What’s really happening on tariff quotas and Britain’s WTO commitments?

Just as tariff quotas are complex and misunderstood, the same applies to the news that pops up from time to time of what’s happening to the UK’s quotas in its post-Brexit WTO commitments

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This replaces a 2017 article on tariff quotas, originally the second part of a pair of primers on the UK, its WTO membership, and its WTO schedules of commitments. The first part on the UK’s WTO membership is here. The original second part is archived here.

By Peter Ungphakorn
POSTED SEPTEMBER 12, 2018 | UPDATED DECEMBER 14, 2018

Since autumn 2017, news has appeared every few months about the UK’s proposed World Trade Organization (WTO) commitments and the objections of other countries. Some have claimed this is a failure of London’s Brexit policy.

The latest round of headlines spoke of plans “in tatters” or “hitting the buffers”, “protests” by other countries, and even a Kremlin plot.

They are wrong, at least for now. What exactly has been happening? And what does it mean?

Room W, WTO
A founder and still a member: the UK has always had a seat at the WTO, even if the EU speaks for it

RECAPBack to top

A reminder: the UK is and will continue to be a WTO member But it will have to work with other countries on its WTO commitments (known as “schedules”) on tariff ceilings, minimum sizes and maximum tariffs for tariff quotas, limits on agricultural subsidies, and opening its markets for services and government procurement.

Right now, these are part of a single set of commitments for the 28 present EU members. When the UK leaves the EU, it will need its own commitments, which will be separate from those of the EU–27.

Government procurementBack to top

JUMP TO
RECAP

Government procurement
Services
Goods

DIFFERENT APPROACHES?
The UK
The EU

IN THE WTO
Joint UK-EU approach
Data anomalies
Bigger problem
Legality, politics and uncertainty
What happened in October 2018?

SEE ALSO
UK, EU, WTO, Brexit primer — WTO membership (2017)
A real beginners’ guide to tariff-rate quotas (TRQs) and the WTO (2018)
Comments on the EU’s (and UK’s) proposed modified tariff quotas (2018)
Archived: UK, EU, WTO, Brexit primer — 2. Tariff quotas
(2017)
The limits of ‘possibility’: Splitting the lamb-mutton quota for the UK
(2017)
The Hilton beef quota: a taste of what post-Brexit UK faces in the WTO (2016)

This is the only agreement where the UK has to re-apply (to “acceded”).

The Government Procurement Agreement is only signed by some WTO members (it’s known as a “plurilateral” agreement), and importantly, the EU signed on behalf of all its member states — the EU member states did not sign individually, unlike with all other WTO agreements.

The UK’s accession is underway.

It has submitted the necessary documents and is answering a series of written questions from those WTO members that have signed the agreement. This could take some time just because of the number of questions and the amount of information and clarification that members want.

But it is not a full-blown negotiation since the UK wants to leave its commitments unchanged in practice. Other members are said to be happy with that so long as, for example, references to EU are converted appropriately to the UK.

The main demand is for the list of government agencies open to international competition in procurement to be updated — some old agencies have disappeared or been merged, new ones have been created.

On November 27, 2018, the WTO reported that signatories to the Government Procurement Agreement had approved in principle the UK’s offer of commitments, with the aim of securing an official decision in February 2019. After that the British Parliament would have to ratify the agreement.

The EU meanwhile, won’t have to make any changes except to delete the lists of British government agencies whose purchases are open to international competition, and any other references to British terms.

ServicesBack to top

Extracting the UK’s services commitments from those of the EU’s is also said to be relatively straightforward in principle. But adapting and checking the detail will be more time-consuming than with government procurement because of the wide range of services involved and the complexity of the commitments.

On December 3 (2018) the UK finally circulated its draft services schedules in the WTO, 10 months after if first handed out drafts unofficially to members in February (as reported by Reuters at the time).

This kicked off a period of at least 90 days for the schedules to be certified if the process is trouble-free — 45 days for countries to raise objections and another 45 to sort out reservations. Failing that WTO procedures allow for arbitration, which would need more time and take the process beyond the March 29, 2019 Brexit day, although sources said this would be covered by a transition period if the UK-EU Withdrawal Agreement passes.

And again, the EU will only have to delete references to the UK and the commitments the UK made.

GoodsBack to top

The goods schedule covers tariffs, tariff quotas and other commitments related to tariffs (particularly agricultural “safeguard” tariffs), and agricultural subsidies. Much of this is straightforward, again with some time needed to deal with the detail. It’s the tariff quotas that will have to be negotiated.

The rest of this piece deals with the goods schedule.

Has anyone told Liam Fox? The UK is taking “replication” to extremes, even copying tariffs in euros
Has anyone told Liam Fox? The UK is even copying tariffs in euros, which might be needed for a UK-EU customs union such as in a transition (click the image to see it full size)

DIFFERENT APPROACHES?Back to top

Much has been made of the different approaches of the UK and EU, but the reason for the difference is not always understood.

The UK wants to minimise any negotiations it might face in the WTO, and to play down the obstacles. So it stresses that it is “replicating” the commitments it has through the EU. The EU is going directly to negotiations to “modify” its commitments.

That’s not as contradictory as it sounds. The main reason for the difference is that Britain and the EU are doing different things, but for the time being they are doing them together.

The UKBack to top

KEY DATES

2017

  • September — news leaks of a joint UK-EU approach on tariff quotas
  • September 26 — seven WTO ambassadors pre-empt joint UK-EU letter
  • October 11UK-EU letter on joint position
  • October 16–20 — first round of talks. UK-EU explain joint position, show data

2018

The UK is submitting an entire goods schedule, and to repeat, that covers tariffs, tariff quotas, agricultural subsidies and some other issues such as safeguards.

The document is 715 pages long. As we’ll see most of that is likely to be accepted. Only about 25 pages will be up for negotiation, about 3.5% of the document.

Britain says it will stick to the EU’s tariff commitments, which are currently its own too, as an EU member.

So if the EU has an 8% maximum tariff for some kinds of shoes, Britain will keep that 8%.

Its draft schedule literally copies and pastes all the tariffs from the EU’s goods schedule.

They cover about 685 pages of the 715.

Even where an EU tariff is expressed in euros (per tonne or whatever quantity), Britain has made no attempt to convert these into pounds.

So the regular tariffs should face few or no objections.

Few Brexiters have noticed or commented on the fact that the UK’s tariff commitments in the WTO after Brexit are still going to be in an EU currency.

Why? Keeping tariffs in euros means the schedule can be agreed more quickly, without haggling over an appropriate exchange rate.

It’s also practical if the UK and EU are in a customs union, one of the possibilities for the transition from Brexit to a future relationship.

For agricultural subsidies there are only two key numbers. One is zero — both the UK and EU committed to scrapping export subsidies. Other members will accept this because it’s a WTO deal from 2015 they all agreed to.

The other is the domestic support entitlement. Here the committed ceiling across the EU is much higher than the actual support given to farmers — we are talking about “trade-distorting” support which has a direct impact on prices and production, not broader support that is not linked to them.

There are no signs that Britain will suddenly become the world champion trade-distorting agricultural subsidiser, which would be totally out of character. Therefore, the discussion with other WTO members, about how much of that ceiling should be given to the UK, will largely be to ensure that the calculation is technically and legally acceptable. It’s unlikely to be about political or commercial interest.

The UK has proposed a trade-distorting support limit of €5,914.1 million (basing the calculation on the original entitlement for the EU–12 that negotiated the limit in the 1980s and 90s). The EU’s limit is €72.4 billion. Its actual support is currently about €6 billion.

That leaves 100 or so tariff quotas (the EU counts 124 on agricultural products and 18 on others). And here, the UK has admitted it’s likely to have to negotiate with other WTO members. They are on 25 pages out of the 715-page document.

On June 12, 2018, Greg Hands, at that time a minister in the International Trade Department, wrote to the chair of the House of Commons European Scrutiny Committee:

“Should it be necessary, the UK may then move on to a second stage, and open our own […] negotiations, on a UK-specific goods schedule and tightly constrained to residual specific tariff rate quota lines where rectification with our partners has not been finalised.”

The nuances might be different, but in practice that’s what the EU intends too.

The EUBack to top

For its part, Brussels is only submitting revised tariff quotas. It does not have to touch its WTO commitments on tariffs — the UK’s departure has no effect on them.

It does not have to reduce its entitlement to support farm prices and incomes, although other WTO members might not agree — they could demand a lower entitlement since the EU would be smaller.

The EU’s document is only 16 pages of tariff quotas (excluding accompanying data).

That’s why the British and EU approaches look different. But on the key question of tariff quotas they are not, and they are actually closely linked.

Eggs CC0
Out of a hat? With no imports in 2013–15, the EU–27’s quota of 114,669 eggs comes from borrowing data from other tariff quotas (Click the image to see it full size)

IN THE WTO

Joint UK-EU approachBack to top

From the start, Britain and the EU announced a joint approach on tariff quotas. They would split the present quotas for the EU–28 according to the proportions of imports going to the UK and to the EU within those quotas. This was announced in a letter from their ambassadors to their WTO counterparts, published on October 11, 2017.

WTO PROCEDURE

Politically, the British government says it is “replicating” the EU–28’s present commitments, suggesting copying and pasting, or “rolling over” (another favourite phrase) those commitments.

Officially, it is submitting its schedules for “rectification”, a quick and not necessarily dirty procedure in the WTO, using a procedure from 1980. Rectification is for technical corrections, for example when the code numbers identifying products change, as they do every few years. Revised schedules are submitted with the new code numbers, WTO members take a quick look, usually they raise no objections, and the revised schedules are certified after three months.

Usually. Not always.

Modification” is a different matter. This is when WTO members actually change the content of their commitments. The EU has modified its goods schedule each time it expanded to include new members. Its latest certified goods schedule is for when it expanded to 25 members. The one that includes Bulgaria, Romania and Croatia still hasn’t been certified. Presumably at least one WTO member has objections.

WTO rules say modification must allow negotiation. They grant some countries the right to negotiate, including key suppliers and those in the talks that led to the original commitment.
It’s clear that in practice tariff quotas come under the “modification” rule for both the UK and EU, whatever London says.

For example, the present EU–28 tariff quota for butter from New Zealand is 74,693 tonnes per year. According to EU data, 63.2% of imports through the quota ended up in the EU–27, and 36.8% went to the UK.

Those percentages are used to split the quota. So the quota in the proposed UK schedule is 27,516 tonnes, and the revised number in the EU–27’s schedule is 47,177 tonnes. The sum of those two numbers is the original 74,693 tonnes.

