Conservative MP Jacob Rees-Mogg was wrong about this but he’s never corrected his mistake, and the myth persists. What is the claim and why is it wrong?
By Peter Ungphakorn POSTED DECEMBER 27, 2018 | UPDATED JANUARY 16, 2019
It’s not often that hard Brexiters make WTO rules more complicated than they need to be. Usually their error is to over-simplify. But the mistaken identity of interim free trade agreements in the WTO is one rare instance.
The idea had apparently been knocking around for some time, at least back to March 2017 in a Politico article. It reappeared back in May 2018, when Conservative MP Jacob Rees-Mogg claimed on television that WTO rules allow the UK a 10-year grace period to negotiate a free trade agreement with the EU.
Nevertheless, the claim has resurfaced repeatedly over the months since then, and it has been repeatedly knocked down. And yet it persists.
This is what the MP for North East Somerset said on BBC TV’s Daily Politics programme on May 10, 2018:
“If you are in negotiation for a free trade agreement, you can maintain your existing standards for 10 years under WTO rules. So we have 10 years from the point at which we leave the European Union to negotiate a free trade agreement, which would mean we could carry on with our zero tariffs.”
A few days later on May 22, on the same programme, he went further. He said the same WTO rules allow preferential treatment between countries with contiguous borders — suggesting the provision would allow the Irish border to stay invisible — and repeated his claim about the 10-year period.
Also on the programme was Cambridge University trade lawyer Lorand Bartels who said he did not recognise the legal provision Rees-Mogg cited despite years of studying relevant WTO agreements. But he responded to one of the MP’s remarks with: “in that case we’re in agreement.”
That last comment has been interpreted by some Brexiters as proof that Bartels confirmed Rees-Mogg’s argument. In fact he did nothing of the kind.
What’s going on here? To sum up
The 10-year period was designed for countries setting up free trade from scratch, not weakening integration.
For Brexit, citing it is unnecessary because it isn’t needed
If the UK does cite it, it will need the agreement of the EU as well
Citing it also adds unnecessary complications in the WTO
In other words, the 10-year “grace period” has been used to cite WTO rules incorrectly by people who only have a superficial understanding of the rules.
Bartels blames advisers of pro-Brexit politicians “It’s amazing how this awful misinterpretation of Art XXIV GATT won’t die, no matter how many times I point this out, directly to @ShankerASingham among others. Is there an underlying reason it is so popular with Brexiteers I wonder?”
It’s amazing how this awful misinterpretation of Art XXIV GATT won’t die, no matter how many times I point this out, directly to @ShankerASingham among others. Is there an underlying reason it is so popular with Brexiteers I wonder?
Or as former Australian trade negotiator Dmitry Grozoubinski tweeted: “It’s utter nonsense. It relies on your being too busy to read Article XXIV of the GATT, or too confused by trade legalese to parse it.”
1/ Heard this: "Article 24 of the WTO means we can keep the same trading relationship with the EU for 10 years?"
It's utter nonsense.
It relies on your being too busy to read Article XXIV of the GATT, or too confused by trade legalese to parse it. https://t.co/regmwX4oHP
The basic legal issue here is discrimination. One of the WTO’s key rules is that countries should treat their trading partners equally. In WTO jargon this is called most-favoured nation treatment (MFN) — favour one; favour all.
As with many rules, exceptions are allowed. One of the most important is when countries unliterally give trade preferences to their poorer trading partners, such as exempting import duty on goods from developing or least developed countries.
Another — and this is the issue here — is when two or more of them have free trade agreements. The EU’s standard non-discriminatory import duty rate (or tariff) on some types of shoes is 8% of the price. That normal rate is charged on imports from the US, but the same types of shoes are traded preferentially, duty-free, between France and Germany or Denmark and the UK, since they are all in the EU’s single market, a particularly deep form of free trade agreement.
For goods such as shoes or milk, the rules governing free trade agreements come under Article 24 (XXIV) of the WTO’s General Agreement on Tariffs and Trade (GATT). This is the article Jacob Rees-Mogg was citing. (There are separate rules for services.)
There are a few important points to remember about GATT Article 24:
It covers: ordinary free trade agreements between two or more countries — where trade among them is duty-free (and may also be covered by other rules), but they are free to set their own tariffs on imports from elsewhere — and customs unions — where the participating countries all also set the same tariffs on imports from outside the union. The EU single market includes a customs union.
The rules are not as clear as they should be. In particular, whether a free trade agreement or customs union, the deal is supposed to cover “substantially all the trade”. This means if only one sector is covered, such as a free trade deal in cars, that would violate GATT Article 24. But it also allows some products to be excluded, and this creates a grey area. Some agreements exclude all or most agricultural products. There has never been a legal ruling on whether this violates Article 24. And in their committees WTO members have never been able to agree on what they mean by “substantially all the trade”.
The original GATT dates back to 1948. Since then it has been amended, updated and clarified, including a new “Understanding” on Article 24 agreed in 1994. (All versions along with a WTO General Council decision and legal interpretations can be found here or on the WTO website here including as a pdf file here.)
The 10-year period is irrelevant
Where did Jacob Rees Mogg get the idea of a 10-year grace period? You have to dig down to the 1994 “Understanding” (a new agreement providing interpretation) on GATT Article 24 to find it.
It’s all about an “interim agreement” leading eventually to a fully-fledged deal. Article 24 allows countries to announce an interim agreement so long as they supply a plan and timetable for setting up the complete deal “within a reasonable length of time”. The 1994 “Understanding” says that should normally be no more than 10 years.
But, as Bartels said on May 22, these provisions were designed for a situation where countries start with no agreement and move to free trade. They are allowed to set up an interim arrangement while they negotiate the final deal.
Brexit is different. The UK is closely integrated into the EU single market and its customs union. It is leaving that, and intends to negotiate a looser free trade agreement of some kind with the EU.
At a key moment in the TV programme, Rees-Mogg and Bartels interrupted each other, which means we didn’t get to hear what they meant in full.
Rees-Mogg said: “A preliminary agreement can be a continuation of what you’ve already got …”. Bartels cut in: “Oh, in that case we’re in agreement”. Rees-Mogg welcomed the reply.
But did they really agree? Crucially, not on the 10-year period.
The point is that the UK and EU can simply agree between themselves to continue with what they’ve “already got”. In that case they don’t need to notify anything to the WTO until the present arrangements are terminated. The 10-year period is irrelevant because there is no “interim agreement”. But that’s not what Rees-Mogg was saying at all.
Alternatively, if UK and EU go for the transition-period customs union written into the Withdrawal Agreement, that could also be notified to the WTO simply as a new customs union understood to be in place until it’s terminated or replaced. Again, as far as the WTO is concerned, no need for an “interim” agreement or a 10-year period.
That seems to be the consensus among trade lawyers who have studied Article 24 and Brexit.
Yes, I would say that is right. And no rigmarole. Quite straightforward.
There is a further technicality to consider. The current arrangement of what the UK has “already got” is notified to the WTO as a single deal, a “Customs Union & Economic Integration Agreement” notified simultaneously under the WTO’s goods and services agreements. That suggests that for Brexit, the UK and EU will have to notify any post-Brexit arrangement since the WTO notification is based on the UK being an EU member.
The 10-year period would be a nuisance
It gets worse. Countries tend to avoid going through the rigmarole of notifying and defending interim agreements in the WTO. Here’s why:
First, even though the agreement is interim, the notification cannot be a simple piece of paper saying “Hey, WTO! We’re negotiating a free trade agreement. It may take 10 years. While we’re doing that, we might violate some of your non-discrimination rules.”
