TWN Info Service on WTO and Trade Issues (Nov19/15)
26 November 2019
Third World Network

Sharp concerns over ongoing uncertainty surrounding Brexit
Published in SUNS #9021 dated 18 November 2019

Geneva, 15 Nov (Kanaga Raja) – A meeting of the WTO Goods Council on 14 November heard around fifteen Members voicing sharp concerns over the uncertainty around quota allocations in the event of a no-deal Brexit as well as the disruption to trade being caused by the repeated extensions of the United Kingdom’s withdrawal date from the European Union.

According to trade officials, Members called upon the EU and the United Kingdom to offer better market access to third countries as compensation for the ongoing and future trade disruptions caused by Brexit.

The item, “European Union – Proposed modification of EU TRQ commitments: Systemic concerns”, was placed on the agenda at the request of Australia, Brazil, Canada, Chile, China, New Zealand, the Russian Federation, the United States, and Uruguay.

According to trade officials, at the meeting, Australia reiterated the strong concerns raised by other members regarding the continued uncertainty of the future of the UK-EU trading relationship post-Brexit.

Noting that to date, there have been three extensions to the UK’s withdrawal date, it said that the repeated process of extension and delay have caused “significant commercial disruptions” for Australian businesses currently holding licenses to export agricultural products under existing EU WTO tariff-rate quotas (TRQs).

With uncertainty around quota allocations in the event of a no-deal Brexit on 31 October, many Australian businesses ceased exports of commercially valuable beef and sheep meat in the lead-up to Christmas.

These same exporters have now had to make this difficult commercial decision in the lead-up to 29 March, 30 June, 31 October this year and now, 31 January 2020, it said.

In addition, the EU and UK have proposed two differing and conflicting methodologies for apportioning current EU28 TRQs midway through a quota year, said Australia.

In many instances, it said, these differing methodologies mean the total market access under apportioned EU27 and UK quotas will not add up to the current level of access under the existing EU28 quotas.

Australia said that as it has stated on numerous occasions, it recognises the legal rights of both the EU and the UK to modify their existing schedules under Article XXVIII.

However, compensatory concessions should be provided to affected WTO members for the loss of market access.

Australia said that it cannot, however, accept the assertion by both the EU and the UK that no compensation is required as there has been no loss in the value of the concessions.

It is clear that the proposed modifications to TRQs will lead to significant economic loss, by not only removing flexibility in where the product is sent year-to-year, but by also rendering some TRQ allocations too small to be commercially viable, it argued.

“We believe both the EU and UK must proceed with compensatory adjustments, that factor in the significant commercial losses, and to maintain a general level of reciprocal and mutually advantageous concessions,” said Australia.

“Australia has remained constructive during these negotiations and has not approached them to seek significant market access gains, rather we want to ensure the current quality and level of access is maintained,” it added.

The US said that it supports the UK’s efforts to separate its WTO rights and obligations from that of the EU’s.

However, the US said that it rejects the EU-UK approach to TRQs as it is prejudicial to its WTO rights and trade interests.

The approach chosen by the EU and the UK will reduce market access opportunities for US exporters into both markets, the US argued.

Indeed, for certain TRQ products, the proposed apportionment will result in no in-quota access in one market to either the UK or the EU27, said the US, citing as examples, grape juice exports to the EU27 and pizza cheese exports to the UK.

For other products, the proposed split will likely result in reduced access to the EU only, as the UK’s draft applied schedule in the event of a no-deal Brexit indicates that it will not apply TRQs for many of the products.

Furthermore, the proposed approach fails to address how bilateral EU-UK trade will be treated once the UK is no longer part of the EU, said the US, adding that currently, that bilateral trade is not subject to the TRQs.

But what happens once Brexit concludes, the US asked.

Currently, other WTO Members have the opportunity to export the full TRQ quantity into either the UK or the EU27.

“But what if the UK and the EU27 are subject to the same TRQs the rest of us face, then we will be quickly crowded out and face a loss of access to both markets.”

For example, the US said, analysis shows that the volume of chilled or frozen pork the UK imports from the EU27 is more than 26 times larger than the proposed TRQ for that pork.

Another analysis shows that the volume of wine the UK imports from the EU27 is more than 9,000 times larger than the proposed TRQ for that wine.

In light of such odds, it is difficult to imagine how we will not lose access to the UK market under the current proposals as a result of the EU27 exports of pork and wine to the UK, just to note these two examples, said the US.

This is unjustifiable and clearly an unacceptable outcome for other WTO members, it added.

New Zealand joined the other members who have raised concerns with respect to the EU/UK proposals to reduce their WTO TRQ commitments in light of Brexit.

It said that these give rise to a range of issues which are of wider systemic interest to WTO members.

According to New Zealand, the “apportionment” approach that the EU and the UK have advanced to date is not as innocuous as it sounds.

It glosses over the reality of the loss of significant existing bound market access opportunities for other WTO members, including through:

* the elimination proposed for 60 of the current 142 quotas;

* large-scale reductions in the levels of access for many more of these quotas;

* the loss of flexibility for exporters and markets to respond to fluctuations in demand – important for both consumers in the EU/UK, as well as for exporters; and all the more so in the current uncertain international trading environment; and

* the risk of “crowding out” of other WTO member access to the MFN TRQs.

New Zealand highlighted two of the broader systemic issues arising from these proposals which it said will be of interest and concern to the wider Council membership.