The fact that the UK and EU–27 quotas add up to the original EU–28 quota is significant. The EU has already agreed to negotiate because it is modifying its commitment. So if it negotiates with New Zealand and ends up with a different figure, the UK’s quota would automatically change too, unless the joint approach is dropped. The UK would almost certainly want to be part of that negotiation.

Hypothetically, it’s possible that New Zealand and the EU agree to a 50,000-tonne quota for the EU–27.

Under the joint approach, that would imply cutting the UK share to 24,693 tonnes. The UK would have no problem with that. It can always apply a larger tariff-quota than its commitment in the WTO.

But New Zealand might insist the UK’s commitment should be no smaller than 27,516 tonnes. If the UK accepts that, the two quotas would add up to more than the original for the EU–28.

Data anomaliesBack to top

There are a number of problems with this approach. The first is data.

Those calculations are based on data in an EU database that even member states cannot access. Britain cannot. Nor can Germany, France or anyone else. The EU has released the relevant figures for the calculation, and nothing more — only for 2013–15, the three years before the Brexit referendum, which the UK and EU prefer.

WHERE ARE THE NUMBERS FROM?

When there no imports through the quota, we are told this about where the proposed shares come from:

  • To apportion the TRQs, the UK and EU have used licence data for those TRQs managed by licences and EU-level customs authority data for first-come first-served TRQs. This data provides the best available picture of TRQ use and trade flows.
  • Unused TRQs are apportioned based on an alternative usage ratio identified in comparable trade. If a WTO TRQ exists for the same products, or the unused TRQ is a sub-allocated quota then the usage data of the comparable TRQ is applied to the unused (sub-allocated) TRQ.
  • Where the unused quota is a standalone quota, the UK share of overall EU28 imports in the tariff lines of the TRQ is used to apportion the TRQ. For the specific case of the ACP sugar quota the usage share is based on import licenses for the overall TRQ.
  • This approach is in line with accepted WTO practices and rules. It will maintain existing levels of concessions and maintain market access at the same level into the UK and EU27.

Other countries want to see figures for years before and after that to check whether the 3-year period is typical. So far, the EU has declined to release the figures. The UK and EU have simply invited the other countries to submit their own data, but that would require them to have a good knowledge of what happens outside their own markets, in the EU.

And then, there are a number of anomalies. For example, the present EU tariff quota for poultry eggs in shells, for consumption, is 136,000 tonnes.

In 2013–15 total imports through the quota were a nice egg-shaped zero.

None imported into the UK; none into the EU–27. And yet, a figure of 84.9% seems to have been pulled out of a hat for the EU–27 along with a post-Brexit quota of 114,669 tonnes, 20,331 tonnes for the UK — actually the proposed shares come from imports of the same or similar products through their tariff quotas, or from imports of all tariff quotas combined (see box).

Eggs are not the only products where there were no imports at all.

And then there’s Australian cheddar.  In 2013–2015 none of that went to the UK. So 100% of the 3,711-tonne quota will go the EU–27. Australian cheddar will not have tariff-quota access to Britain, unless the policy changes.

Again, there are other products in a similar situation with 100% of the present quota either becoming UK’s or EU–27’s.

Bigger problemBack to top

All of this suggests a lot of talking will be needed before the schedules are certified. And there’s an even bigger problem.

THE WTO PROPOSALS

The four papers that the UK and EU circulated in the WTO in July 2018:

(These leaked documents were obtained by Bryce Baschuk of BNA Bloomberg)

Even before the joint UK-EU letter was circulated to WTO members, a number of countries got wind of the plan and responded with their own letter opposing the joint approach.

Argentina, Brazil, Canada, New Zealand, Thailand, the US, and Uruguay wrote to the UK and EU ambassadors in Geneva:

“We are aware of media reports suggesting the possibility of a bilateral agreement between the United Kingdom and the European Union 27 countries about splitting Tariff Rate Quotas (TRQs) based on historical averages. We would like to record that such an outcome would not be consistent with the principle of leaving other World Trade Organization Members no worse off, nor fully honour the existing access commitment. We cannot accept such an agreement.”

Briefly their argument is that the straight split would decrease the value of their present access to the EU–28 market. At the moment they can choose to export to Britain, or Sweden, or Greece, or Germany, wherever the price is better and the deal more profitable at any particular moment.

Once the tariff quotas are split, that flexibility is lost and they may not be able to make the most profitable deal.

A number of possible solutions have been suggested. One is for the UK and EU to continue to use single quotas for the EU–28 even after Brexit. This would be automatic if the UK was in a customs union with the EU (and that may happen in the post-Brexit transition period). Or it could be through a customs agreement between the EU and EU specifically to have joint quotas (not on the cards at the moment).

The most obvious alternative would be for the UK and EU–27 quotas to end up larger than proposed to compensate for the loss of flexibility.

(From May to July 2018, the EU invited public comment on its proposed revised tariff-quotas. The comments came from 21 countries and organisations, some for, many against the proposal. Comments from Australia and Paraguay were similar to those from the letter writers. The US was silent. The comments can be seen here, and a quickly-compiled summary is here.)

Legality, politics and uncertaintyBack to top

What if the UK and EU stick to their guns and go ahead with their proposed quotas? What does WTO law say?

The standard answer in an issue like this is: “we don’t know because there has never been a legal dispute on this point in the WTO.” That doesn’t stop speculation.

Some lawyers argue that provided the calculations have been made carefully, the UK and EU would win any legal challenge in the WTO because commitments on quotas are about quantities, not the commercial value of access to a market.

Some others are not so sure, and New Zealand and its allies continue to argue that it’s the value of the access that is key. They will push their claim as far as they can. Some add there’s no hurry because Britain is going to stay in a customs union with the EU during the transition anyway, delaying the need for the tariff and tariff quota parts of the goods schedule. (That assumes there will be a Brexit Withdrawal Agreement by next March.)

Depending on their mood, WTO members can also be practical. The EU has been able to trade for years even though its certified schedules are not up-to-date.

And complaints don’t always end up as legal challenges. From 2010 to 2013 Costa Rica was questioned in every meeting of the WTO Agriculture Committee because it subsidised its rice farmers by up to six times its agreed limit. But this never became a formal dispute because Costa Rica owned up first, and other members were confident it would do what was necessary, including to amend its constitution.

The key was the belief that Costa Rica was acting in good faith.

All of which means the UK and EU could trade smoothly with the rest of the world after Brexit even if the schedules are not certified, provided good faith is preserved.

But if other countries are dissatisfied enough, particularly with the tariff quotas, then they might kick up a fuss and even go to WTO dispute settlement. This will take some time to resolve but it will create uncertainty in trade and sour the mood among countries Britain is targeting for free trade deals.

For now Britain (and presumably the EU) is working hard to preserve the goodwill of other WTO members. How successful it will be remains to be seen.

(See also this explainer by Dmitry Grozoubinski.)

What happened in October 2018?Back to top

Suddenly on October 9 and 25 (2018), the media woke up again, with those stories of plans “hitting the buffers” and “in tatters”, “protests” by other countries, and even a Kremlin plot.

Because of their sporadic interest, they did not know that what really happened was already expected. After all, the reservations were first raised a year ago, and back in June the UK had conceded that negotiations were on the cards.

What happened since then simply followed a well-trodden WTO procedural path, only slightly magnified by the special case of Brexit.

There was one surprise — Russia’s involvement, but even then it might be a mistake to jump to conclusions. Might.

One journalist who had followed this closely used the more circumspect “setback”. One expert was similarly cautious. Our headline at IEG Policy focused only on “entering into negotiations”.

Briefly, after the UK and EU circulated their proposals on July 24, the deadlines for staking a claim expired after about three months: October 22 for the EU’s 90-day Article 28 process and October 24 for the UK’s 3-month “rectification” process.

A few days before the deadline, on October 9, the WTO’s Market Access Committee met. This was an opportunity for countries to put their reservations on the record, and 15 countries did on the EU’s proposal, and 19 on the UK’s.

At the last minute, just before the deadlines, a number of countries submitted their claims in writing. Who they were is thought to be roughly those who spoke in the WTO meeting.

For the EU this meant negotiations on “modification” could begin. The UK would now be about three months behind the EU but both would now be negotiating “modification” under GATT Article 28 — the UK would have to formally launch the process with its 90-day period opened for comment. The UK needed a brief period to prepare to launch the process. Then the 90 days would kick in.

Meanwhile on October 25, UK International Trade Secretary Liam Fox informed Parliament that the GATT Article 28 negotiations would kick in. The media woke up with a jolt, and produced those dramatic headlines.

They were unaware that Greg Hands had already alerted Parliament back in June, although they were right that Fox had previously claimed this could all be done quickly.

The talks are not with the entire WTO membership, only with those that have individual tariff quotas (such as New Zealand for its butter quota), or more generally, countries that are principle or substantial suppliers, or if they originally negotiated the commitment, in this case on tariff quotas.

This is spelt out in GATT Article 28. WTO commitments are legally binding promises resulting from negotiations. If those promises change, key countries have a right to discuss the modifications. It’s standard WTO practice and it happens regularly.

In this case the UK is a large economy, and because this is the first case of splitting tariff quotas the outcome would set a precedent if anyone else wants to follow suit (unlikely, but precedent counts in the legalistic WTO). Therefore, other countries are taking a close interest.

So, this was not a blockage. It was a further delay that could take the negotiations right up to the day the UK leaves the EU or beyond. The implications are discussed above, including added time if the UK and EU have a customs union during the Brexit transition.

What about the Kremlin? Russia surprised many by kicking off the comments on both the EU’s and the UK’s proposals in the October 9 WTO meeting.

Russia’s concern is understood to be first of all to ensure it has the right to negotiate on the tariff quotas under GATT Article 28. Russia is also understood to be holding up certification of the modified goods schedule for the EU’s expansion from 25 to 28 members for the same reason.

Russia joined the WTO in 2012. None of the EU’s tariff quotas, whose origins are much earlier, is specifically for Russia and that also applies to the proposed split UK and EU quotas.

Clearly Russia is pursuing a commercial interest here. Whether it will succeed or not remains to be seen. China tried and failed to challenge the EU legally through the WTO’s dispute settlement process for a previous modification, a challenge that may have held up the certification of the schedule for its expansion to 25 members.

Whether or not Russia is also politically motivated remains to be seen.


P.S. There is one other aspect of tariff quotas that is missing from the above, but could prove crucial for Brexit. Any idea what it is?