It has to contain details, including a plan and timetable for concluding the final agreement.
Second, as the name says, it would have to be formal agreement between the UK and EU, meaning the EU would have to be on board too.
In theory, the transition customs union and the Protocol on Northern Ireland / Ireland (the “Backstop”) in the Withdrawal Agreement could qualify. The attached non-binding political declaration on the future relationship would not, since it’s not an agreement.
Worst of all, the details are likely to be scrutinised by WTO members and they can demand changes to the agreement. This is what GATT Article 24 Paragraph 7 says (note this keeps the pre-WTO language, so “CONTRACTING PARTIES” now means WTO members):
(b) If, after having studied the plan and schedule included in an interim agreement referred to in paragraph 5 in consultation with the parties to that agreement and taking due account of the information made available in accordance with the provisions of subparagraph (a), the CONTRACTING PARTIES find that such agreement is not likely to result in the formation of a customs union or of a free-trade area within the period contemplated by the parties to the agreement or that such period is not a reasonable one, the CONTRACTING PARTIES shall make recommendations to the parties to the agreement. The parties shall not maintain or put into force, as the case may be, such agreement if they are not prepared to modify it in accordance with these recommendations.
(c) Any substantial change in the plan or schedule referred to in paragraph 5 (c) shall be communicated to the CONTRACTING PARTIES, which may request the contracting parties concerned to consult with them if the change seems likely to jeopardize or delay unduly the formation of the customs union or of the free-trade area.
No country wants to go through all that unnecessarily, which is why interim agreements are never notified to the WTO. And even if the UK wanted to take this complicated route, there’s little chance the EU would agree.
In fact, there is no WTO definition of an interim agreement. We can only surmise some of what it might contain from the conditions in Article 24 and other procedures.
Would an interim agreement ever be notified? Perhaps only if the interim arrangement blatantly violated something like the “substantially all the trade” rule. For example, if the countries involved could agree on free trade across the board, except in agriculture and they wanted to implement the rest while they negotiated agriculture. Perhaps. Normally they would craft some way to get round that.
Contiguous territories and frontier traffic?
Finally, the reference to “contiguous” territories in paragraph 3 of Article 24 only applies to Trieste and is now out of date.
Another provision on frontier traffic between adjacent countries would only apply up to 15km inside the border and therefore not to the whole of Ireland or Northern Ireland, Bartels says: “It applies to products produced 15km either side. You also get grazing cattle as ‘frontier traffic’ (provided they come home). In short, this is no solution to the NI border question.”
Yes. It applies to products produced 15km either side. You also get grazing cattle as ‘frontier traffic’ (provided they come home). In short, this is no solution to the NI border question.
Where does this come from? According to historical GATT documents (see page 7 of this, or the version on the WTO website), this was the intention behind the original drafting proposal from the US back in the 1940s. Although the drafting committee felt this should not be interpreted too strictly, the reference to 15km can probably be taken as an indication of the scale intended.
Understanding these WTO provisions is not going to have a dramatic impact on Brexit. But understanding that they are red herrings could leave more time for issues that really matter.
Full text: GATT Article 24 (XXIV), all amendments and clarifications, and jurisprudence, from the WTO Analytical Index, is here.
Updates: January 15–16, 2019 — adding clarification that the extract of Art.24 is from Paragraph 7; link to full text from the WTO Analytical Index; link to the March 2017 Politico article Photocredits: All original images from Pixabay, CC0
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
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 21, 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?
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.
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.
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.
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.
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.
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.
September — news leaks of a joint UK-EU approach on tariff quotas
September 26 — seven WTO ambassadors pre-empt joint UK-EU letter
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.
Putting the bound tariffs in sterling would create problems for any customs union or Chequers solution (where you’re levying EU tariffs at UK border). Of course tariffs can be collected in sterling, with the exchange rate worked out regularly, as this happens right now.
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.
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.
IN THE WTO
Joint UK-EU approach
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.
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.
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.
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 uncertainty
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.
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.
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 be negotiating “modification” under GATT Article 28 — the UK would have to formally launch the process with its 90-day period opened for other WTO members to stake a claim. The UK needed a brief period to prepare to launch the process.
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 UK formally launched the Article 28 process on December 21. WTO members would have 90 days until March 21 to claim the right to negotiate, meaning negotiations would take place after Brexit day, March 29.
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.
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:
• December 21, 2018 — adding UK formally launching GATT Art.28 process in the WTO.
• 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 a link to Dmitry Grozoubinski’s explainer (a link to his updated added January 4, 2019)
• 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
• 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)
Countries’ and organisations’ reactions show some of the issues Britain and the EU may have to confront when they negotiate their tariff quotas in the WTO
By Peter Ungphakorn POSTED SEPTEMBER 12, 2018 | UPDATED SEPTEMBER 12, 2018
In May 2018, the European Union’s Commission circulated proposed modified tariff quotas for the post-Brexit EU–27 to be negotiated in the World Trade Organization (WTO). It also invited comments from interested parties. Twenty-one countries and organizations had responded when the comment period was closed in July, offering a foretaste of negotiations to come.
Britain will also face those issues in the WTO because the UK’s post-Brexit tariff quotas are linked to the EU–27’s. Both want their separate post-Brexit quotas to add up to the present quotas for the EU–28. (This is explained here***.)
These snapshots of the 21 comments, including short extracts, are hastily put-together and were originally in a Twitter thread.
Follow the links to read the full texts, or find them all on this page.
Very briefly: EU farmers unions broadly support the approach. Exporters (countries and companies) and EU importers oppose it. And some say a similar exercise is needed for tariff quotas in the EU’s bilateral free trade agreements.
1. European Sugar Refineries Association
— don’t split the quotas
Thus,WTO TRQs should not be split between UK and the EU. The status quo should be maintained, as the commitments in question adhere to the bloc, not to its individual member states. Our position is based on considerations of practicality, fairness, and certainty, and offers the best solution for both the EU-27 and the UK sugar markets
The proposal to apportion the EU-28 tariff rate quotas will result in the deterioration of market access in the European Union and in the United Kingdom. The methodology employed to split or “apportion” the tariff rate quotas is well-described in the proposal but the modalities employed are arbitrary. The use of the relatively short reference period to demonstrate trade flows may not fully capture the extent of trade, development of commercial interests or the trans-shipment of products within the European Union territory. Canada would argue that under this proposal “current market access levels” are not maintained but diminished.
In other words, for the other members not to be affected by the Brexit, it is imperative to maintain the current flexibility of being able to channel the total volume of the tariff quota to any member of the EU, otherwise it would result in a loss of commercial relevance of a quota after its distribution between two independent markets.
Finally, we should highlight certain elements that negatively affect the interpretation and would question the bases of the statistics used in the assessment of bilateral trade statistics, like the treatment of the Rotterdam effect, as well as the limited provision of data and the period considered. This is also accentuated by the problems arising from not considering the historical trade data of the TRQs resulting from the Uruguay Round in order to have commercial patterns that more accurately reflect trade flows that are not evident in the proposed three-year period.
To conclude, the unilateral methodology proposed by the EU to split quotas should not prevail over the provisions of the WTO Agreements, when it is also noted the lack of statistical data of public access that ensure to be able to determine exactly the distribution of the TRQs within the EU Member States, so that the results are consistent with the objectives of a rules based multilateral system.
