for those with whom they have a special (or “preferential”) trade arrangement, such as a free trade agreement.

This is sometimes called “WTO terms”, a better shorthand description than “WTO rules”. Some speak of “WTO tariffs”, which is more precise but doesn’t include services and agricultural subsidies.

Without a special deal between the UK and EU, trade between them will face import duties according to their WTO commitments for normal trade (without any free trade agreement).

The import duties (or “tariffs”) they charge on each other’s products will have to be the same as they charge on products from all WTO members except partners in free trade agreements. WTO non-discrimination rules would apply.

Limited amounts of some products — mainly agricultural — will be traded at low tariffs, with volumes outside those quantities facing much higher tariffs, so high that it might be impossible to import them. These are called tariff quotas.

British and European service industries are now relatively free to trade across the EU or to set up in other EU countries. Without a special deal, services trade between the UK and EU will revert to the much less liberal commitments they have made in the WTO on opening their markets to foreign services.

The commitments are explained in more detail here.

WTO Public Forum 2010
WTO: to understand it is to understand what will govern UK-EU trade relations
UK-EU relations and WTO “rules”, now and in the futureBack to top

Even now, while the UK is a member of the EU and its single market, it is governed by WTO rules. These mainly deal with how the EU and its member states relate to the rest of the world. They also discipline how the single market and customs union themselves are set up.

The WTO rules affecting the UK and EU cover a large number of issues. They include:

WTO rules are actually negotiated agreements. The full package is here.

The EU’s member states have agreed to go beyond those WTO rules for much of their trade relations. Therefore when disputes arise between the member states, they are handled within the EU, for example if the UK objects to French restrictions over foot and mouth disease.

After Brexit, the UK and EU aim to have some kind of free trade agreement. This will have to come under WTO rules including one that says a free trade agreement in goods or a customs union must cover substantially all trade.

Another says an agreement in services has to have substantial sectoral coverage.

Even though they are both members of the North American Free Trade Agreement, the US and Canada have taken some disputes to both the WTO and NAFTA

In other words, WTO rules will prevent the UK and EU from having a free trade agreement only for the auto industry, aerospace and banking.

That long list of all the areas covered by WTO rules will also govern UK-EU relationships even if they have a comprehensive agreement.

Depending on the type of arbitration set out in their agreement, they could also find themselves facing each other at the WTO dispute settlement court.

The US and Canada have taken each other to WTO dispute settlement even though they have an arbitration mechanism within their North America Free Trade Agreement (NAFTA). Some cases have been taken to both the WTO and NAFTA.

Failure to understand this would mean a failure to understand the future UK-EU trade relationship.

marrakesh-signing-pu_7_tilt-adjusted_cropped
The complete deal: WTO agreements at the signing ceremony, Marrakesh, 1994. The rule book is on the far left. The rest are more than 20,000 pages of the original 123 members’ individual commitments
Finally, WTO rights and obligationsBack to top

To complete the picture, the WTO is a system of negotiated multilateral trade agreements. The whole package must now run close to 30,000 pages. It consists of two parts.

First is a rule book of about 500 pages. Among the key principles running through its wide-ranging coverage is non-discrimination in trade — between a country’s trading partners, and between foreign companies, products and people and its own.

The remaining 20 to 30,000 pages are the lists of commitments made by each of the WTO’s 164 members, the limits they have agreed on tariffs on tens of thousands of products and on agricultural subsidies, and the minimum market opening they have promised for various services.

Under those agreements, WTO members have rights (for example not to face discrimination, and to have access to other countries’ markets) and obligations (for example not to discriminate, or to keep markets open at least as much as they have committed).

The agreements come from negotiations. The WTO dispute settlement system is about whether those agreements are being implemented as promised or how they should be interpreted. All decisions are taken by the membership, almost always by consensus (meaning no one objects).

The clichés are: the WTO operates a rules-based trading system; and it is member-driven.