NOTE: Parts of this article draw on material researched and written for IEG Policy, including interviews with a range of WTO delegates. More details are in articles available to subscribers, including:

And this one available free-to-view


Updates:
• December 14, 2018 — adding agreement in principle on government procurement on November 27, and the circulation of services schedules on December 3.
• October 27, 2018 — adding developments in October 2018, updating the timeline, adding the number of pages of the UK’s and EU’s proposed documents, adding link to Dmitry Grozoubinski’s explainer
• September 14, 2018 — clarifying the method used to calculate UK and EU shares of tariff quotas where there have been no imports
• September 13, 2018 — corrected to include justification for the UK’s proposed tariff commitments to be in euros, and adding Reuters report on services schedules being circulated in February; adding figures for UK and EU domestic agricultural support

Photocredits:
• Thun, Switzerland, bridge and weir. Just like a tariff quota, different volumes flow over the high and low parts of the barrier. Photo: Peter Ungphakorn CC SA-BY 4.0

• Other images public domain (CC0)


What is the WTO? And is it undemocratic?

In the past few weeks we’ve seen a revival of the old claim that the WTO is undemocratic. Why? Because it has become a weapon in the Brexit war of words. As ever, the truth is more complicated.

By Peter Ungphakorn
POSTED AUGUST 17, 2018 | UPDATED AUGUST 29, 2018

It all began when hard-Brexiters started to claim that if the UK and EU fail to reach agreement, this wouldn’t be “no deal”. It would be a World Trade Deal — the new term they now use to describe operating on WTO terms, which some also claim would be the best outcome.

BRIEFLY
• The WTO is 164 member governments who operate an international trading system based on agreed rules
• Is it democratic? Yes and no

JUMP TO
What is the WTO?
What about the Secretariat?
It’s member-driven
Is the WTO democratic?
Don’t compare the WTO and EU
Find out more

The response from some Remainers is to criticise the WTO. If their enemies like it, it must be bad. One repeated claim is that the WTO is undemocratic. “When did you last vote for your representative in the WTO?” and “How can I find my WTO MP?” were among the questions.

There’s a lot wrong with the WTO, and a lot right, but these new attacks miss the point completely.

We might as well demand direct elections to the United Nations, World Health Organization, International Labour Organization and the rest.

We’d then be talking about world government.

To see why they miss the point, we first need to look at what the WTO really is.

What is the WTO?Back to top

The simple answer is: “The WTO is 164 member governments who operate an international trading system based on agreed rules.”

Let’s look more closely.

  1. The WTO is a meeting place. It’s where governments go to sort out trade problems they face with each other internationally.

LEGAL BASIS: Agreement Establishing the World Trade Organization (WTO Agreement)
Art.1 (establishment)
Art.2 (scope)
Art.3 (functions)

They meet to negotiate. They reach agreement (yes they do, from time to time). And then they continue meeting to monitor how well they are a sticking to those agreements.

And they also meet as a kind of court to pass legal rulings on whether governments are indeed abiding by those agreements — keeping their promises.

Yes, although that legal process, officially known as dispute settlement, is handled by small groups called panels, and another small group, which hears appeals, the whole process is managed by the WTO’s full membership.

And that means the WTO is two other things.

  1. It’s a system of trade agreements, which discipline governments’ trade policies so that international trade is not a free-for-all — the rule of law rather than the law of the jungle.
  2. It’s 164 member governments (the present total). When I worked in the WTO we were often asked “What does the WTO think about [something or other].” The answer? “It has 164 views” — because the WTO is its 164 members and they may well have different opinions about that something-or-other. In fact each country may have more than one opinion on a particular issue, but let’s not get into that.

Decisions among those 164 member governments are by consensus, if any one among them, big or small, cannot accept a decision, there’s no deal.

The Secretariat is not the WTO: The building where the Secretariat works is also called “the WTO” but it also houses the meeting rooms
The Secretariat is not the WTO: The building where the Secretariat works is also called “the WTO” but it also houses the meeting rooms

What about the Secretariat?Back to top

LEGAL BASIS: WTO Agreement
Art.6 (Secretariat)

Some people think the WTO Secretariat is the WTO, but strictly speaking that’s not correct. The Secretariat is a bureaucracy set up to help member governments operate the trading system.

It’s true that the head of the Secretariat is called the Director-General of the WTO, because the WTO is also an international organisation, like the United Nations, UN Environment Programme or the World Bank. But the WTO DGs are still the servants of the members, a cause of frustration for some of them.

WTO organigram
Meetings, meetings, meetings: Almost the entire WTO organisation chart consists of meetings of the full membership in various forms. Click the image or follow the link to see it full size

It’s member-drivenBack to top

164 MEMBERS
The WTO currently has 164 members. All but four are countries, including the EU’s member states. One additional member is the European Union itself. Three are officially not countries but “separate customs territories”. They are Hong Kong China, Macao China and Chinese Taipei.

The best way to appreciate just how much the WTO is an organisation of its members is to look at its organigram.

This consists entirely of meetings of members: a ministerial conference and various councils, committees, working parties, working groups and so on. Each of these comprises the full membership — all 164 member governments. It even includes (bottom right) negotiations meetings.

LEGAL BASIS: WTO Agreement
Art.4 (structure)

All of them are chaired by ambassadors or other delegates from the members. One exception is the “Trade Negotiations Committee”, whose chair is traditionally the WTO director-general. But when the negotiators get down to specific subjects such as agriculture or fishing subsidies, those sessions are also chaired by ambassadors or other delegates.

The members are determined to keep control.

There are three exceptions to this. Two committees deal with “plurilateral” agreements, meaning only some members have signed them. Here, the principle is still the same. The committees comprise all the countries that have signed these agreements.

The third is the Appellate Body. This consists of seven specialist judges supported by a separate, small secretariat, who hear appeals in legal disputes. Even then, its work is controlled by the full WTO membership in the Dispute Settlement Body.

Is the WTO democratic?Back to top

This is a difficult one. The short answer is yes and no.

The WTO is definitely democratic among its governments. The consensus rule means all members have equal say. Voting is available as a fallback, but so far members have rejected that option.

But does it represent the people? At least as much as any other international organisation. Some governments are democratic; some are not.

The top decision-making body is the ministerial conference which meets about every two years.

So if our country’s trade minister (or its economic or foreign affairs minister) is elected or appointed by an elected government, then we have an elected representative running the WTO.

For example, Canada’s trade minister is an elected member of its parliament. The US minister responsible for the WTO is the US Trade Representative, appointed by the president and confirmed by Congress.

The ambassadors and delegates representing our country would also be under instructions from an elected or democratically appointed minister.

If our country is a dictatorship, then I’m afraid our representative is probably not elected (allowing for multiple shades of grey over what those words actually mean). But no one wants the WTO to interfere in that, so it just accepts whatever each country’s domestic system produces.

Seattle protests 1999 Seattle Municipal Archives, (CC BY 2.0)
World government? The famous anti-WTO protests, Seattle 1999

Don’t compare the WTO and EUBack to top

One of the problems is that in the Brexit debate people are comparing the WTO with the European Union, which has an elected parliament as well as a council of member states meeting regularly at ministerial or head-of-government level.

The comparison is false. The EU has a bureaucracy with executive power and a legislature which handles laws. The WTO’s bureaucracy — the Secretariat — has no executive power. The closest equivalent to legislation in the WTO is its trade agreements and they are negotiated by all the governments together.

Is it a good idea for the WTO to be run by directly elected representatives? Only if you believe that directly elected politicians are better at negotiating some pretty technical and complicated trade agreements than our trade ministers and their officials. Or if you believe in world government.

The 1999 Ministerial Conference in Seattle saw the largest civil society protests in the WTO’s history. What happened outside the conference even become a movie.

One of my lasting memories from Seattle was protestors simultaneously complaining that the WTO had too much power (they over-estimated it), and demanding direct elections to the WTO, which would have made the WTO an organ of world government and in theory much more powerful.

Find out moreBack to top

On the WTO website:

On this blog


Updates: August 19, 2018 — added two more links to the “Find out more” section; August 29, 2018 — added links referencing the legal basis in the WTO Agreement

Photocredits:
• WTO meeting: the Trade Negotiations Committee, November 28, 2017 © WTO
• WTO building main entrance with statue of “Justice” by Luc Jagi (1925) © WTO
• WTO protesters on 7th Avenue, 1999, Fleets and Facilities Department Imagebank Collection, Seattle Municipal Archives, CC BY 2.0


 

A real beginners’ guide to tariffs and the WTO

‘Can someone explain to me international tariffs and WTO law as if I were a six year old? Seriously. I don’t get it. At all. No frame of reference whatsoever. Any takers?’

By Peter Ungphakorn
POSTED JULY 28, 2018 | UPDATED JULY 28, 2018

All too often we assume people know what we’re talking about. A question someone asked recently on Twitter showed how wrong those assumptions can be.

One of the assumptions is that everyone knows what “tariffs” are. The BBC prefers “trade tariffs” in case we confuse them with energy rates or other prices.

Tariffs are part of the Brexit debate, and are central to Trump’s trade war. But the fact is, most of us never had to deal with this before.

So for the benefit of Dr Dominic Pimenta and six-year-olds everywhere, here goes.

What are tariffs?Back to top

JUMP TO
What are tariffs?
Why are there international rules on tariffs?
How were the rules on tariffs created?
What does this mean legally in the WTO?
1. They are ceilings
2. They are the same for imports from all countries
Follow-up questions

SEE ALSO
What is the WTO? And is it undemocratic?

When goods are imported into a country, the government charges a customs tax or duty, often also called a tariff. For example the EU charges 8% of the price per pair on some types of shoes.

So does the UK until it leaves, because all EU members have the same tariffs.

Here, the EU is a special case, a “customs union”. EU members (such as the UK) collect the tax, hand it over to the EU because it’s an important part of the EU budget (and a lot of that is spent in the member states), but they are allowed to keep about 20% to cover administrative costs even though the actual costs are much smaller.

Most countries don’t have that complication. Their governments just collect the tax, full stop.

The UK says that after it leaves the EU it will stick to the EU tariff rates in general, and has now officially confirmed that with the World Trade Organization (WTO).

Extract of the EU's WTO commitment on tariffs for some shoes
Click the image to see it full size
Why are there international rules on tariffs?Back to top

Once upon a time there were no disciplines on tariffs. Countries could set them at any rate, and raise or lower them at will.

Then came the depression when countries complained about imports unfairly hurting their producers and workers. So they raised tariffs against each other to protect their producers, first one, then another in retaliation. It was a trade war.