— opposes method, questions data, seeks clarity about Brexit arrangements
While the total volume covered by these TRQs would not be reduced under the proposed shared UK-EU approach, the value and commercial workability of the concessions would clearly be diminished.
The proposal would commercially disadvantage our existing access by removing the current single market flexibility – whereby commercial entities determine the port of entry that is convenient and commercially viable for the collective EU market.
Further impacting the above, is the difficulty of accurately reflecting, in any TRQ apportionment, where in the UK or EU our products are actually consumed. Neither port of entry import data nor import licensing data accurately reflects the final point of consumption.
This inaccuracy, leading to an arbitrary quota split based on port of entry, increases the likelihood of unforeseen negative effects on our trade.
— challenges legal approach, seeks information on the process, expects outcome will not “nullify nor impair” its access to the EU and UK
Regarding the proposed methodology of apportionment, Paraguay considers that splitting the current TRQs bound by the EU among EU 27 countries and the UK ignores the TRQ commitments reflected in the EU schedule, which bind the Union as an entity, regardless of the number of its Member States. Every concession made in the framework of the WTO list of concessions represents a delicate balance between the EU and the rest of the WTO Members.
On the other hand, with regard to the decision to open formal negotiations on the basis of the Article XXVIII of the GATT 1994, WTO members are not yet informed when the EU plans to officially notify its intention to modify its schedule of concessions and if such notification will be joined by any action from the UK. As a matter of fact, Paraguay was not informed whether the UK will also negotiate their modifications under Article XXVIII as well.
Paraguay believes that the fulfilment of current WTO commitments shall be the basis for the outcome of this process, avoiding the situation of leaving the EU’s trading partners worse off.
In that regard, Paraguay is willing to engage in a constructive dialogue with the EU and UK in order to find the most reasonable and legalistic way to deal with the process of UK withdrawal from the EU. Thus, Paraguay expects that the outcomes of that process would not nullify nor impair its current market access to EU and the UK.
— EU–28 commitments are for the as an “indivisible” single entity, single market, so splitting quotas is unjustified. Many other objections or questions.
– The proposal for a Regulation of the European Parliament and of the Council on the apportionment of tariff rate quotas (TRQs) included in the WTO schedule of the EU following the withdrawal of the United Kingdom is based on the assumption that “EU’s existing quantitative commitments will require certain adjustments”. Can the Commission provide an explanation on why these adjustments are required, since those commitments were made by the EU vis-à-vis other WTO Members?
– In addition to leaving trade partners in a worse-off situation, the proposed apportionment of the EU´s existing quantitative commitments would also put in question a number of attributes of the EU, such as:
(a) its reliability as a trade partner, insofar as political decisions can downsize commitments previously made by the Union as a single entity;
(b) the reputation of the single market as something greater than the sum of the markets of the Member States it comprises.
— EU–27 shouldn’t amend EU–28 quotas, UK’s position is questionable, no hurry since the UK is staying in the customs union through the transition
6 This approach seems to be grounded in a number of false premises, including:
– that splitting (or “apportioning”) the tariff rate quotas can “ensure that other WTO Members’ current market access levels would be maintained” (paragraph 3 of the preamble to the proposed draft Regulation). This is not the case. Both European importers, as well as the exporters from many of the EU’s closest trade partners, would find themselves seriously disadvantaged if the EU were to pursue this approach; and
– that the UK, as a third country, can compensate Members for the EU’s proposed unilateral reduction of its own commitments, while at the same time asserting that the UK is an independent entity no longer bound by the EU’s collective responsibilities.
1.3 DCANZ submits that this is a matter that is subject to World Trade Organisation (WTO) rules and commitments, and any changes to arrangements following the withdrawal of the United Kingdom must not erode New Zealand’s current trade opportunities.
1.4 DCANZ is concerned that the EU TRQ apportionment proposal:
1. Is unilateral in approach, that does not accord with recently signalled EU intensions to initiate good faith negotiations with other WTO members;
2. Is not in accord with WTO rules and commitments; these quota’s form part of the EU’s binding schedule of commitments which represents a balance of benefits and concessions between WTO member countries;
3. Is being advanced while the future shape of the relationship between the EU and UK remains uncertain;
4. Erodes the current flexibility of New Zealand exporters to make use of the full volumes available under the TRQ’s to meet demand in any geographic part of what is the current Union;
5. Uses a methodology that represents a tortuous extrapolation from a limited dataset, which is neither representative of trade which has occurred during the full lifetime of the quota, realistic in terms of modern supply chains and port networks, nor representative of how future trade may evolve;
6. Would not result in an equivalent market access opportunity compared to the current situation and would leave New Zealand dairy exporters demonstrably worse off;
9. Beef + Lamb New Zealand and the Meat Industry Association of New Zealand
— unacceptable approach, and too hasty
3. The EU proposal to apportion the TRQs established in the EU’s legally binding Schedule of Commitments is unacceptable to the sheep and beef sector in New Zealand. This proposal does not meet the EU and the United Kingdom’s (UK) joint and several legal obligations and commitments to their fellow WTO Members.
4. The Sector has developed a set of key principles to guide its approach to the Brexit related TRQ discussion:
5. The quality and quantity of the WTO access commitments are legally binding;
6. An important aspect that goes to the quality of the EU’s WTO’s commitments is the flexibility New Zealand exporters have to responsibly respond to consumer demand and changing market conditions across EU markets;
7. The Sector expects the EU to undertake genuine and constructive engagement with negotiating partners and stakeholders in order to ensure a mutually workable solution that creates the least amount of disruption to the market.
8. The EU proposal to apportion the TRQ’s established in the EU’s legally binding Schedule of Commitments is completely unacceptable to the New Zealand sheep and beef sector as it erodes New Zealand’s market access rights.
9. The Sector sets out three principal concerns with the EU’s proposal on apportionment:
10. Apportioning the TRQs is not acceptable to the New Zealand meat industry;
11. A three-year reference period from 2013-2015 is a flawed snapshot of the trade relationships;
12. The timing and nature of the EU’s proposal for a regulation to apportion TRQs is both presumptive and unilateral in nature.
13. The timing of the EU’s proposal is pre-emptive, unhelpful and unnecessary. There is considerable detail left to be negotiated between the UK and the EU with respect to the terms of the UK’s departure from the EU. Asking affected parties to assess their interests without a clear understanding of the terms of trade between the EU and the UK is both untenable and unreasonable. The detail of the future EU and UK relationship will significantly determine the impact on trading partners and indeed New Zealand’s trading interests.
— calls for Thailand’s manioc starch quota to be included
Generally speaking, there are two Tariff Rate Quotas of relevance to the European starch industry in the Brexit preparedness exercise:
1. The tariff rate quota of Manioc Starch (10 000 tonnes) opened to all third countries (Erga Omnes) for exporting Manioc Starch at a reduced duty (66€/tonne) to the EU.
2. The tariff rate quota of Manioc Starch (10 500 tonnes) devoted to Thailand for exporting Manioc Starch at a reduced duty (66€/tonne) to the EU.
While the draft COM 2018 (312) proposal reports on the first quota of manioc starch (Erga Omnes) in the Annex to the Commission’s proposal, it does not include the second quota devoted to Thailand.
Starch Europe therefore calls on the Commission to include, in the Brexit preparedness exercise, the existence of this tariff rate quota of Manioc Starch (10 500 tonnes) devoted to Thailand for exporting Manioc Starch at a reduced duty (66€/tonne) to the EU, order number 090125.
We would be grateful if you could take our suggestion on board, and remain available for any question you may have.
