Summary
The issue of the future of EU TRQs negotiated as part of FTAs has been formally raised in the European Parliament opinion on the EU’s proposal for apportioning WTO agreed TRQs. This is an important issue for ACP banana exporters, particularly Cameroon, Ivory Coast and Surinam, whose banana exports are focused on EU27 markets. Any failure to apportion existing EU bilaterally negotiated TRQs would de facto increase competition on EU27 markets in the post-Brexit period by around 20%. With this potentially have severe price effects on ACP suppliers. With the potential for a ‘no-deal’ Brexit increasing there is an urgent need for the European Commission to clarify its approach on this issue, so ACP banana exporters can develop marketing strategies to deal with the increase in competition on EU27 markets they may face from 30th March 2019.
An amendment proposed as part of the opinion of the Agriculture and Rural Development Committee’s on the EC’s proposal for the apportionment of the EU’s WTO TRQs between the UK and EU27 markets (see companion epamonitoring.net article, ‘EC Seeks Mandate to Negotiate Apportionment of WTO Agreed TRQs’, 14 June 2018) has raised the issue of the importance of addressing the apportionment of tariff rate quotas (TRQs) established under EU trade agreements as an integral part of the current UK/EU apportionment approach within the Brexit process (1). The amendment highlights how the UK’s withdrawal from the EU will impact on ‘the Union’s relations with third countries which are at present parties to a bilateral free trade agreement with the European Union of 28 members. The Commission should also deal with this issue in order to ensure legal certainty for economic operators and avoid surplus tariff quotas which could destabilize the EU27 market’ (1).
This constitutes the first public acknowledgement by an EU institution of the need to address the issue of bilaterally negotiated TRQs as an integral part of the EU’s current approach to the apportionment of TRQs developed for dealing with joint EU28 market access commitments.
Elsewhere the opinion notes how TRQs are used to manage external competition for ‘sensitive’ EU agro-food sectors by ‘confining imports to a predetermined quota level, combined with an unattractive out-of-quota tariff level’. It highlights how this TRQ instrument is used at both the WTO level and under bilateral EU trade agreements.
It notes how over the years EU WTO TRQS have been expanded as the EU enlargement process has proceeded. Against this background it is held ‘the impending exit of the United Kingdom (UK) from the EU brings about the need to reapportion the entire list of WTO TRQs between the EU and UK in order to reflect the actual usage of TRQs by both parties’. This covers no less than 87 WTO TRQs ‘with meats, cereals and dairy products representing the three largest number of quotas’. The opinion highlights how a failure to reapportion TRQs ‘has the potential to flood markets, create trade diversion of domestic products and ultimately affect the price primary producers receive for their products’.
Against this background the opinion supports the jointly agreed UK/EU approach to apportionment of TRQ market access based on ‘each party’s share of imports under a representative period of 2013-2015’, with this being applied to the entire scheduled TRQ regardless of the level of quota fill achieved. It notes how an alternative reference period should be used where SPS restrictions impacted on trade flows during the principal reference period. The apportionment process will also need to take into account situations where as a result of the application of the standard apportionment formula the volumes allocated to the UK market would be too small to be commercially viable. It further highlights how the process of apportionment will need to take into account whether Northern Ireland will remain in full alignment with the EU’s single market and customs union
The concerned WTO members however have voiced strong opposition to EU/UK proposals for the apportionment of existing EU WTO agreed TRQs (see companion epamonitoring.net article, ‘EU/UK Proposals for Brexit Related TRQ Apportionment Continues to be Challenged’, 29 October 2018). Against this background the EC is engaging with the concerned WTO members under Article XXVIII of the General Agreement on Tariffs and Trade 1994.
However this is not only a UK issue, the EU also has to establish the treatment of products which are currently subject to WTO agreed TRQs. Press reports indicate that 20 countries have formally objected to the jointly agreed UK/EU apportionment proposals in a move which will require the UK to open bilateral negotiations will all affected TRQ beneficiaries. This has been described as a ‘complicated discussion’ which ‘could easily take a couple of years to sort out’. In meanwhile it could hold back EUK efforts to negotiate new bilateral trade deals. The UK government for its part has played down the significance of recent objections claiming only a small number of countries have expressed concerns and this will not impact on the UK’s ability to trade independently (2).