Sounds familiar? ’Fraid so.

Rather than protect jobs, the trade war just slowed down trade and worsened the depression everywhere. And that meant jobs were lost.

To cut a long story short, the Second World War followed, and afterwards world leaders decided they needed to do something about it.

One thing they did was to negotiate to get rid of the free-for-all in tariffs, and to reduce them gradually.

(They felt the whole international economy needed sorting out so they also set up the World Bank and the International Monetary Fund.)

How were the rules on tariffs created?Back to top

The negotiations produced agreements, in which each country agreed to set limits on its tariffs.

From 1947 until now more products were brought into these agreements, and the ceilings were gradually lowered. That’s how the EU’s tariff for those shoes has ended up at 8%

In other words, the EU’s 8% import duty on shoes was the result of negotiations with other countries in what is now the WTO. The others agreed in return to set lower tariffs on products the EU (and UK) wanted to sell to them.

Because it was the result of a negotiation, the 8% tariff on shoes is part of an agreement. All the negotiated rates are legally binding commitments in the WTO.

Each WTO member has lists of tariffs on thousands of products, and they are different for each country except those in groups like the EU.

What a world trade agreement looks like
Click the image to see it full size
What does this mean legally in the WTO?Back to top

To keep it simple, the tariff rates have two legal implications in the WTO.

1. They are ceilingsBack to top

The 8% tariff on shoes (and all other agreed tariff rates) is a legally “bound” ceiling. The EU can reduce it to, say 5% or scrap it completely without breaking its promise.

But to raise it to 20% would be breaking its promise, or violating the WTO commitment. Except …

… except it could go back to WTO members to renegotiate the ceiling in order to raise the tariff above the 8% ceiling.

It might have to give something in exchange such as a lower tariff on another product.

(There are rules about which WTO members would have the right to negotiate, but I won’t go into that here.)

2. They are the same for imports from all countriesBack to top

Secondly, the legal obligation is for that 8% tariff to apply to imports from all other WTO members, equally, without discrimination.

MFN
Most-favoured-nation (MFN) treatment is probably the most important WTO rule.It means not discriminating between one’s trading partners

Article 1 of the General Agreement on Tariffs and Trade (GATT), for trade in goods
Article 2 of the General Agreement on Trade in Services (GATS)
Article 4 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

But in each agreement the principle is handled slightly differently

Trade specialists talk about “MFN”. This stands for “most-favoured-nation” treatment and it’s so important that it’s the very first article of the WTO agreement on trade in goods.

The phrase sounds weird, but it means not discriminating between trading partners, treating them equally. Favour one, favour all.

There are exceptions.

You can have a free trade agreement (such as the EU-Japan deal, which recently took effect), or even the EU single market, which is a very sophisticated and far-reaching free trade agreement.

Or you can discriminate in favour of poorer countries by cutting tariffs on their products or allowing their imports to enter duty-free without doing the same for other countries.

The EU has numerous “preferences” schemes for developing countries allowing their products to be imported duty-free or at lower than normal duty. So does the UK so long as it’s an EU member — and it’s already announced it will continue with the preferences after leaving the EU.

There are other exceptions in special circumstances but those two are the basics.

Follow-up questionsBack to top

Q. When you say 8% on shoe imports, is that the agreed rate for all WTO members to import shoes at or just a ceiling for that one country on all WTO imports?

A. Each WTO member has its own tariffs. So this 8% is charged by the EU on shoes imported from all other WTO members (except under a free trade agreement, such as EU-Japan, or preferences on shoes from developing countries). The import duty rate in other countries will be different. The US’s import duties on shoes vary from duty-free to around 10% or higher. Japan charges 20%–30% duty on many shoe imports

Q. Can you explain a bit more about free trade agreements (FTAs)? That exempts you from WTO rules?

A. Not exactly. It’s about being exempt from the non-discrimination rule (MFN). WTO rules allow pairs or groups of countries to set up free trade agreements subject to certain conditions. When they trade among each other duty-free, they can still charge duties on imports from others.

So free trade agreements are within WTO rules provided the conditions are met. For example a free trade agreement has to cover all or most trade. You can’t have a free trade agreement in cars alone

Q. So essentially the UK already operates on WTO rules — the EU single market is like a big free trade agreement for us and acts like a single entity for making other FTAs? How does being an EU member now affect trade with WTO countries? Eg, the USA?

Correct. Even the single market is under WTO rules.

UK trade is currently

  • within the EU internal market (or single market)
  • on terms the EU has negotiated in the WTO — on tariffs that includes with the US
  • though free trade agreements (eg EU-Canada, EU-Japan)
  • through unilateral preferences for developing countries

I’m sticking to tariffs because the question asked for a simple explanation, but there are many other important issues such as product standards and food safety, which also come under WTO rules.

Note that until the referendum the UK was active and influential in EU trade policy.

Chart showing range of depths of free trade agreements and integration
The spectrum of free trade agreements and integration. Click the image to see it full size


Updates: None so far
Photocredits:
• School children: Bill Wegener on Unsplash, CC0
• Other images by the author 


What are geographical indications? What do they mean for post-Brexit UK?

People’s views of geographical indications range from cherishing them as precious cultural heritage and commercial property, to annoyance and scorn. They are complicated. Every argument has a counter-argument

“How was your Cornish pasty sir? And your lamb, madam? It was New Zealand lamb. Excellent. Would you like some dessert? A cheese plate? We have a new Tiroler Bergkäse from Austria. I also recommend a fine French or Swiss Gruyère. And we have a lovely Caerphilly. Or our chef’s favourite mature Cheddar. A selection? Of course. And to go with that? Would you like to stay with your Amarone della Valpolicella? An Armagnac? A perfect choice. And sir? More Evian. Coming right up.”
Which of these are geographical indications? Answer at the end

JUMP TO
PART 1 BASICS
What are geographical indications (GIs)?
What do they apply to?
Are they always place names?
How do they relate to rules of origin?
Why protect them?
What does protection mean?
How much protection?

PART 2 POLICY
How are geographical indications protected?
What does the UK face with the EU?
What do we know about the UK’s plans?
What does the UK face with other countries?
What does the UK face in the WTO?
Some GI titbits — style/method, orange, champagne, gruyère, feta

PART 3 WHAT THE WAITRESS SAID

By Peter Ungphakorn
POSTED MAY 5, 2018 | FIRST PUBLISHED ON UK TRADE FORUM APRIL 3, 2018 | UPDATED NOVEMBER 17, 2018

Among the thousands of policy questions facing Britain after it leaves the EU is what its approach should be for geographical indications.

These are names — like Melton Mowbray pork pies, Rutland bitter and Bordeaux wine — that are used to identify certain products.

The UK’s policy will affect both its own and other countries’ names, and it has now taken first steps in revealing what its approach will be.

People’s views of geographical indications range from cherishing them as precious cultural heritage and commercial property, to annoyance and scorn.

What are they? And what are the decisions facing the UK? This is an attempt to explain them simply. It’s in two main parts with a small third part tacked on.

Part 1 is the basics. Part 2 looks beyond that at policy.

Meanwhile the waitress above mentions 10 types of food and drink. How many are geographical indications? The answer is in Part 3 at the end.

More details can be found on the websites of the World Intellectual Property Organization (WIPO) and World Trade Organization (WTO).

PART 1 BASICSBack to top

Photo by Lana Abie on Unsplash
Protection is not all the same: some products with geographical indications

What are geographical indications (GIs)?Back to top

They are names used to define both the origin and the quality, characteristics or reputation of products.

Origin is not enough. A cheese made around Roquefort-sur-Soulzon in southern France cannot be called Roquefort unless it is blue, made from sheep’s milk and meets a number of other criteria.

What do they apply to?Back to top

The vast majority of geographical indications are on food and drink, particularly wines and spirits. This is because soil and climate conditions can contribute to the products’ specific qualities.

Some countries protect other types of products as well. For example “Native Shetland Wool” (agricultural but not food) in the UK, “Swiss” watches (non-agricultural) in Switzerland, and some types of carpets and other handicrafts around the world.

Thailand would even like a service to be protected — traditional Thai massage — but internationally geographical indications are only used with goods.

Are they always place names?Back to top

Usually the terms used are place names, but sometimes they are other words associated with specific regions.

For example basmati is a long-grain fragrant rice variety and not a geographical name. However, it is associated with the Punjab regions of India and Pakistan, although its status as a geographical indication is debated (the EU doesn’t recognise it) because it is grown elsewhere too.

How do they relate to rules of origin?Back to top

This has absolutely nothing to do with rules of origin, which are about customs procedures — determining whether a product can be called “made in” a certain country and therefore should qualify for duty-free trade or other special treatment under trade agreements.

Geographical indications are a type of intellectual property, a form of “branding”, along with copyright, trademarks and others, because the products’ characteristics are the result of production techniques as well as location.

Why protect them?Back to top

Protection is intended to benefit both consumers and producers. The EU speaks of ensuring a product is “authentic” (for consumers), and providing a marketing tool to give producers “legal protection against imitation or misuse of the product name”.

Under WTO rules, the objective is to avoid misleading the public and unfair competition.

What does protection mean?Back to top

It’s important to understand this. Geographical indications are names, so protecting them means that what’s restricted is only the use of the name. It doesn’t prevent copying or imitation — that’s handled by copyright and patenting.

“Feta” is protected in the EU, meaning the name can only be used in the EU if the cheese is made in Greece. Nevertheless, an identical or similar cheese made in the US (where it’s not protected) can be sold in the EU. It just can’t be called “feta”.

How much protection?Back to top

Sparkling wine: when is it champagne and when not?
Sparkling wine: when is it champagne and when not?

The bottom line for the WTO’s 164 members (including the EU and UK) is what is required in its intellectual property agreement (known as TRIPS or Trade-Related Aspects of Intellectual Property Rights). The agreement only sets minimum standards. It does not deal with individual names. How countries meet the standards and which names they protect is left up to them through their different legal systems.

The section on geographical indications is short. It has three parts, Articles 22, 23 and 24:

  • In general (Article 22), countries have to protect geographical indications to avoid misleading the public and avoid unfair competition. By this criterion, “Californian champagne” should be fine since consumers would be clear that this did not come from the Champagne region of France. But …
  • For wines and spirits (Article 23), protection is taken to a higher level — even if there is no danger of misleading the public or creating unfair competition. So “Californian champagne” is no longer valid. Except that …
  • There are a number of exceptions (in Article 24). These include if a term has become generic — cheddar cheese is clearly one case since it’s been made around the world for decades, if not longer. Also an exception is when the name was registered as a trademark before the WTO’s agreement was negotiated (“grandfathering”) — Parma ham has long been a trademark in Canada, an irritant for Italians who were unable to sell Prosciutto di Parma there until recently. The EU has waged a long-running and still unresolved battle with the US over the use of “Champagne”.