— disagrees with approach for splitting quotas without adjusting overall quantities, questions data
-In principle we don’t agree that the methodology whereby the shares must add up to 100% is a fair approach.
-The flexibility to sell product either to the UK or other member states is an integral part of the market access granted to third countries under the WTO commitments. Whilst using a 3 year period is a convenient mirror of the procedure used for any enlargement of the EU, a member state leaving the EU is not a mirror image given the presence of the single market. Current flexibility to send to the EU27 or to the UK allows importers to respond to market changes & to supply product where it is most required. The EU & the UK are not self-sufficient in meat & need stable sources of imported product from trading partners in order to meet consumer demand, helping balance the market.
-Once imported into a member state the product is free to travel within the single market thus post clearance movement of product is common, responding to changes in price differentials between member states for particular cuts of meat.
— concern about value of concessions, data. Calls for EU to use transition period and consider current strain on WTO
Australia believes that the current proposal for apportioning TRW between the United Kingdom and the European Union would diminish the commercial value of Australia’s existing agricultural market access to the EU. While the total ‘volume’ covered by the TRW to be shared between the UK and EU would not be reduced under the approach proposed, the ‘value’ of the concessions would clearly be reduced. The approach would leave Australia at a commercial disadvantage, by removing flexibility in where product is sent year-to-year, and by rendering some country-specific quota allocations too small to be commercially viable.
Australia further notes the difficulty of reflecting accurately, in any TRQ apportionment, whether goods are consumed in the UK or elsewhere in the EU, due to the ‘Rotterdam effect’. Neither import data nor licensing data accurately reflects the final point of consumption for goods within the EU. Such uncertainty in the data increases the likelihood of unforeseen negative effects on trade from the proposed approach.
Australia also notes that key trading partners of the EU and the UK have consistently rejected the proposed TRQ-splitting approach, since it was first proposed in October 2017.
13. European Association of Fruit and Vegetable Processors (PROFEL)
— supports some quotas, questions figure for agaricus mushrooms and seeks smaller quotas for canned fruit
1. Dried onions: the EU sector of dried onions can support the current proposal
2. Mushrooms of the species Agaricus, prepared, preserved or provisionally preserved: after coordination with the European Group of Mushroom Growers (GEPC) we would like to point out that the 2 volumes mentioned are not consistent with the volumes of the regulation No 1979/2006, which are to date: 30 400 T for EU imports from China (28 950 T + 800 T with the accession of Bulgaria, Romania – Reg. No. 637/2014 and + 650 T with the accession of Croatia – Reg. 2016/2244) and 5030 T for EU imports from other third countries. On the principle, the EU sector can accept to keep the current quota as the UK has imported very few canned mushrooms from China these last years.
3. Preserved pineapples, citrus fruit, pears, apricots, cherries, peaches and strawberries: the European sector of canned fruit can support the current proposal to adapt the WTO quota and stresses the importance of reducing the EU’s import quota for canned fruit in the context of Brexit. For the European sector, it is of utmost importance to adapt also the bilateral quota in the free trade agreements between the EU and third countries, such as the quota for canned fruit in the agreement with the South African Development Community (SADC) of 57.156 tons. Given that around 26% of the EU imports of canned peaches from South Africa are destined for the UK market, these volumes need be reduced from the EU quota when the UK leaves the European Union.
— opposes method, asks about UK-EU trade in the quotas
In addition, we would like to express our profound substantive concern about the methodology of the proposed apportionment. Simply splitting the current TRQs bound by the EU among EU 27 countries and the UK raises a number of issues. This methodology ignores the fact that the TRQ commitments reflected in the EU schedule, which represents a delicate balance of concessions and entitlements between the EU and the rest of the WTO Members, bind the Union as an entity regardless of the number of its Member States.
The apportionment methodology negatively affects the quality of the TRQ market access rights by creating a market segmentation that was not present at the time the TRQs were negotiated. This simply denies the current right of exporters to decide to which EU Member State to export and to take advantage of variations of internal prices. Besides, on the representative three-year period, the EU plans to use the 2013-2015 period because it allegedly reflects better the situation before the UK’s withdrawal. However, the EU did not submit any evidence supporting the premise that more recent periods suffered from indirect effects of the UK’s withdrawal from the EU.
Regarding future trade flows between the EU and the UK, there is neither information the new UK schedule and its tariff (bound or applied), nor on whether the goods that are currently imported into theEU-28 through TRQs will continue to enjoy DFQF between the EU-27 and the UK
Market stability and predictability is paramount. It is important for the beef producers and consumers in Europe, as well the beef producers within our countries. Trade relationships and important commercial relationships have been established over decades of successful trade between all of our countries. It is essential that any outcome at the WTO preserve this stability and continues to promote open trade. An important contributor to this market stability is the ability of exporters to trade into either Continental Europe or the United Kingdom, without further restrictions. Many of our exporters take advantage of distribution networks by using a port as a centre of distribution into a number of European markets. We value this flexibility which is eroded by the EU’s proposal to “apportion” quotas.
Apportionment of quotas also compromises the quality and quantity of quotas, and in the case of smaller quotas, apportionment renders some almost economically unviable. We encourage the EU to approach this task in the spirit of greater trade liberalization, and work with trading partners to come to a mutually beneficial solution that overcomes these challenges.
We also question the timing of this proposal from the EU given the significant uncertainty around the terms of trade between the UK and the EU after March 2019. There remains a significant amount of detail left to be negotiated between the EU and the UK, and it seems presumptuous to propose a regulation before adequate consultation and negotiation has occurred between affected WTO Members.
— EU–27 keep unchanged quotas, UK negotiates new ones
As regards the arrangements for the tariff quotas of poultry meat from third countries after withdrawal of the UK from the EU, EPEGA sees no need for action, to behave generously towards the United Kingdom. The United Kingdom leaves the European Union voluntarily and should be aware of the consequences of the withdrawal.
EPEGA favours the option of maintaining poultry meat quotas unchanged in the EU 27 after the withdrawal of the United Kingdom and that the United Kingdom renegotiates its quotas with the third countries.
A percentage allocation of the quotas between the EU and the United Kingdom constitutes a discrimination of importers in the member states remaining in the EU and could provide incentives for potential imitators.
Furthermore, it is of vital importance that trade or import certificates (reference quantities for the quotas that were generated by other EU Member States in the United Kingdom before the Brexit ) will be mutually recognized after the Brexit.
— supports the EU and UK approach including possible unilateral apportionment
Copa and Cogeca are supportive of the joint offer made by the EU and the UK to the World Trade Organisation (WTO) members regarding the adjustment of the EU’s WTO bound Tariff Rate Quotas (TRQs). We agree that this proposal is in the interest of maintaining clarity and predictability in the mutual trading system.
Furthermore, we believe that the methodology proposed by the EU and the UK to maintain the existing levels of market access available (through an apportionment of the EU’s existing commitments) to other WTO members is appropriate. The methodology is compatible with the EU’s obligation under the WTO Agreement.
While the EU’s schedule commitments will continue after the withdrawal of the United Kingdom from the European Union, the existing quantitative obligations need to be adjusted. Full absorption by the EU27 of all current EU’s WTO bound TRQs would lead to significant imbalances within the single market.
If necessary, and given the limits imposed by this process of negotiations, Copa and Cogeca supports the Union to proceed unilaterally to the apportionment of the tariff rate quotas.