Updates: Februay 15, 2017 — adding link to WTO legal texts
Photo credits: WTO via Flickr; Marrakesh signing by Peter Ungphakorn


12 years on, EU’s certified WTO goods commitments now up to date to 2004

Just before Christmas and almost unnoticed, the WTO circulated the EU’s “schedules” of commitments on goods (not services) to reflect its 2004 expansion from 15 to 25 members. They are also the UK’s current official WTO commitments. What are they?

By Peter Ungphakorn
POSTED FEBRUARY 4, 2017 | UPDATED OCTOBER 22, 2017

UPDATE: on October 17, 2017, the EU circulated revised goods “schedules” for all its 28 members. If no WTO member objects these could be certified in three months. Apart from accounting for the expansion to 28, the revisions include other modifications, including ending agricultural export subsidies.

For the first time since the WTO was set up in 1995, the EU will then be up-to-date with its goods schedules (but not services), until the UK leaves.

The documents using code number G/MA/TAR/RS/506 are visibly listed on the WTO website but remain unavailable to the public until they are certified.

Some pretty important documents were issued in Geneva by the World Trade Organization (WTO) on December 14, 2016 as Europe started to close down for Christmas and the New Year. They have flown under the radar.

Twelve years after the EU expanded from 15 to 25 members on 1 May 2004, it now has revised commitments on tariffs, tariff quotas and agricultural subsidies to take into account the addition of those 10 new members (you can download them below).

Contract signing CC0

JUMP TO

What is a WTO schedule?
Goods
Services
DOWNLOAD: the EU–25’s goods schedules
The UK’s post-Brexit goods schedule
EU enlargements over the years

Because the UK is an EU member, its commitments are bundled with the EU’s, so these are also the UK’s latest certified commitments.

For the UK, this means that re-establishing its own post-Brexit commitments in the WTO can be based on EU commitments that are closer to what they should be for the full 28-member union.

Next up: accounting for Bulgaria and Romania, which joined in 2007, to become EU–27, then Croatia (2013) for EU–28; and then subtracting the UK to go back to EU–27.

What is a WTO schedule?Back to top

To recap: a WTO “schedule” is essentially a negotiated commitment on how a WTO member agrees to curb protectionist policies. Countries have schedules for goods (including agriculture) and services.

They are called “schedules” because when a negotiation is concluded, the promised changes are phased in according to timetables, which are also set out in the schedules.

In other words, schedules are tools for reducing tariff protection, agricultural subsidies and barriers to trade in services.

GoodsBack to top

This is what a goods schedule contains:

For general import duties (or “tariffs”) on goods, the schedule sets legally binding ceilings (the “bound rates” of tariffs). The country is free to charge a duty (an “applied rate”) below the ceiling for that product, but not to go above it without renegotiating and offering compensation. These tariffs are known as “most-favoured nation” tariffs (MFN, essentially non-preferential equal treatment for products from all sources). They are also the legally bound rates for quantities outside tariff quotas.

eu-25-mutton-lamb-tariff-in-schedule
EU–25’s agreed “MFN” tariffs for mutton and lamb. Applies outside the tariff quota. Click the image to see it full size

For tariff quotas (or tariff-rate quotas, TRQs), the schedule sets out the quantity that can be imported at a lower duty or duty-free. The country can set a lower in-quota duty or expand the eligible quantity beyond the legally bound amount. But if it wants to raise the in-quota duty above the legally bound rate, or reduce the eligible quantity to less than the legally bound amount, again it has to renegotiate and offer compensation.

EU-25 TRQ
EU–25’s agreed tariff quota for mutton and lamb. Duty-free inside the quota. Click the image to see it full size

For agricultural domestic support — subsidies given to the sector within the country — the schedule has an agreed ceiling on the total amount of “trade-distorting” support  provided to farmers, a figure known as the “aggregate measurement of support” (AMS, sometimes called “Amber Box”).

Support is considered to distort trade if it has an impact on prices or production quantities. More details are here. Most countries have nothing on AMS in their schedules because they were not major subsidisers when the support limits were negotiated in the 1980s and 1990s. Some (such as the EU, US and others) are allowed AMS support, but had to reduce it as part of the negotiated liberalisation.