When the EU negotiates for its geographical indications to be protected in other countries, part of the effort is about reclaiming names that have become generic — or more vividly to “clawback” names that have been “usurped”. Feta cheese is one case. This 73-page document is what the EU and US have agreed for wines.

PART 2 POLICYBack to top

Gruyère, Switzerland
Gruyère is in Switzerland. Can France register a Gruyère cheese?

How are geographical indications protected?Back to top

The names are usually the property of groups of producers or regional or national authorities, not individual companies.

How they are protected depends on where, and this matters for the UK’s future relationships, such as how it seeks to have its own names protected abroad.

The European Union probably has the most detailed and sophisticated system. Stricter criteria apply to “protected designation of origin (PDO)” and only some products are eligible. A wider category is “protected geographical indications (PGI)”. A third, “traditional speciality guaranteed (TSG)”, emphasises the production method.

The EU’s database of wines contains over 1,700 EU geographical indications (some still being considered), and just over 1,000 from non-EU countries. Only five are British.

For spirits there are 270 geographical indications including some whose protection is being considered. Only four are non-EU. Two are British: Scotch whisky and Somerset cider brandy. Part-British is Irish whiskey made anywhere on the island of Ireland.

Watercress
British? The UK wants to protect ‘watercress’

For other products, there are almost 1,600 “registered”, “published” or “applied for” geographical indications from both EU and non-EU countries; 79 are British.

(See also this official UK list of names. Among the foods the UK wants to protect is “watercress”.)

At the other extreme used to be Norway. A few years ago, WTO members were asked to fill in a questionnaire with some examples of geographical indications they protected. Norway said it couldn’t be sure because it used consumer protection law rather than a register of names, meaning a term would have to be in a court case to know for certain.

It managed only one possibility. “‘Hardanger’ might be a protected name,” it suggested (page 80 here). Since then, Norway has brought its system much closer to the EU’s.

Some countries use specific geographical indications laws and registers. Some use consumer protection. In the US and many others protection is by trademarks and certification marks. There are even variations of approach within the EU. The UK told the WTO that it uses common law (“tort of passing off”) for some terms and trademark law for others, although fundamentally the UK is applying EU law. (See the annex in this now out-of-date WTO document.)

Because the EU attaches so much importance to geographical indications, one of the key questions about the UK-EU relationship after Brexit is what happens to EU names currently protected in the UK? British producers will also want to know whether their products’ names will still be protected in the EU–27.

What does the UK face with the EU?Back to top

THE EU’S POSITION

• The full EU position paper from September 2017
• The draft Withdrawal Agreement, February 2018, see the heading “Intellectual property: continued protection in the United Kingdom of registered or granted rights
• The March 2018 version with parts agreed highlighted in green. On intellectual property, the section on geographical indications was not highlighted as agreed, but those on trademarks and plant varieties were
• The November 2018 agreed draft confirming that the UK will continue to protect EU names

In theory, when the UK leaves the EU it will be free to decide how it protects geographical indications and which names to protect, so long as it complies with the WTO principles.

Will the UK move away from the EU’s near-obsession with geographical indications? It might not have too many wines, but it does have Scotch whisky and a lot of food products.

Its hand might also be forced by its future relationship with the EU. Geographical indications have always been a priority for the EU in its free trade negotiations and the EU has already demanded protection to continue in the UK after Brexit, at least for products whose names are already protected in the UK.

This is likely to mean the UK setting up its own lists of protected geographical indications with associated legislation.

What do we know about the UK’s plans?Back to top

It’s taken some time, but we now know — from the November 14, 2018 proposed Withdrawal Agreement tentatively agreed in Brussels, the July 2018 UK policy paper, and Britain’s “no deal” paper on geographical indications — that UK names currently protected in the EU, and EU names currently protected in the UK should both continue to be protected in Britain, assuming the deal holds.

WHAT THE UK WHITE PAPER SAYS …

38. Included in the remit of wider food policy rules are the specific protections given to some agri-food products, such as Geographical Indications (GIs). GIs recognise the heritage and provenance of products which have a strong traditional or cultural connection to a particular place. They provide registered products with legal protection against imitation, and protect consumers from being misled about the quality or geographical origin of goods. Significant GI-protected products from the UK include Scotch whisky, Scottish farmed salmon, and Welsh beef and lamb.

39. The UK will be establishing its own GI scheme after exit, consistent with the WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPS). This new UK framework will go beyond the requirements of TRIPS, and will provide a clear and simple set of rules on GIs, and continuous protection for UK GIs in the UK. The scheme will be open to new applications, from both UK and non-UK applicants, from the day it enters into force.

… AND THE “NO DEAL” PAPER

When we leave the EU we will set up our own GI schemes which will be WTO TRIPS compliant, broadly mirror the current EU regime and be no more burdensome to producers. Details to be explored in a public consultation include the UK GI logo and appeals process. The protections will be similar to those enjoyed now by UK GI producers, with all 86 UK GIs given new UK GI status automatically. The UK would no longer be required to recognise EU GI status. EU producers would be able to apply for UK GI status. We will be publishing guidance on the UK GI schemes in early 2019.

The July 2018, 104-page UK policy paper (or white paper) on its future relationship with the EU has two short paragraphs on geographical indications. Briefly, the paper shows the UK intends to set up its own system. This could be different from the EU’s, but how different is not stated.

Then on September 24, 2018 the UK government issued another batch of papers on preparing for “no deal” with the EU. The one on geographical indications adds that the British scheme will “broadly mirror” the EU’s (see box).

The new paper confirms that the UK will continue to protect its own names automatically, but not other countries’ geographical indications currently protected in the UK under the EU’s system.

It was not until the November 14, 2018 draft Withdrawal Agreement that the situation for the thousands of names from EU–27 countries was clarified. It says any of these names that is protected in the EU at the end of the Brexit transition period will be registered in the UK with the same level of protection as they now enjoy, without any re-examination (see page 90 of the draft).

If the Withdrawal Agreement falls through, the fate of those EU names is uncertain. They may have to apply for protection and risk rejection.

This caused concern in Brussels where officials were reported to be studying whether the UK might risk violating the WTO’s “national treatment” principle — the UK might be discriminating against the EU (and others) if it automatically continued to protect its own names, while requiring other countries’ names to go through a registration process.

The intention to set up a system that goes beyond the requirements of the WTO’s intellectual property agreement seems to suggest the UK wants to extend the higher level of protection beyond wines and spirits to foods such as Cornish pasties and Melton Mowbray pies.

What lies behind the plan is unclear. One immediate reaction had been that the UK was aiming for a weaker system, allowing it to strike trade deals more easily with countries that are more sceptical about geographical indications, such as the US, Australia, New Zealand and Canada (more below). (See this Twitter thread by former trade official David Henig, also below, and this tweet by former trade minister Greg Hands, also below.)

The reference to “mirroring” the EU’s system in the “no deal” paper suggests that might not be the case.

Another is that Britain recognises how important geographical indications are for the EU–27 (which have many more protected names than the UK), providing a bargaining chip to extract a better deal from the EU. (See this Politico report and my own tweets here and below.)

What does the UK face with other countries?Back to top

Beyond the EU, the world of geographical indications has sometimes been described as a divide between old world countries, with traditional methods and products they want to protect, and the new world whose immigrant populations brought those techniques with them. It’s a bit more complicated than that. For example Taiwan is in the so-called new world group and some US producers now want protection for their own products, from wines to Idaho potatoes. But there is some truth in it.

In negotiations with some countries such as other Europeans, India and so on, the UK will be under pressure to protect their names. With others such as Australia, Canada, New Zealand, the US and some Latin American countries, the UK may be the one making the most demands to protect its names.

If it continues to protect EU geographical indications, Britain may need to tread carefully with the GI-sceptical “Anglosphere” countries. For example in its free trade talks, the UK might be under pressure to allow imports of Australian feta cheese (and it might want to make its own too).

The EU has deals on geographical indications with other countries, either as part of free trade agreements or separately. With Brexit, the UK wants to roll the EU’s free trade agreements over into its own, and may want to do the same with the deals on geographical indications. To do that will require either negotiation with the other countries or confirmation by them.

What does the UK face in the WTO?Back to top

The WTO agreements signed in 1994 included a commitment to set up a multilateral register for geographical indications of wines and spirts. Almost a quarter of a century later, members still have not agreed on how to do this.

The EU and its allies want the register to have some legal effect: if a name is on the register, then that should have some legal implications in all WTO members. The US and its allies prefer a register that is little more than a database of information, which countries would be free take into account (or to ignore) when they decide whether to protect a particular name.

A second issue is whether to give some or all other products the same higher level of protection as is now given to wines and spirits (Article 23), and presumably to include them in the multilateral register. This is often called “extension”: extending the higher-level protection beyond wines and spirits.

Although this has been discussed at length in the WTO, members still have not even agreed whether it is officially a negotiation. A large number of countries support the move, but in some cases for complex bargaining reasons. The US, Australia and so on oppose it on the grounds that it would be too burdensome and restrictive, and that the standard level (Article 22) is good enough.

The UK will have to decide how to approach these questions, and also the WIPO treaties on geographical indications.

Some GI titbitsBack to top

But is it champagne? Darjeeling claims to be the champagne of teas
But is it champagne? Darjeeling claims to be the ‘champagne of teas’

Geographical indications are complicated. Every argument has a counter-argument so they are a perfect playground for intellectual property lawyers, as the endless and bottomless debates in the WTO show. Here are some illustrations.

“-style”? Or “-method”?
If “Bulgarian yoghurt” can only be made in Bulgaria, what about “Bulgarian-style” yoghurt? One view is that this is a useful indication of what the product is, helping rather than confusing consumers.

Against that is the argument that “Bulgarian-style” has no owner and no definition. The term could be abused. The reputation of yoghurt associated with “Bulgaria” would be damaged, hurting both consumers and genuine Bulgarian producers. The poor reputation of parmesan cheese made outside Italy is a real-life example.

After all, one of the features of geographical indications is that they have owners responsible for maintaining the quality and reputation. The loose term “Bulgarian-style” would not have that.