— supports the EU approach, flexible on base period
TRQs are a sensitive trade issue for our members; our priority is to ensure that any negotiated outcome does not unfairly disadvantage UK producers. The NFU supports the Commission’s proposal for a regulation on the apportionment of tariff rate quotas (TRQs) included in the WTO schedule of the Union following the withdrawal of the United Kingdom from the Union.
We are supportive of the process and methodology that the EU and UK have agreed and presented to the other WTO members. Apportioning the EU28 TRQs based on how they were used in the three years prior the EU Referendum in the UK represents a defendable position at the WTO negotiating table. However, if it becomes apparent that the chosen reference period is unrepresentative of the current trade flows we reserve the right to ask the UK Government to consider a more recent reference period. We will keep this under close review.
19. Deutscher Bauernverband (German Farmers Association) (DBV)
— broadly supports the EU’s approach
Full adoption by future EU-27 of all WTO tariff quotas for agricultural products in the current EU-28 would significant market pressures in the EU single market and would be unacceptable to us.
The adjustment of the EU’s bound WTO tariff quotas requires a sharing of the existing volumes between the UK and the EU, which will take effect at the time when the UK is no longer covered by the EU’s WTO list. The DBV expressly welcomes the fact that the EU has started talks with the WTO trading partners to this effect.
The DBV also believes it is necessary to agree bilaterally with the UK on a common approach in the framework of the necessary talks with WTO trading partners.
We point out that the allocation of tariff quotas should be based on existing trsde flows for each tariff quota in a current representative period.
If necessary, we support the request of the European Commission to be able to unilaterally allocate tariff quotas. Ensuring legal certainty and smooth and continuous settlement of imports into the Union and the UK under the tariff quotas must be of the utmost importance.
— must include quotas in bilateral agreements too, base on real trade
As drafted, the explanatory memorandum of the proposal implies that the principle of sharing cannot exclude any category of import quotas.
This principle must logically apply equally to quotas arising from bilateral free trade agreements and especially to the free trade agreements recently concluded or being negotiated.
The universality of this principle seems reasonable in view of the fact that all international commercial commitments have been sized for a Europe of 28. If they were concentrated in a market reduced to 27, they would increase the burden borne by the latter and break the general equilibrium sought by the trade agreements concerned.
Finally if it wants to be fair and useful, the distribution requires that the import flows recorded by zone (UK and EU-27) be related to the real total imports, and not to the hypothetical nominal quota potential.
— EU–27 quotas should be based on actual imports even if quotas unfilled, do the same for bilateral free trade agreements
The Commission’s calculation modality is surprising: the entire EU-28 quota is allocated to the EU-27 less the use made by the United Kingdom. But it is to forget that the entire quota has not been used every year. This means entrusting the EU-27 more than reality. Why not calculate the percentage upside down, ie allocate to the EU-27 what the EU-27 actually used between 2013-2016? The calculation method chosen is against the EU-27
In any case this draft regulation is welcomed, and invites to quickly build an identical project, but concerning the bilateral FTA!
The first beginners’ guide was on tariffs. It was supposed to be for a “six-year-old” to understand. Sadly tariff quotas are more complicated, so perhaps you have to be seven-and-a-half for this one, and that’s just at the start
By Peter Ungphakorn POSTED SEPTEMBER 9, 2018 | UPDATED SEPTEMBER 10, 2018
In trade policy, life can quickly become pretty complicated. The first beginners guide was on tariffs, and it was relatively simple. Move on to “tariff quotas” and we enter a complex, controversial and sometimes murky world.
But it’s useful to understand them because they feature in current debates about Brexit and Donald Trump’s trade policies. So let’s keep this as simple as possible.
We are familiar with quotas. They are simply limits on numbers or amounts. Until recently, Britain had a quota on how many foreign doctors and nurses would be granted visas to work in the UK: 20,700 per year. (This limit was removed in June 2018 in order to tackle health staff shortages.)
Sticking with trade in goods (and ignoring services), quotas are limits on the quantities imported or exported (the technical term is “quantitative restrictions” or QRs, which includes outright prohibitions).
By and large, the world’s trading nations have agreed in the World Trade Organization (WTO) to scrap import quotas. Export quotas are discouraged (although some countries use them legitimately to control exports that face tariff quotas in the importing country — we’ll see why in a moment).
Below is an imaginary quota on importing some types of live sheep. It could have been a number of animals, say 5,000. But instead, this quota is 196 tonnes (ie, the number of sheep is converted to an equivalent amount in tonnes by some formula.)
This hypothetical country allows 196 tonnes (equivalent) to be imported. Beyond that, imports are banned completely. (The imports will be charged whatever the normal import duty — or tariff — is.)
People often speak about “quotas” for short when they mean “tariff quotas”. They are not exactly the same. So …
What are tariff quotas?
The full name is “tariff-rate quotas” (TRQs), and they apply to imports of goods. Within the quota, the tariff rate is zero (duty-free) or low. Outside the quota the tariff rate is much higher. Importing outside a tariff quota is not impossible, but the tariff rate could be so high that it’s unprofitable.
In other words the quota is a limit on the quantity eligible for lower duty.
Below is an actual tariff quota. The EU allows some types of live sheep to be imported at a 10% duty rate, up to a limit of the equivalent of 196 tonnes (yes, the previous example was based on a real figure*). Outside the quota, the duty is €805 per tonne. That would add €805 per tonne to the import price. The exporter could lower the price in order to try to sell the sheep, but often that would still be unprofitable either for the importer or the exporter.
Tariff quotas are used on a wide range of products. Most are agricultural: cereals, meat, fruit and vegetables, and dairy products are the most common. Sugar is not far behind. Not all are food: the US has tariff quotas on cotton. And not all are agricultural. The EU has around 100 tariff quotas: most are agricultural but they also include on fish (not “agricultural” in the WTO), glass beads and imitation precious stones, ferrosilicon, newsprint, and other products.
So far so simple (hopefully). Now it starts to get complicated.
Why have tariff quotas?
Essentially they are a compromise. On one side, they protect domestic producers from having to face competition from large quantities of imports. On the other, they allow exporters some access to the market. They also allow consumers and other producers in the importing country to get hold of some imports.
The US cotton tariff quota protects US cotton growers while allowing textiles manufactures to import some cheaper cotton.
The compromise would have come from international trade negotiations, leading to a balance between the interests of importing and exporting countries.
Inside a country it would also have come from the government balancing the interests of different groups of producers (those who compete with the imports, and those who use the imports as raw materials or components) and consumers. How that balance is struck depends on the country’s political processes, including lobbying and interests represented in parliaments.
In the US, cotton growers are a powerful lobby. From Canada eastward to Japan and in many countries in between, it’s dairy producers. In the EU, farmers groups lobby on a wide range of products. In Japan, it’s rice farmers. Sugar is protected in most producing countries, often with tariff quotas. And so on.
And in the WTO?
The agricultural tariff quotas in the WTO have a particular history. They are the result of the 1986–94 Uruguay Round negotiations, which reformed international trade rules and created the WTO.
In the talks, countries agreed to scrap import bans and straight quotas, and to replace them with tariffs having a similar effect. (This conversion to tariffs was called “tariffication” — the full complexity is in Annex 3 of this non-binding document from the talks.)
How did tariffication work? If banning imports meant the domestic price was six times the world price, the equivalent tariff would be 500% — the 500% tariff would, in principle result in a price that’s six times the world price. That was approximately the situation for rice imports into Japan.
Importing with a 500% duty rate is clearly impossible (or almost impossible). So the negotiators compromised by opening up tariff quotas that would allow some imports. The unofficial target was 5% of domestic consumption, but that was never officially agreed.