All countries can still use a conceptually small amount of trade-distorting support, known as “de minimis”. For developed countries, this is 5% of the value of production for developed countries (either for specific products or for agriculture generally), 10% for developing countries, and 8.5% for China. Although “de minimis” support is of the same type as AMS, it is not counted against the AMS limits for those countries that have them.

EU–25 AMS
EU–25’s agreed limit on trade-distorting domestic support. Click the image to see it full size

For agricultural export subsidies, the schedules also set legally bound limits on both the amount of money given in subsidy and the export quantities that are subsidised.

More information: on tariffs and disciplines in agriculture

EU–25 ceilings on export subsidies
EU–25’s agreeed limits on export subsidies. Click the image to see it full size

ServicesBack to top

WTO members also have separate schedules on services. These are complicated documents listing when a county will allow foreign services to enter its markets, each of the many types of services (banking, insurance, telecommunications, tourism, professional, and so on) including commitments on each of four “modes”:

  • Mode 1 “cross-border supply” — services supplied from one country to another (e.g. international telephone calls)
  • Mode 2 “consumption abroad” — consumers or firms making use of a service in another country (e.g. tourism
  • Mode 3 “commercial presence” a foreign company setting up subsidiaries or branches to provide services in another country (e.g. foreign banks setting up operations in a country
  • Mode 4 “presence of natural persons” — individuals travelling from their own country to supply services in another (e.g. fashion models or consultants)

More information: on services

Certified schedule

The EU–25’s goods schedules — downloadBack to top

The WTO document code number for the EU–25’s goods schedule is WT/LET/1220. This actually consists of covering letters and four attachments. They can be downloaded from the list below (the files are correct at the time of writing), or by going to WTO DocsOnline, https://docs.wto.org, and searching for WT/LET/1220:

  • Cover letters (pdf)
  • Agricultural tariffs, tariff quotas, processed agricultural products (PAPs) and the banana agreement (pdf or Excel)
  • Non-agricultural tariffs and tariff quotas (pdf). Also “mdb” database format, downloadable from WTO DocsOnline (above). I have created an Excel file from the mdb file. (NAMA = non-agricultural market access)
  • Duty-free trade in pharmaceutical products (pdf or Excel)
  • Agricultural subsidies, including an agreement on oilseeds (pdf or Excel)

The UK’s post-Brexit goods scheduleBack to top

Finally, the implications for extracting the UK’s goods schedule from the EU’s are discussed elsewhere in this blog: agricultural tariffs, agricultural tariff quotas, processed agricultural products, extracting the UK’s schedule. See also this free-to-view AgraEurope article.


Back to top

EU ENLARGEMENTS OVER THE YEARS

January 1, 1958 (under GATT) — 6 founder members
1. Belgium
2. Germany
3. France
4. Italy
5. Luxembourg
6. Netherlands

January 1, 1973 — 3 new members
7. Denmark
8. Ireland
9. United Kingdom

January 1, 1981 — 1 new member
10. Greece

January 1, 1986 — 2 new members
11. Spain
12. Portugal

January 1, 1995 (WTO created) — 3 new members
13. Austria
14. Finland
15. Sweden

May 1, 2004 — 10 new members
16. Czech Republic
17. Estonia
18. Cyprus
19. Latvia
20. Lithuania
21. Hungary
22. Malta
23. Poland
24. Slovenia
25. Slovakia

January 1, 2007 — 2 new members
26. Bulgaria
27. Romania

July 1, 2013 — 1 new member
28. Croatia

(More details here)


Updates:
February 4, 2017 — removed incorrect information on EU committing zero export subsidies
February 5, 2017 — added screenshots from the EU–25’s goods schedule
October 22, 2017 — update on EU–28 goods schedule

Photo credits:
♦ Public domain/Creative Commons CC0 via pexels.com/pixabay.com