Orange: homonyms and more
Several places could have the same name, or names that sound the same (homonyms). The WTO agreement broadly covers that, but homonyms can still get pretty complicated. In late 2000 Australia entertained WTO delegates with an analysis of “Orange”. It’s a place name on five continents, some with vineyards producing what could be called “Orange wine”. And then there’s wine made from oranges. Orange is also a colour and a phone company’s trademark. It’s linked to words in other languages, including Persian where the fruit is named after Portugal, and so on. (See page 6 of this.)

Wait. What? A white wine from Champagne in Switzerland
Wait. What? Wine from Champagne in Switzerland post-2005

Champagne: Swiss and Indian
A small village in northern Switzerland is called Champagne. It used to produce a still white wine with the name, but not since 2005. Pressure from France put an end to that. Meanwhile, in the WTO debate on “extension”, a US delegate once remarked wryly that Darjeeling tea, a claimed geographical indication, is advertised as “the champagne of teas”.

Gruyère
Gruyère is a region in Switzerland surrounding the medieval village of the same name. The cheese was first made there in 1115. It’s now been produced elsewhere for generations and the name has become generic, sometimes using “Gruyère” or an equivalent in another language.

Gruyère is not in France. Nevertheless, France has managed to register “French Gruyère” produced in a dozen departments as a protected geographical indication in the EU. Despite the stereotype of Swiss cheese, authentic Gruyère has no holes. But the French version does: it “must have holes ranging in size from that of a pea to a cherry”, according to the EU regulation.

In Switzerland, “Le Gruyère” now has a Swiss protected appellation of origin (AOP) covering four whole cantons and parts of a fifth.

But is it protected in the EU? The 2011 bilateral agreement between Switzerland and the EU says it is, along with a number of other Swiss products. As an illustration of how complicated these names can be, in the agreement, Switzerland and Greece also promise not to translate “graviera” (γραβιέρα) as “gruyère” and vice versa.

However there seems to be no internal EU law or regulation confirming this — not yet anyway — and nothing Swiss appears in the “DOOR” database of products other than wines or spirits. We can only assume the bilateral agreement holds.

On a much smaller scale than the EU, Switzerland has also been trying to “reclaim” terms that have become generic. In 2013 it secured US registration for “Le Gruyère” as a certification mark (similar to trademark). But a joint application by French and Swiss producers to protect just the word “Gruyère” in the US has been challenged and remains unsettled.

One of the most-debated names: feta
Most-debated: feta cheese

Feta
This is one of the most-debated names in the WTO. The minutes of this meeting contain 14 pages of debate in which “feta” appears 50 times. Similarly for these meetings. Is it eligible for protection? Is it generic? Where exactly is its origin? Greece, Bulgaria, Denmark even? Is the legal situation in the EU contradictory? Should migrants to Australia be allowed to continue to use the name for the cheese that their ancestors made? Is feta actually produced in Australia by immigrants or by large companies?

Still have an appetite?
In 2005, the WTO Secretariat summarised the debates on “extension” in the organisation in a 44-page 21,000-word paper. Heavy going but essential reading for anyone wanting to dig deep into the subject. You can also download this 232-page guide from the International Trade Centre. Either way, keep a good Irish whiskey or Spišská borovička at hand.

FINALLY PART 3 WHAT THE WAITRESS SAIDBack to top

At the top of this article, the waitress refers to 10 types of food and drink (not counting the general “lamb” and “cheese”). Some are geographical indications, some are not:

Geographical indications protected in the EU and therefore the UK — Cornish pasty; Tiroler Bergkäse; Caerphilly; French Gruyère; Amarone della Valpolicella; Armagnac. The EU has agreed to protect Le Gruyère from Switzerland but this does not (yet) appear in the EU’s database.

Names that are generic in the EU/UK — Cheddar (except “West Country Farmhouse Cheddar cheese,” which does include the original Cheddar area in Somerset, and “Orkney Scottish Island Cheddar”, from over 1,000 km away)

Not geographical indications in the EU/UK — New Zealand lamb (although “Scotch lamb” is); Evian (Evian is a place, a lakeside French town at the foot of the Alps, but the name is a trademark for bottled water)



P.S. The tweets cited in the text:
1. By former UK trade official David Henig:


2. By former UK trade minister Greg Hands:


3. My own:


Updates:
• May 7, 2018 — references to Switzerland’s “Le Gruyère” have been corrected to reflect protection in the EU under the 2011 bilateral agreement and to remove the assertion that the name is not protected because it’s not in the DOOR database. (Thanks to Christian Häberli for pointing me to the bilateral agreement and the US certification mark)
• September 2, 2018 — substantially updated with the UK’s plans published in July, and reactions
• September 26, 2018 — added reference to “mirroring” the EU’s system from the “no deal” paper, the section on the meaning of protection, and links to the draft Withdrawal Agreement and EU position paper; restored missing “waitress” image at the top
• November 17, 2018 — added provisions from the November 14 draft Withdrawal Agreement

Photocredits:
• Waitress — Steven Cleghorn on Unsplash, CC0 (public domain)
• Wine, cheese and parma ham — Lana Abie on Unsplash CC0
• Champagne — Pexels CC0
• Gruyère; wine from Champagne in Switzerland — Peter Ungphakorn CC BY 4.0
• Watercress and chives on bread — silviarita on pixaby CC0
• Darjeeling tea montage — black tea leaves, photo by Oleg Guijinsky on Unsplash CC0; Darjeeling tea, first flush 2007 Risheehat Estate, photo by David J Fred CC BY-SA 2.5
• Feta — JJ Harrison CC BY-SA 2.5


Grandfathering EU free trade deals for the UK: a look at an actual text

After Brexit, ‘Global Britain’ will want free trade agreements with the rest of the world. But it already has some 37 agreements with over 60 countries through the EU. Rolling them over into the UK’s own agreements will not be automatic. A look at the actual text of the EU-South Korea deal shows why

By Peter Ungphakorn
FEBRUARY 13, 2018 | UPDATED FEBRUARY 15, 2018

Leaving the EU means the British government will either have to convert the EU’s free trade agreements with other countries into UK deals, or risk losing them, when Brexit is supposed to be about to allowing Britain more freedom to enjoy trade agreements with the world outside the EU.

At the very least, the UK should continue with the deals it already has through the EU, with Norway, Iceland, Switzerland, Canada, South Korea, Japan (in the pipeline) and many others. Academics at Sussex University say there are over 60 other countries. The UK government says there are over 100. It depends on what kind of agreement is counted.

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Transition and long term
Possible to do; impossible to do quickly
Grandfathering: more than CTRL+C, CTRL+V
Photocopier? Or negotiating table?
Safeguards
The dreaded rules of origin

Even then, the “rolled over” free trade agreements could be less valuable to the UK outside the EU than inside, unless talks can be set up with all three parties leading to something called “diagonal cumulation of rules of origin”.

As with much about Brexit what some fancied was a simple task is actually pretty complicated.

Many had thought that the UK could more or less copy and paste the agreements.

Shanker Singham of Legatum Institute told the Commons International Trade Committee that the UK would simply “replicate” them.

Few thought that the other countries involved might want to negotiate this with the UK — until news broke that some might seek just that, even during a transition period.

Much of the complexity is shown in a paper (pdf) by Michael Gasiorek and Peter Holmes of Sussex University and published by the UK Trade Policy Observatory (UKTPO). They say something that few had considered: that what appears to be a set of bilateral talks will turn into a threesome — the EU will be involved too. This is one of their summary points:

“Grandfathering existing EU free trade agreements is unlikely to happen without some engagement or negotiation with the EU. Hence what you might think is a bilateral issue between the UK and a given Free Trade Agreement (FTA) partner, becomes a trilateral issue which also involves the EU.”

“Grandfathering” means continuing with an older arrangement (here the existing EU free trade agreements), which might lapse or be superseded when a new arrangement is introduced (the UK leaving the EU). The Sussex paper is a comprehensive account of the various issues that could be raised in the talks.

There’s also a short video:

And Michael Gasiorek discusses this in a podcast in the Peterson Institute’s “Trade Talks” series of podcasts.

Transition and long termBack to top

The British government too is learning that this is going to take longer than it had first thought.

“I hear people saying ‘oh we won’t have any [free trade agreements] before we leave’. Well believe me we’ll have up to 40 ready for one second after midnight in March 2019,” International Trade Secretary Liam Fox told a fringe meeting at the Conservative Party Conference only last October.

Is grandfathering difficult or impossible? No, for the most part, it shouldn’t be. But there’s a lot to copy, adjust and check. And the number of negotiations the UK will be involved in for Brexit is huge.

Then there are the more complex areas such as “tariff quotas” and agricultural “safeguards” and “rules of origin”. It becomes even more complicated if the other countries want to negotiate additional adjustments.

Then, on February 8, the government admitted for the first time that this will not be possible. It released a position paper (pdf) calling for the EU’s free trade agreements to continue to apply to the UK — as if it were still an EU member — during the proposed two-year transition period after March 2019.

The paper cites article 31 of the Vienna Convention on the Law of Treaties as the legal basis. I’m not a lawyer, so I’m not going to discuss the legal aspect other than to note that the UK says the agreements involved are with over 100 countries.

To keep life simple, this would probably mean EU institutions continuing to handle various aspects of the free trade agreements on Britain’s behalf, such as managing the allocation of tariff quotas among importers (including British companies), confirming that imports into the EU (including Britain) meet EU standards and “rules of origin”, and participating in committees set up under the agreements and in disputes.

What happens after the transition period remains to be seen. The quickest approach would be to convert the EU’s agreements into the UK’s. The alternative would be for the UK to negotiate new agreements from scratch. But since it may want to do that with other countries such as the US, China, Australia, New Zealand and so on, the load on UK trade negotiators would be immense.

Michael Gasiorek’s and Peter Holmes’ paper actually speaks of “great-grandfathering”! But more importantly, it refers to complex supply chains, which are important for a number of reasons:

“Clearly the UK will want to and needs to establish the nature of its relationship with the existing FTA [free trade agreement] partner countries on a long-term basis. However, this will be more difficult to achieve without the partner countries knowing what form of trade agreement the UK has with the EU.

“For many products this is because we are in a world of more complex supply chains and for many FTA countries, their exports to the EU may be indirect via the UK. For some agricultural products where tariff-rate quotas apply, changing access to the UK may impact on their access to EU markets.

“It is therefore likely that both the UK and the partner countries may seek to roll the agreements over on a temporary basis for the duration of the transition. In turn, that means that during the transition period the UK will need to renegotiate these agreements, or at a minimum, renegotiate the grandfathering, hence greatgrandfathering the agreements” (page 5)

Overall, Gasiorek and Holmes suggest renegotiation might be needed because of rules of origin, most-favoured-nation (MFN) or non-discrimination clauses, mutual recognition of standards and regulations, and tariff quotas. I will look at a couple of those issues, but I’m not going to repeat their excellent work. Their paper speaks for itself.