The result was tariff quotas that were often considerably manipulated. (This could have been called “cheating” but because the target was not agreed it was just called “dirty tariffication” — the 5% target is in paragraph 5 of the same non-binding document.)
And now, I’m afraid, it gets really complicated.
When does the higher tariff kick in?
Or, does the tariff quota have to be used up completely before imports are charged the higher duty? The short answer is “no”. Some imports can face the higher duty even if the lower-duty quota is not filled.
QUOTA ALLOCATION METHODS
WTO members identified all these methods in their notifications to the organisation (compiled in Secretariat document TN/AG/S/26/Rev.1)
Applied tariffs: unlimited imports at the in-quota tariff rate or below
Auctioning: importers bid for shares or licences
First-come, first-served: physical imports charged in-quota tariffs until the quota is filled
Historical importers: based past imports of the product
Licences on demand: allocated in relation to quantities demanded, often before the period specified for the quota — first-come, first-served or allocations trimmed proportionately if demand exceeds the quota
Mixed allocation methods: combinations of the above, none dominant
Non-Specified: no method notified
Other: methods not clearly within any of these categories
Producer groups or associations: if they import or control the country’s imports
Imports by state trading entities: if they import or control the country’s imports
It depends on how the importing country manages the tariff quota. Normally this means issuing import licences, and the way they are issued has an impact.
If the licences are issued automatically as shipments head for the importing port, and if they are issued first-come-first-served, then the quota would be filled before the higher tariff kicks in.
But there are many other criteria that countries use for issuing import licences. One is for this year’s licence to be based on the company’s previous years’ imports (“historical importers”). Another requires importers to pay for the licence by bidding — a controversial method that some argue that in practice raises the in-quota tariff, violating the country’s WTO commitment (explained here).
Among the questions countries ask each other most often in the WTO’s Agriculture Committee is why imports under their tariff quotas do not reach the limit (the quotas are “unfilled”).
The answer is usually because of supply and demand — domestic demand for the imports is too weak or the prices on imports are too high. A number of countries claim that the real reason is often the way import licences are allocated. They have tried to negotiate tighter disciplines, but as part of a wider agriculture negotiation which is largely stalled.
Are tariff quotas available to all suppliers?
Some are, some aren’t. Tariff quotas often specify which countries can supply the product. Sometimes the quota is defined by which country can supply, meaning there can be several quotas, one for each supplier. Sometimes a single quota is subdivided to show how much goes to each country, how much goes to other unspecified countries and how much is available for all countries (the dreaded “erga omnes”, abbreviated as “EO” — personally I prefer to think of “EO” as “everyone”).
The US recently announced how its 1.1 million-tonne WTO sugar tariff quota will be shared out among 40 countries in financial year 2019.
What about the politics?
On the face of it, this is about protectionism versus access to markets (or to imports). But there’s more to it.
In the 1980s and 90s, Thailand exported millions of tonnes of tapioca pellets to the EU through a tariff quota. (Tapioca is called manioc in the EU; elsewhere it’s also called cassava.) The tapioca fed pigs in Europe because it was cheaper than barley and other feed ingredients, whose imports faced high tariffs.
Thailand was also allowed to control its exports to match the EU’s import quota, under a voluntary export restraint (VER) agreement, and this transferred control of the quota rent to Thailand. (VERs were largely outlawed when the WTO came into being in 1995, but they have reappeared in response to Trump’s threats against imports.)
Various controversial and allegedly corrupt schemes were devised by the Thai government to allocate shares of the exports among various companies.
In one method, companies could export in proportion of the stocks they held. This led to a race to stock tapioca, drove up warehouse rental and produced official figures for total stocks that exceeded total warehouse capacity. The quota rent went to warehouse owners, and perhaps officials who checked the stocks.
Thailand also exported its poorest quality tapioca to the EU at a high price, inflated by the quota and the captive market created by import barriers on alternative feed ingredients. It exported its best quality tapioca cheaply to South Korea. South Korean importers got a share of the quota rent both through the lower price and the better quality.
That battle is over. Tapioca is now traded mainly as starch for use in food processing. But it is a vivid example of how quotas create a battle ground for economic, political, and sometimes corrupt interests.
Quotas (including tariff quotas) create a free gift for someone. They are themselves valuable.
Part of the controversy is about the fight for that additional value, which economists call “quota rent”.
Quotas restrict the supply of a product. Buyers compete for shares of the restricted supply and bid up its price. That higher price produces quota rent for the amount supplied, as a free gift.
The fact that governments are able to open bidding for import licences shows companies are willing to pay extra in order to get their hands on products that have become more scarce as a result of a quota or tariff quota.
Who gets this free gift? It depends.
If the government allocates import licences by bidding, then some or all of the quota rent goes to the government.
Some economists argue that this is the most useful way of dealing with quota rent. It should not be seen as an extra tariff, they and some governments argue. Otherwise the free gift just goes to the private sector.
Sometimes companies receive import licences and sell them on to other companies for a profit. That profit comes from the quota rent.
Sometimes it’s the exporting county that controls the quota rent by controlling the quota (see box).
The bottom line: whoever controls the quota also controls who gets the quota rent.
Tariff quotas have emerged as part of the UK’s need to re-establish itself as a WTO member independent of the EU. In particular, the UK has to separate its own tariff quotas from those of the EU’s. London and Brussels have agreed on a method which would be a straight post-Brexit split of the present pre-Brexit tariff quotas of the EU–28.
Some other WTO members are unhappy with the method and have promised tough negotiations to produce something different.
Every year, WTO members have to notify what’s been happening with their agricultural tariff quotas. A useful tool for searching for these notifications is here — look for “Search documents online” and “Notifications on tariff and other quotas under Article 18.2 (MA:1, MA:2)”
Some importing countries have information on their websites. The EU’s is here, but searching the EU’s databases is complicated because of the need to look up tariff code numbers first rather than key words. So good luck! (If anyone knows a simpler source, please let me know.)
* The EU’s actual commitment in the WTO is 5,676 tonnes, but that is for the 25 EU members before Bulgaria, Romania and Croatia joined. The EU’s commitment for the EU–28 has not yet been cleared by WTO members but it is applying the 196 tonnes specified for “other countries” in its commitment.
Updates: September 10, 2018 — added box on quota allocation methods (thanks to Derrick Wilkinson for remining me about the WTO Secretariat paper); tweaked the list of products with tariff quotas, based on another Secretariat paper, TN/AG/S/5
• Public domain or CC0: customs barrier (YvonneH | Pixabay), hake (Freshwater and Marine Image Bank), wheat (Pixabay), newsprint (Samuel J Hood | Australian National Maritime Museum), glass beads (cocoparisienne | Pixabay), rice (strecosa | Pixabay)
• Ferro-silicon (FocalPoint | Wikimedia commons CC BY-SA 4.0)
• Raw sugar (Giridhar Appaji Nag Y | Wikimedia commons CC BY 2.0)
• Cotton (S Aziz123 | Wikimedia commons CC BY-SA 4.0)
• Sheep in front of a cattle grid — looking over the Duddon estuary, Cumbria (SKITTZITILBY | Wikimedia commons CC BY 2.0)
• Cheeses (Chris Buecheler | Wikimedia commons CC BY 2.0)
As import duties fall, other trade barriers appear. Some have compared this to rocks emerging at low tide. Among the most important of these ‘non-tariff barriers’ are standards and regulations. How do they work?