This needs to be seen in a context where the UK could trade on un-certified schedules while negotiations were on-going so the actual impact on trade with third countries would not necessarily be dramatic (3). However this leaves unresolved the question of whether the EU itself could unilaterally reduce its WTO TRQs without immediately provoking a trade dispute. This raises the related question as to whether the EU could unilaterally modify its bilaterally negotiated TRQs established under free trade area agreements, without being in violation of these agreements. Urgent clarification from the European Commission would appear to be needed.
| Comment and Analysis
The amendment tabled as part of the Agriculture and Rural Development Committee opinion is the first institutional recognition of the need to apply the apportionment approach developed for dividing up WTO TRQs to the future handling of bilaterally negotiated EU TRQs. From an ACP perspective for exporters the main areas of concerned are not EU WTO agreed TRQs but bilaterally negotiated FTA based TRQs for bananas and to a lesser extent sugar. In the banana sector this primarily affects Ivory Coast, Cameroon and Suriname who have the highest dependence on the EU27 market in their overall exports to the EU. However it would also be of significance to Ghana, Dominican Republic and Belize. Dependence of the Main ACP Banana Exporters on EU27 Markets
Source: EC, Market Access Data Base Thus while many ACP governments have seen Brexit as an issue of securing future access to the UK market in the banana sector an important issue is the impact of the withdrawal of the UK on the functioning of the remaining EU27 banana markets given the level of TRQ access granted to EU28 markets under bilaterally negotiated EU FTAs. In recent years the UK has accounted for 20% of total extra-EU banana imports, though be it on a declining trend. In this context if bilaterally negotiated banana TRQs were not to be apportioned between the UK and EU27 markets then this would result in a de facto 20% increase in TRQ managed access to the EU27 market. This would significantly increase competition for ACP banana exporters serving EU27 markets. It is against this background that for ACP banana exporters there is an urgent need to build on the amendment tabled by the European Parliament so as to provide greater certainty as to the likely level of competition which will be faced on EU27 markets once the UK fully departs the EU. Given the prospect of a ‘no-deal’ Brexit this is becoming an area where the European Commission urgently needs to clarify its approach, given the scale of market disruption which could arise if this issue is not addressed. It should be noted however that in contrast to the assertion in the European parliament opinion WTO TRQ access was not expanded to take into account EU enlargement but rather to take into account the loss of market access resulting from third countries joining the EU’s more protective trade regime. Hence the implied logic of a reduction of TRQ access to the EU market being concomitant to Brexit process does not necessarily follow. Following the logic of enlargement this would only appear legitimate if Brexit led to an expansion of market access opportunities on the UK market for current TRQ beneficiaries. This is further compounded by recent patterns of growth in EU banana consumption which have been heavily concentrated in central and eastern European EU member states. In this context $ banana exporters have little interest in ‘swapping’ access to a market which is growing quite strongly (the EU27) for access to a mature market (the UK) where the overall direction of future trade policy remains uncertain but the indications are the direction of change will be towards more liberalized market access arrangements. |
Sources
(1) European Parliament, ‘OPINION of the Committee on Agriculture and Rural Development for the Committee on International Trade on the proposal for a regulation of the European Parliament and of the Council on the apportionment of tariff rate quotas included in the WTO schedule of the Union following the withdrawal of the United Kingdom from the Union and amending Council Regulation (EC) No 32/2000 (COM(2018)0312 – C8-0202/2018 – 2018/0158(COD)), Rapporteur for opinion: Matt Carty, 2018/0158(COD), 24 October 2018
http://www.europarl.europa.eu/sides/getDoc.do?type=COMPARL&reference=PE-623.916&format=PDF&language=EN&secondRef=02
(2) Guardian, ‘Russia seeks to capitalise on Brexit after blocking Liam Fox’s WTO plan’, 26 October 2018
https://www.theguardian.com/world/2018/oct/26/russia-brexit-liam-fox-wto-plan-uk
(3) Guardian, ‘Russia’s trade intervention is just the start of Liam Fox’s problems’, Opinion piece Allie Renison head of Europe and Trade at the Institute of Directors, 26 October 2018,
https://www.theguardian.com/commentisfree/2018/oct/26/russia-brexit-britain-trade-wto-negotiations-liam-fox