Possible to do; impossible to do quicklyBack to top

What I am going to do here is to dip into the EU-South Korea free trade agreement — and I really mean “dip in” because it’s over 1,400 pages long — to highlight a few issues that attracted my attention. They are intended as examples to illustrate some important points. This is also developed from an older Twitter thread.

The bottom line. Is grandfathering difficult or impossible? No, for the most part, it shouldn’t be. But even where it’s relatively straightforward, the task is time-consuming. There’s a lot to copy, adjust and check. If there were only one agreement to deal with, it could be completed quite quickly. But the number of negotiations the UK will be involved in for Brexit is huge.

Then there are the more complex areas such as “tariff quotas” and agricultural “safeguards” (there aren’t many in the EU-S.Korea agreement but there are a lot more in the agreement with Canada) and “rules of origin”. It becomes even more complicated if the other countries want to negotiate additional adjustments.

Milking protection: Dairy products are often excluded | Mihail Macri on Unsplash
Milking protection: Dairy products are often excluded | Mihail Macri on Unsplash

Grandfathering: more than CTRL+C, CTRL+VBack to top

You don’t have to go very far into the text to see that there are references to the EU which will have to be replaced by the UK’s equivalents.

Article 1.2 General definitions

Numerous references to EU procedures and regulations will also have to be changed.

Regulations, market access Article 3

The endless lists of regulations will have to be replaced with UK versions. This is just a small part of a long table of regulations for vehicles.

Technical regulation for cars, extract

All of this is also bound up in how the UK sorts out its own post-Brexit arrangements.

And provisions such as this would have to go:

Ceuta and Melilla

And then there are services. The EU-S.Korea agreement has long lists describing where their services markets are opened up to each other (pages 1165-1250 for the EU’s commitments). Much can be copied for the UK. There are also lots of provisions which don’t apply to the UK and will have to be removed, and a lot that refer to the EU as a whole, which will have to be changed.

This is what the agreement says for mining and quarrying services. It’s complicated, technical stuff, but even if we don’t understand it fully, at the very least “5% of the European Union’s oil or natural gas imports” will have to be changed to “the United Kingdom’s”. You have to be an expert in the field to know if that “5%” will stay unchallenged.

“EU: Unbound for juridical persons controlled […]  by natural or juridical persons of a non-European Union country which accounts for more than 5 % of the European Union’s oil or natural gas imports. Unbound for direct branching (incorporation is required). Unbound for extraction of crude petroleum and natural gas”

Services commitments on mining and quarrying
Click the image to see it full size

Finally there are institutional arrangements, everything from committees and working groups to arbitration procedures, which will have to be set up for the new bilateral relationship

Article 15 creates a “Trade Committee”, which meets annually, plus at least six “specialised” committees and at least seven working groups:

Trade Committee and specialised committees

The agreement includes procedures for settling disputes, including the creation of arbitration panels and references to international law including the Vienna Convention on the Law of Treaties and World Trade Organization dispute rulings. The procedure is similar to the WTO’s and adapting it for the UK would be relatively simple.

Arbitration panel

So, the task has moved beyond copy-paste to search, adjust, adapt, replace or delete. The volume is pretty large, and this is just one of the 37-or-so agreements. Still, what we have looked at so far won’t necessarily need any negotiation, just a lot of work.

Copy or talk? Going beyond copy-paste to search, adjust, adapt, replace, delete and negotiate | Mickey970
Copy or talk? Going beyond copy-paste to search, adjust, adapt, replace, delete and negotiate | Mickey970

Photocopier? Or negotiating table?Back to top

Where negotiations will be needed is on market access, particularly for goods, but only on some parts. (There may be no need to renegotiate services, but the technical detail is beyond me.)

For goods, the EU-S.Korea agreement lists tariffs on around 900 pages. They could be run through the photocopier — except that S.Korea is reported to be one of the countries that might seek unspecified concessions from the UK, according to Politico:

“South Korea has already indicated that it wants to address its trade deficit with the U.K., which was particularly high between 2012 and 2015, before granting Britain continued market access during transition, EU diplomats and business people said.

“‘Exports are South Korea’s credo No. 1, and trade balance is their credo No. 2,” said Christoph Heider, president of the European Chamber of Commerce in Korea, who is in close contact with the government in Seoul. “I expect that Great Britain will have to make concessions if it wants to stay in the trade deal during the transition.’”

In many cases, tariffs are not scrapped from the start: they are phased out over different periods depending on the product, from immediate (most products) to 21 years and in some cases tariffs are never eliminated (“staging category E”). So the UK would be stepping into an appropriate phase of the reductions (unless “rolling over” took more than two decades!)

What most people forget is the EU’s free trade agreements include tariff quotas as well. That’s where limited quantities of imports are allowed in duty-free or at lower than normal rates, also known as tariff-rate quotas or TRQs. And it’s where negotiations will probably be needed.

The EU-S.Korea agreement has a few, mainly on the Korean side. Here’s one for flatfish where the duty-free allowance increases from 800 tonnes in year 1 to duty-free for all imports from year 13.

Flatfish tariff quota
Click the image to see it full size

Here’s another on various types of milk and cream. This time the duty-free allowance remains indefinitely at 1,512 tonnes after year 16 (“staging category E”), meaning quantities outside the quota will be charged import duty, which is 89% or 176% depending on the product. (The tariff rates are on page L127/102 of the EU’s version of the text (pdf).)

Milk tariff quota
Click the image to see it full size

This is not exactly “free trade”. It’s an example of how trade agreements are not necessarily as free as they are made out to be, and a warning to those who argue that the value of the UK’s present access to the EU market can be replaced by trade deals with other countries.

What will the UK’s share of that 1,000–1,512 tonnes be? The answer is likely to come from talks among all three sides: the UK, EU and S.Korea.

Incidentally, The EU’s agreement with Canada (the Comprehensive and Economic Trade Agreement, or CETA) has many more tariff quotas for imports into both sides. The EU has them on some kinds of seafood, wheat, sweetcorn, bison meat, beef and veal, and pork.  Canada has them on cheese.

This is part of the EU’s CETA tariff-quota on one category of beef and veal (there are more details than this):

CETA tariff quota beef and veal (EU)
Click the image to see it full size

And this is Canada’s tariff quota for one category of cheese, again ignoring a lot of additional detail:

CETA tariff quota, cheese (Canada)
Click the image to see it full size

Although Canada is apparently keen to use copy-paste as much as possible, there will almost certainly be renegotiations over the tariff quotas.

Added protection: South Korea retains the right to impose safeguards on apples for 24 years | Don O’Brien
Added protection: South Korea retains the right to impose safeguards on apples for 24 years | Don O’Brien

SafeguardsBack to top

One type of tariff barrier that has received little attention is “safeguards”. These are temporary increases in import duty to protect producers from import surges or falling prices, the kind of raised duty the US recently imposed on washing machines and solar panels.

For agricultural products and in bilateral trade agreements the rules are not quite the same as for industrial goods. Here, S.Korea has secured the right to impose an additional duty on beef imports of up to 40% for the first six years, the ceiling declining to zero after 17 years, if the “trigger level” specified is reached.

SKorea's agricultural safeguard for beef
Click the image to see it full size

S.Korea has the right to use safeguard duties on pork, apples, malt and malting barley, potato starch, ginseng, sugar, alcohol, and dextrins.

For beef the right to impose a safeguard duty expires after 16 years. For pork it’s 11 years, for apples 24 years, and for other products somewhere in between.

The trigger volumes were for the whole of the EU-28. Copying the same trigger level for imports from the UK alone would not make sense for S.Korea. To do so would double the size of the import surge before Seoul could react. That means these volumes would be split between the UK and EU, requiring negotiations between all three sides.

In its agreement with the EU, Canada has dozens of products eligible for additional safeguard duty, but the EU has none.

Made in … where? Rules of origin determine if cars qualify since they can be made from components sourced anywhere
Made in … where? Rules of origin determine if cars qualify since they are assembled in complex supply chains | Bilerandi

The dreaded rules of originBack to top

To qualify for lower duty or duty free access to the EU market, or for recognition of standards under the agreement, a product has to be shown to have been made in S.Korea. The same goes for EU products entering S.Korea, and for UK products under a future UK-S.Korea deal.

Anyone who has looked at these “rules of origin” knows they can be pretty complicated, to the extent that lower tariffs are not always worth the additional red tape. (You can find explainers by the Institute for Government here, and by Sam Lowe here.)

The criteria start with general rules on what qualifies and what proof is needed, covering 8 pages (1346–1354) in the EU-S.Korea agreement. For example, Article 6 lists 17 operations that cannot be cited — “sharpening, simple grinding or cutting” is not enough (item (i)). Nor is it enough if two ingredients from elsewhere are simply mixed together in the EU — they cannot be said to be “made in the EU” (item (m)):

Rules of origin on insufficient working or processing

But that’s just the start. A further 57 pages has tables of excruciating detail — like this on what is required for two types of “woven fabrics of man-made-filament yarn” to qualify with the right origin:

Rules of origin on woven fabrics of man-made filament yarn
Click the image to see it full size

(Note that in that last paragraph, the product can qualify even if the value of the unprinted fabric exceeds 47.5%, so long as the fabric itself is also of local origin.)

Could these rules of origin just be run through the photocopier? Maybe. But remember right now exports from the UK to S.Korea only have to qualify as “made in the EU”, meaning components could be sourced anywhere in the 28 countries. A post-Brexit UK-S.Korea free trade agreement would only deal with products “made in the UK”.

In other words, from the point of view of qualifying products, a future UK-S.Korea agreement will be much less valuable for the UK than the present EU-S.Korea agreement.

Complicated? That’s just the start. Here’s what Gasiorek and Holmes say about duty-free imports involving the UK, EU and S.Korea:

“It is important to note that this could easily mean that, for example, a given intermediate input could be exported directly from Korea to the EU duty free, but if that input is used in the production of a UK good which is then exported to the EU, that input cannot count for UK originating status.

“The same could apply to UK exports of intermediates to the EU which are then used in EU exports to Korea; and EU exports of intermediates to the UK which are then used in UK exports to Korea. Hence bilateral flows between each of the three countries in this example (the UK, Korea and the EU) are likely to be affected.”