By Peter Ungphakorn POSTED SEPTEMBER 5, 2018 | ORIGINALLY PUBLISHED ON UK TRADE FORUM, MAY 8, 2018 | UPDATED SEPTEMBER 5, 2018
“Standards” and “regulations” are critically important for trade and have entered the public discussion about Britain’s future trade relationship with the EU and the rest of the world. But what are they? Are they the same? Are they compulsory or voluntary?
This is an attempt to explain as simply as possible how they work in international trade. And to keep it simple, it only deals with standards for goods — key, for example, to what happens on the Irish border after the UK leaves the EU — even though standards also exist in services.
Standards and regulations were part of the Brexit debate from the start. Many standards applied in the UK are the EU’s, although quite a lot are the UK’s own. One purpose of Brexit is supposed to be to allow the UK to have its own standards or even to scrap some standards completely. That might be easier said than done.
A smooth-running Brexit will require the UK and its trading partners, including the EU, to try to recognise each other’s standards and regulations or to pool them in some way. And if standards diverge on either side of the Irish border, the border will no longer be frictionless.
What are product standards?
They are descriptions of criteria or specifications that products may have to meet for various purposes such as health and safety, or compatibility.
For example, food safety — 0.2ppm pesticide residue. On April 25, 2018 the US notified the World Trade Organization (WTO) that it intended to apply a new food safety standard that would set new limits in residues of a pesticide called clethodim in products ranging from almonds to brassicas and other vegetables. For almond husks it would be 0.2 parts per million (ppm); for green onions 2.0 ppm; and so on. The notification also says there is no equivalent international standard, so this is a US standard.
This was the 2,779th time the US notified the WTO about its draft, new, revised or updated pesticide residue standards and regulations since the WTO was set up in 1996.
For example, compatibility — plugs. When we travel we soon come across a problem — our plugs often don’t fit into the power sockets in other countries. Wikipedia lists over 30 different types of plugs used as standard in countries around the world. Although there will be safety aspects for all of them, that does not determine the number of pins (there are even two-pin plugs with separate earth contacts), or the pins’ sizes and shapes, or the dimensions of the plugs themselves. Note that the UK has its own unique plug standards as do several other EU members.
Are standards compulsory?
Some are, some aren’t. When a country adopts standards for food or electrical safety they are usually compulsory: all suppliers have to meet the standards by law. But standards can also be voluntary.
Standardising the electrical plugs and sockets in various countries is for convenience (within the country) as well as safety, but we often see other types of plugs used as well. It all depends on the country’s rules.
Even with food, some standards are not compulsory. Take “fair trade” and “organic” food. Or the UK’s voluntary standards for “Red Tractor”, “Lion Eggs” and other labelling. They are voluntary because producers can sell the products without complying, but compulsory if the producers want to use the label.
What about regulations and legislation?
Many regulations have nothing to do with standards. But when a country adopts a standard, either compulsory or voluntary, it usually does so through a regulation, which says what the adopted standard is. That regulation often comes under a law, for example saying the country’s food and drug authority or food safety agency has the power to issue regulations to ensure food is safe to eat.
So the hierarchy is usually:
law assigning power or authority — but sometimes with more specific details;
rules and regulations under the law;
standards cited in the rules and regulations.
In other words a “standard” is a description; a regulation makes the standard a requirement.
Who sets the standards?
In the WTO, countries are free to choose what standards to adopt, but with some conditions. They are encouraged to use internationally-recognised standards. Or they can set their own provided they can justify the standards with scientific evidence and risk assessment. The purpose is to ensure the standards are genuine, not arbitrary or an excuse to be protectionist.
Who sets international product standards?
A common misunderstanding is that the WTO sets product standards. It doesn’t. The international standards-setting bodies are outside the WTO. To see how this works, it’s best to separate two sets of standards.
The agreement leaves open the possibility of adding others. Countries are free to adopt standards from the “three sisters” or set their own — as the US has done with the pesticide residue. If they do use these international standards they are more or less safe from a legal challenge in the WTO.
Other standards. These come under the WTO agreement on Technical Barriers to Trade (TBT) whose coverage also extends beyond standards to labelling, regulations, and how regulations are created.
Both SPS and TBT deal with human health. If it’s food safety, it’s SPS. If it’s nutritional requirements or labelling, or the safety of non-food products, it’s TBT.
The situation with TBT is much more complicated than with SPS. There are hundreds of standards-setting bodies around the world, many specialising in specific industries, many involving the private sector.
The TBT Agreement doesn’t mention any particular bodies. Instead, it creates a “Code of Good Practice for the Preparation, Adoption and Application of Standards” and says any standard-setting body complying with the code is considered to be complying with the agreement. Note that the Code of Good Practice is itself a set of standards, and is required for more or less automatic safety against legal challenge in the WTO.
So who set the standards for those plugs? One set of standards is “CEE 7”. They come from the International Electrotechnical Commission (IEC), a not-for-profit, “quasi-governmental” organization whose delegates include representatives of government and industry.
No. Both cover broader regulations as well. For example in SPS, the OIE’s animal health measures include how to deal with an outbreak of disease such as foot-and-mouth: establishing zones to deal with different degrees of infection and risk, quarantine, treatment, how other countries might react and more.
The TBT Agreement includes broader provisions on regulations and labelling — such as nutritional information. Health warnings on labels have been debated intensively. They are now accepted widely on tobacco products, but there are moves to use them on junk food and alcoholic drinks..
Are CE marks EU standards?
Not exactly. They are certificates. Many — but not all — products sold in the European Economic Area (EU plus Iceland, Liechtenstein and Norway) have to have the CE mark. They are declarations by the manufacturer that the products meet the EU standards that apply to those products. They are not a guarantee that the products can be sold.
Because the EU and its EEA partners are such a large market, manufacturers outside the area use the CE mark even if some of their production is sold in countries that don’t require it.
Incidentally, this is different from the UK’s Kite Mark, which is owned by the British Standards Institution otherwise known as the BSI Group, and is intended to assure consumers that a product is safe but not necessarily that it meets any official requirements.
Are international standards compulsory or voluntary?
As far as the WTO is concerned, they are voluntary. Countries can choose whether to adopt them or not, but have to justify using alternative standards. The IEC says its standards are “entirely voluntary.”
But once adopted, a country’s standards — or the EU’s in the case of its member states — are compulsory for suppliers. So producers exporting almonds, green onions or brassicas to the US will have to meet the 0.2ppm to 3.0ppm maximum levels for clethodim residues, which apply only to the US.
Surely we should try to make life simpler?
Yes. Or as one person said on Twitter the aim should be to allow producers to “test once and export everywhere”.
The WTO’s TBT and SPS agreements encourage countries to move towards “harmonising” their standards. This can mean, for example, adopting identical standards, “regulatory alignment” or simply recognising that another country’s standards or methods of testing are equivalent to one’s own for a given purpose — such as protecting health — even if they are not identical.
But countries often prefer tighter criteria, particularly if they are large enough and have enough bargaining power so that exporters have to meet their requirements. It’s easier to get the world to accept EU, US or Japanese standards than those of a smaller country such as Switzerland.
Does reclaiming sovereignty have a cost?
This is important for Brexit. Part of Brexit is about reclaiming the power to set the UK’s own product standards, in addition to the areas — like plugs — where the UK already has its own.
Achieving that comes at a price: in fact at two prices.
One price is creating costs and infrastructure for goods crossing the Irish border. It’s why the talk is now about recognition and harmonisation of UK-EU standards (or “regulatory alignment”). This might even mean the UK continuing to use EU standards, but from outside, unless another solution is found. As an EU member the UK always had a say in EU regulations.