Firstly, it pointed to the unprecedented nature and scale of these proposed changes. For instance, the 142 TRQ commitments cover nearly 400 tariff lines, with total EU imports under these lines of EUR 28 billion in 2018.

The current EU proposals would see the level of access for the bulk of these products – 130 of the total 142 quotas – reduced on average by a quarter (25%).

Given the scale of this proposed change in commitments and the EU’s role as the world’s largest agricultural importer and exporter, the implications of these proposed changes go well beyond the immediate commercial concerns of those members most directly affected, including in respect of the risk of significant trade diversion and potential for disruption to global markets in the products concerned.

Secondly, New Zealand said that at the same time as the EU and UK are proposing to reduce the level of access under their quota commitments, they have also indicated that they expect to open up the MFN quotas currently available to other WTO members to encompass the high level of bilateral trade they have with each other.

This risks wholesale “crowding out” of the access for other WTO members to their markets for these products.

New Zealand said that to illustrate the magnitude of this problem, it has compared the volume of EU-UK trade (using the 2013-2015 period the EU and UK have used to calculate their own Brexit-related trade data) and compared this with the existing MFN TRQ volumes.

According to New Zealand, this demonstrates that for nearly three quarters (73%) of TRQs, the level of EU-UK trade is greater than or equal to the existing TRQ volumes.

Indeed, said New Zealand, for almost half (44%) of these TRQs, the EU-UK trade is ten times or more than the TRQ volume, and that this EU-UK trade rises to 100 times more than the MFN TRQ volumes for almost a fifth (20%) of these TRQs.

“It is hard to see in these circumstances how other WTO members would have much realistic chance of accessing these quotas unless they are explicitly preserved for other WTO members to maintain our existing levels of access, or substantially expanded to account for the large bilateral EU-UK trade in these products,” said New Zealand.

Brazil said the WTO rules against discrimination could be threatened by the proposed arrangements concerning the customs procedures between Northern Ireland and the rest of the UK.

“EU-UK future relations depend on a customs regime applicable to Northern Ireland. It is paramount that the Most Favoured Nation principle is preserved. We’re not sure if the Irish backstop will provide guarantees that this will happen,” it said.

According to trade officials, Canada, Uruguay, China, Russia, Mexico, Korea, Japan, Paraguay, Argentina, Switzerland, and India also voiced similar concerns about being crowded out of existing quotas in the event of a hard Brexit, the loss of flexibility to move products between the UK and the rest of the EU-27, the elimination or reduction of TRQs, and the lack of compensation being offered to rebalance concessions.

Canada said that it continues to have serious concerns with the EU-UK joint proposal to apportion TRQ commitments in preparation for Brexit.

It remains of the view that the proposed TRQ apportionment significantly alters the EU’s current WTO concessions.

First, exporters will lose existing flexibility to adapt to fluctuations in demand. This will reduce market access opportunities for exporters, particularly where apportioned TRQ volumes are low or not commercially viable.

Second, the apportionment methodology results in the elimination of TRQ volumes for a number of UK and EU TRQs.

This elimination neglects the fact that higher out-of-quota tariffs associated with TRQs are predicated on minimum access levels.

Third, the apportionment proposal is not clear about whether EU-UK trade will be subject to the same TRQs as other WTO members.

If the EU and the UK have access to one another’s TRQ volumes, other WTO members will no doubt be crowded out of the EU and UK markets.

For these reasons, Canada views the current TRQ apportionment proposal to be unjustifiable. It alters the balance of concessions agreed upon during the Uruguay Round, and leaves WTO members worse-off, it said.

In response, the EU said it appreciates the well-known concerns of several WTO members about the on-going uncertainty surrounding the UK leaving the EU.

WTO members will understand that traders throughout the EU, including the UK are also affected by and concerned about this uncertainty, which of course is not a reason to not try to do justice to the concerns of other WTO members, it said.

That is why the EU and the UK engaged jointly as early as October 2017 with other WTO members on the envisaged approach to apportion the WTO commitments that take the form of TRQs.

As stated on many occasions, the key principle is to maintain the existing level of market access to the EU27 and the UK, said the EU.

It noted that the European Council endorsed the revised Withdrawal Agreement agreed with the UK government on 17 October 2019 in order to provide for an orderly withdrawal.

Subsequently, the period provided for in Article 50(3) of the Treaty on European Union, was extended by the European Council Decision (EU) 2019/1810 until 31 January 2020.

The EU said that it has been very clear that an orderly withdrawal of the UK is the preferred option.

Nevertheless, in order to reduce the inevitable commercial uncertainties for operators, the EU has also published detailed information on the consequences and implications for TRQ apportionment and management in the case of a no-deal Brexit.

The Commission will continue to manage the apportioned EU27 TRQs in the same way it has been doing, said the EU.

It noted that negotiations under Article XXVIII are currently ongoing with the partners who have rights under that Article.

The EU welcomed that WTO members generally engage in these negotiations in good faith, bearing in mind that these negotiations are only in the early stages. The last round took place in September 2019 in Geneva.

The EU stated that it is a supporter of the rules-based multilateral trading system.

The EU has followed all the relevant WTO procedures when launching its Article XXVIII negotiations and will continue to follow these multilateral procedures.

“We have engaged with the relevant WTO partners on a regular basis. We will continue to do so in good faith as part of the procedures.”

The EU said it is willing to continue negotiations in an open and fair manner under Article XXVIII regardless of the scenarios for the UK’s withdrawal.