They then talk about “diagonal cumulation”, essentially a three-way deal that says if assembly, processing or other form of production in any two (combined) of the three meets the requirement, then the item can be imported duty-free into the third.

And a three-way deal needs a three-way negotiation.

Finally, how well does EU-S.Korea represent other EU free trade agreements? It depends. No two agreements are the same, but they can be similar. The Korean agreement is partly similar to the Canadian one but also has significant differences.

Norway and Switzerland are important trading partners of the UK. One of the most complicated agreements for the UK to grandfather is the one with Norway, Iceland and Liechtenstein — the European Free Trade Association (EFTA) countries, which form the European Economic Area (EEA) with the EU.

As for Switzerland, its arrangement with the EU is through bilateral agreements. Here, the official list (pdf) — containing only the names of the agreements — runs to 28 pages!


Developed from a Twitter thread from October 25, 2017. On February 15, 2018, I wrote this thread about the response to this article.
Updates
: February 14, 2018 — added a link to Lorand Bartel’s article on various legal implications in Borderlex.
Photos and drawing: Either CC BY 2.0 or CC0, “Grandfather” drawing by bamenny


Introducing the WTO elephant and its dodgy health

People’s understanding of the WTO is a bit like the ancient parable of the blind men and the elephant. Even those who have spent their lives working on it stress different aspects

By Peter Ungphakorn
DECEMBER 17, 2017 | ORIGINAL PUBLISHED ON UK TRADE FORUM DECEMBER 16, 2017 | UPDATED DECEMBER 17, 2017

There’s been an elephant in the room ever since the discussion of Brexit and trade began. Gradually, bits of the animal have become visible, but what we’ve seen has not always been accurate. It’s time to complete the picture, and to understand why the beast isn’t in the best of health.

The elephant is the 164-member World Trade Organization (WTO), whose trade ministers have just ended their biennial conference in Buenos Aires, December 10–13, with little achieved substantially.

WTO building_BW cropped_1200pxl
What is this elephant? The WTO’s headquarters, Geneva

JUMP TO
Leg 1: Trade negotiations
Leg 2: Implementing and monitoring
Leg 3: Dispute settlement
Leg 4: Development
Putting it all together

SEE ALSO
What is the WTO? And is it undemocratic?

WTO agreements already apply to the United Kingdom’s relationship with the European Union as an EU member.

As the Brexit talks enter their second phase, they will determine what can and cannot be done with the future UK-EU relationship on trade — sometimes explicitly, sometimes quietly behind the scenes. WTO rules will also affect any trade relationship Britain seeks to define with the rest of the world, whether globally, regionally or with individual countries.

How well WTO rules and the terms of Britain’s WTO membership work depends on the nature of the elephant and its health, which cannot be taken for granted.

People’s understanding of the WTO is a bit like the ancient parable of the blind men and the elephant.

IT was six men of Indostan
To learning much inclined,
Who went to see the Elephant
(Though all of them were blind),
That each by observation
Might satisfy his mind.

Blind_men_and_elephant 3_adj_770x340
Is it a wall? Is it a spear? Is it a snake? Is it a tree? Is it a fan? Is it a rope?

Each feels a different part and, according to this version, they observe separately a wall (the body), spear (tusk), snake (trunk), tree (leg), fan (ear), and rope (tail).

And so these men of Indostan
Disputed loud and long,
Each in his own opinion
Exceeding stiff and strong,
Though each was partly in the right,
And all were in the wrong!

The same applies to the WTO. Even people who have spent their lives working on it stress different aspects.

Some lawyers’ eyes magnify WTO dispute settlement and its jurisprudence, the “jewel in the crown”. For some practitioners, what matters are the achievements of WTO committees whose work is partly designed to avoid legal disputes. Many journalists judge the WTO by the success or failure of negotiations. And so on.

So what is this elephant?

The WTO’s own explanation is here. We’ll do it differently, focusing on the elephant’s four legs — bearing in mind that the whole elephant is the WTO’s multilateral trading system. The elephant stands or moves on those legs. All four are important. Right now they are not too steady.

Leg 1: Trade negotiations — where WTO rules come fromBack to top

Japanese_Blind_monks_examining_elephant_383x270

Negotiations are the starting point of everything that happens in the WTO. All “WTO rules” are actually negotiated agreements. Everything the WTO does is based on them.

They include key principles such as non-discrimination and transparency, and aim for a trading system that is stable and predictable.

They have been negotiated and re-negotiated since the end of the Second World War, starting with the 1947 General Agreement on Tariffs and Trade (GATT, which deals with trade in goods), through the addition of services and intellectual property in 1995 (when the WTO was created) and to streamlining border procedures (“trade facilitation”) in 2013.

Negotiations can be by individual subject, or as a package or “round” covering many subjects. Rounds allow trade-offs across subjects, which can help to break deadlock — for example, a country reluctant to reform agriculture might find it easier to do so if other countries open up their financial services markets in return. But because rounds cover many subjects they are also more complex. Single-subject negotiations are simpler but with less scope for trade-offs.

In 2001 WTO members agreed to launch the Doha Round. They hoped to reach agreement in four years, and they failed. Despite immense progress in 2006–2008, the talks fell short of agreement. Since then, they have stagnated. In the meantime a handful of single-subject deals have been struck. Some came from the Doha Round, including the one in 2013 on trade facilitation.

Agreement in the WTO is by “consensus”, which means no one objects. In 2015 some countries such as the US wanted to declare the Doha Round to be over. Others, mainly developing countries, disagreed. Without consensus, the Doha Round could not be declared dead. But it could not continue in that form either. I’ve called it a zombie.

The WTO’s political leaders, ever since Mike Moore was its director-general in 1999, have measured their own success or failure by the fate of negotiations. By that measure, Moore was successful in launching the Doha Round but all his successors have failed to conclude the talks, until recently when single-issue deals have been agreed.

But there’s more to this elephant than that.

Leg 2: Implementing and monitoring — vital, routine WTO workBack to top

Thai_Blind_men_and_elephant_383x439

Someone described the WTO’s negotiations and other headline-hitting work as the “poetry” in its “plumbing”. The plumbing is unglamorous and rarely seen but cannot be ignored.

Signing negotiated agreements is not an end: it’s a beginning.

Most of the WTO’s routine work is about monitoring how well countries keep the promises they made in those agreements and implementing what was agreed.

It involves a huge amount of information-sharing and scrutiny by WTO members — in over 20 “regular” committees, each comprising the full membership. This leg is wobbling because members struggle to keep up-to-date with the information they have to supply once or twice a year, or when they introduce new regulations or policies. That makes monitoring difficult.

Even when countries keep their promises, the way they do it can hamper trade. When these problems are raised in the committees, solutions can be found just by talking, avoiding expensive legal disputes. Some of the most productive work is on product standards and regulations, such as how to ensure food or industrial products are safe.

If there is no news from these committees, then the system is working well. Generally, peer pressure encourages countries to keep the promises they made in the agreements. That in itself should be news but it’s rarely reported.

All of this means most of the $20 trillion global trade in goods and services flows smoothly and almost unnoticed. Some experts even argue that the WTO’s success or failure should be measured primarily by the “plumbing”, not the poetry.

Leg 3: Dispute settlement — adjudicating WTO lawBack to top

Blind_men_and_elephant_2_383x358

Back to the poetry, though. Formal WTO disputes attract much more attention. They help enforce agreements. They also deal with huge amounts of money (such as aircraft subsidies) or other concerns (such as when tuna fishing endangers dolphins).

WTO disputes are always between governments, so “Boeing” versus “Airbus” is actually the US versus the EU.

And they are always about broken promises (violations of WTO agreements, commitments or expected rights). If a government simply dislikes another’s trade policy in general, the solution is to try to negotiate new rules.

Normally, that is also the recourse when a country is dissatisfied with a dispute ruling.

This year, something different has happened. The US is unhappy with rulings against a particular method it used to calculate something called a “dumping margin”. It’s all very technical but powerful commercial interests are involved and the upshot is that the US is blocking the appointment of WTO appeals judges to replace those whose terms expire. By December 11, they had dwindled from seven to just four.

Unless something changes, WTO disputes could eventually come to a halt. The elephant would be toothless.

Leg 4: Development — the WTO’s particular roleBack to top

Blind_men_and_elephant_255x395

The WTO Is not a development agency, but members want it to have a role. It does this in several ways.

Trade itself is supposed to help developing countries. The rules in the trade agreements also include a considerable amount of leeway for them.

The WTO hosts “aid-for-trade” meetings between development agencies and other donors, and developing countries, so that aid matches real needs as much as possible.

And the WTO Secretariat also trains officials from developing countries so they can operate better in the system.

Acknowledging this used to be routine. Not anymore.

The US blocked a draft declaration for the December 10–13, 2017 WTO Ministerial Conference in Buenos Aires. It objected to the  commitments to the WTO’s multilateral trading system and development, both standard in previous declarations.

Putting it all together — and what it means for the UKBack to top

Some have claimed that the threat to the dispute settlement system means the elephant could be on its deathbed. Others have said the same about the failure to conclude a major negotiation. And then there are those who remind us that the routine work is in reasonably good health, even if the information that members notify to the WTO needs to be better and to arrive faster.

As far as Brexit is concerned, a weakened WTO would allow Britain more leeway in how it chooses its trade policies. But it if the UK feels that others’ trade policies are unwelcome, a weakened WTO would also give it less leverage to deal with the problem.

As for the idea that by leaving the EU, Britain can inject new life into the elephant (which some seriously believe), at the very least the UK will need to learn how to ride it first.


Slightly adapted from: “What is the World Trade Organization?” on UK Trade Forum

Updates: None so far

Photocredit: WTO building © WTO

Illustrations: drawings and paintings of the blind men and the elephant, all public domain:
from Charles Maurice Stebbins & Mary H Coolidge,
Golden Treasury Reader (US);
by Itcho Hanabusa (Japan);
from Phra That Phanom chedi temple (Thailand):
from
Holton-Curry Readers (US);
from Augusta Stevenson,
Children’s Classics in Dramatic Form (US)


How to be a trade champion

A guide for busy politicians: size counts—the more you trade, the bigger your clout in the WTO


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

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”, farm subsidies, and on opening services and public procurement markets — explained here (WTO membership), here (tariff quotas) and here (UK negotiations in the WTO). It’s taken months just to prepare data for the tariff quotas and the real negotiations have only just begun (in mid-2018).

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:
• October 7, 2018 — to reflect that WTO talks on UK commitments began in mid-2018, with updated links

Photocredits:
• Harbour scene by Abraham Storck, public domain