The other price is more complexity and red tape in trade with the EU and other parts of the world more generally.
When British producers sell domestically and export to the US, at the moment they only have to consider two sets of standards, typically EU and US. If the UK has its own standards, they will have to consider three. In some sectors that will be easier to handle than others.
It will also be tougher for UK producers who currently only sell in the EU and want to replace some lost EU sales with exports to the US. They will face two sets of standards instead of one – at least.
And standards in services?
There are also standards and regulations in services. Financial regulations designed to make bank customers’ deposits secure can include requirements for how much capital a bank should have in proportion to its assets, and to its risk weighted assets. The US and Eurozone both have these requirements.
There is even an international standard-setting body — the Bank for International Settlements in Basel, Switzerland — whose “Basel I” to “Basel III” regulatory frameworks include standards for capital requirements. The EU applies these standards through Regulation (EU) No 575/2013 and other documents. The parallels with standards and regulations in goods are clear. But this deserves separate treatment.
Updates: September 5, 2018 — correction to penultimate paragraph on bank capital requirements
Photocredits: All public domain or CC0, including
• Tomatoes: Jametlene Reskp on Unsplash
• Pesticide application on leaf lettuce in Yuma, Az: Jeff Vanuga
• François Louis Jaques (1877–1937): Paysans fribourgeois au bistrot (Switzerland, 1923)
• Fruit flies: Skeeze onPixaba
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
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?
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.
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.
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. —
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.
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.
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.
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?
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.
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.
Don’t compare the WTO and EU
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.
Those who see no problems if the UK and EU fail to strike a deal regularly claim the WTO’s Trade Facilitation Agreement will come to the rescue. They are wrong.
By Peter Ungphakorn POSTED AUGUST 16, 2018 | UPDATED AUGUST 19, 2018
“The new Trade Facilitation Treaty commits members to facilitating trade, not obstructing it.” So wrote Iain Duncan Smith, former cabinet minister, Conservative Party leader and vocal Leave campaigner, in the Telegraph on August 15, 2018.
The argument is made with increasing frequency by “hard” Brexiters, who claim trade between Britain and the EU will not be disrupted, even if there is no agreement between them about their trading relationship when the UK leaves the EU.
Similar claims have been heard from former UK trade minister (1990–92) Lord (Peter) Lilley in the Times the previous day, economic adviser Ruth Lea on Brexit Central, and international economic law professor David Collins, on Brexit Central and in the Spectator.
The agreement is important. The main purpose is to slash the costs of trading by cutting red tape when goods cross borders. So it calls for streamlined procedures, paperwork handled electronically and as simply as possible, and so on. It also breaks new ground by allowing developing countries to promise to reform their procudures on condition they receive aid to implement it.
Because customs and other procedures in developing countries tend to be slow and cumbersome, it’s these countries that stand to gain the most from implementing the agreement.
But it would be wrong to say the agreement is targeted at only or even mainly developing countries. Far from it. There are important provisions that developed countries like the EU and UK have to respect or face legal challenges.
It’s just that the provisions dealing with electronic paperwork and streamlined procedures don’t fall into that category. They are written in a way that only requires countries to do their best to comply. And what “doing their best” means is left up to them.
To see how this works, it’s useful to compare how different parts of the agreement are written. In some parts the compulsory “shall”, meaning “must”, appears frequently. In other parts it’s phrases like “to the extent possible”. Let’s see which they are.
‘To the extent possible’
This is what the agreement’s Article 7 (“release and clearance of goods”) paragraph 1 says on “pre-arrival processing”:
1.1. Each Member shall adopt or maintain procedures allowing for the submission of import documentation and other required information, including manifests, in order to begin processing prior to the arrival of goods with a view to expediting the release of goods upon arrival.
1.2. Members shall, as appropriate, provide for advance lodging of documents in electronic format for pre-arrival processing of such documents.
Note “with a view to” in paragraph 1.1 and “as appropriate” in 1.2. These phrases allow countries quite a lot of leeway in implementing pre-arrival processing, particularly in electronic form.
Phrases like “as appropriate”, “as rapidly as possible”, “within the shortest possible time”, “to the extent possible”, ”wherever practicable”, and “encouraged to” appear throughout this article, all the way down to paragraph 9, which deals with perishable goods:
9.1 With a view to preventing avoidable loss or deterioration of perishable goods, and provided that all regulatory requirements have been met, each Member shall provide for the release of perishable goods:
(a) under normal circumstances within the shortest possible time; and (b) in exceptional circumstances where it would be appropriate to do so, outside the business hours of customs and other relevant authorities.
9.2 Each Member shall give appropriate priority to perishable goods when scheduling any examinations that may be required.
9.3 Each Member shall either arrange or allow an importer to arrange for the proper storage of perishable goods pending their release. The Member may require that any storage facilities arranged by the importer have been approved or designated by its relevant authorities. The movement of the goods to those storage facilities, including authorizations for the operator moving the goods, may be subject to the approval, where required, of the relevant authorities. The Member shall, where practicable and consistent with domestic legislation, upon the request of the importer, provide for any procedures necessary for release to take place at those storage facilities.
9.4 In cases of significant delay in the release of perishable goods, and upon written request, the importing Member shall, to the extent practicable, provide a communication on the reasons for the delay.
We could also take a look at Article 8 on border agency cooperation. Note “to the extent possible and practicable”, “mutually agreed terms” (relevant for “no deal” between the UK and EU), “with a view to” and “may include”. Again, not exactly compulsory:
1. Each Member shall ensure that its authorities and agencies responsible for border controls and procedures dealing with the importation, exportation, and transit of goods cooperate with one another and coordinate their activities in order to facilitate trade.
2. Each Member shall, to the extent possible and practicable, cooperate on mutually agreed terms with other Members with whom they share a common border with a view to coordinating procedures at border crossings to facilitate cross-border trade. Such cooperation and coordination may include:
(a) alignment of working days and hours; (b) alignment of procedures and formalities; (c) development and sharing of common facilities; (d) joint controls; (e) establishment of one stop border post control.
The fact is, developed countries like the UK and EU already implement these provisions, and if anyone is dissatisfied with how well they are complying there’s little they can do about it under this agreement.
But note that the provision on release and clearance of goods doesn’t appear in the agreement until Article 7. That’s a pretty low priority.
What do the previous six articles deal with? Answer: rule-making, decision-making, transparency and the ability to comment. Here’s the list:
Article 1: Publication and Availability of Information
Article 2: Opportunity to comment, information before entry into force and consultations
Article 5: Other measures to enhance impartiality, non-discrimination and transparency
Article 6: Disciplines on fees and charges imposed on or in connection with importation and exportation and penalties
In these articles, the compulsory “shall” appears much more often. For example, new regulations must generally be published in advance. Or, if an importer asks for an advance ruling on what the customs category a particular product, and therefore what the customs duty is, Article 3 begins:
“Each Member shall issue an advance ruling in a reasonable, time-bound manner to the applicant that has submitted a written request containing all necessary information. If a Member declines to issue an advance ruling, it shall promptly notify the applicant in writing, setting out the relevant facts and the basis for its decision.”
The UK and EU will have to (or “shall”) comply with these requirements each time the situation arises in the future. Even then, Article 2 on the opportunity to comment features “to the extent practicable” in its two key paragraphs.
In other words the compulsory bits have nothing to do with frictionless border procedures.
But they are important to help traders understand what each countries’ rules are.