Summary
The EC is seeking a mandate to negotiate the apportionment of existing WTO TRQ market access commitments between the UK and EU27 markets in the post Brexit period. However it is unclear whether this apportionment approach will also be applied to bilaterally negotiated TRQ arrangements under EU FTAs. This is an important issue for ACP sugar and banana exporters, given the expansion of reduced duty TRQ access allowed under EU FTAs in recent years and the role the UK plays as a market for extra-EU imports of sugar and bananas. ACP governments could usefully seek consultations with the EU on this issue; with ACP exporters of affected products needing to clearly identify which apportionment option best protects ACP export interests.
On 22nd May 2018 the EC tabled a recommendation for a mandate to negotiate with WTO partners the apportionment of existing WTO tariff rate quotas (TRQs) between the EU27 and UK markets after the UK fully leaves the disciplines of the EU customs union and single market (currently scheduled for 1st January 2021) (1).
The EC’s decision to go for a negotiated solution follows the rejection of an earlier joint EU27/UK proposal for the apportionment of WTO agreed TRQs on the basis of historical patterns of exports (2) by a coalition of leading WTO governments in September 2017 (USA, Argentina, Brazil, Canada, New Zealand, Thailand and Uruguay) (3) (for an analysis of the complexities involved in this process see ‘WTO quotas pose thorny problems for agriculture sector in Brexit negotiations’, 18 May 2017).
The EC recommendation proposes:
- the EU Council authorise the EC to ‘open negotiations under Article XXVIII of the GATT 1994 with those WTO Members that have negotiating rights with a view to modifying those tariff rate quotas’;
- the EU Council authorises the United Kingdom ‘to launch the procedures in the WTO for setting out its own schedule of concessions and commitments already before the date on which it ceases to be a Member of the Union’ (1).
The substance of the proposed EC negotiating instructions however is little changed from the EU27/UK initial proposal in September 2017. Specifically the annex which deals with the content of the negotiating directive states: ‘the Commission shall conduct the negotiations with the view to modifying the Union’s concessions, in particular by apportioning the existing tariff rate quotas between the United Kingdom and the Union following the United Kingdom’s withdrawal from the Union’ (4).
Four main points of interest in an ACP-EU trade context implicit in the EC’s recommendation are:
- the EC’s commitment to an apportionment of the existing tariff rate quotas between the UK and the EU markets;
- the EC’s acceptance of the need to negotiate and not unilaterally determine the apportionment of existing WTO TRQ commitments;
- the EC’s acceptance that other parties which will be affected by the changes introduced and hence the acceptance of the EU’s obligation to consult these third parties whose interests could be affected;
- the fact the apportionment process will commit the UK not only to taking over a part of the EU’s TRQ obligations but also actively engage in negotiations with 3rd country partners on what TRQs the UK will set in place in the post Brexit period as part of its inherited obligations.
However significantly the EC reserves the right to ‘proceed with the apportionment of the TRQs unilaterally’, should agreements not be reached in time in all areas where TRQs are in use (see box for the scale of the challenge faced).
| The Scale of the TRQ Re-Negotiation Challenge
According to the latest WTO EU Trade Policy Review ‘as of October 2016, there were 1,006 categories of TQs applied on a variety of products. The majority of the TQs were country or regional-specific TQs to implement FTA commitments, and about 230 were open to all importers as autonomous quotas. The TQs open to all importers are mainly applied on fish, agricultural products, chemicals, metals, machinery and equipment. Other TQs apply bilaterally to certain countries for individual products or to certain sectors such as handicrafts’. WTO Secretariat, European Union: Trade Policy Review, 17 May 2017 |
| Comment and Analysis While the EC’s recommendations for a Council decision deals solely with negotiations around the apportionment of the EU’s WTO agreed TRQ restricted market access obligations, the principle that the withdrawal of the UK will `require certain adjustments` to the EU`s TRQ obligations is equally applicable to the EU`s bilaterally negotiated TRQ commitments.This being noted, the legal basis for the EU`s multilateral TRQ market access obligations is different to the legal basis for the EU`s bilaterally negotiated TRQ obligations. The UK is committed to joining the WTO and has committed to basing its initial tariff schedules on the commitments it currently takes on as part of the EU. There is no question of the UK not becoming a member of the WTO.The situation with regard to bilateral EU trade agreement is somewhat different. While the UK wants to ‘roll-over’ the market access provisions currently enjoyed by the UK under the EU’s FTAs how this is to be achieved is far from clear and will depend strongly on the position adopted by individual 3rd country governments which are party to EU FTAs.On the EU side it can be argued 3rd countries concluded trade agreements with the EU on the basis of an exchange of mutual concessions and therefore any modification of the market access commitments applied to the EU market should either not be permitted or will require compensation.This issue of the apportionment of EU bilaterally negotiated TRQ obligations is important in an ACP context since in recent years in the banana and sugar sectors the EU has been granting increased levels of reduced duty access through bilaterally negotiated FTAs, in a context where the UK has accounted for an average of around 20% of total extra-EU imports of bananas and sugar. We thus have a situation of expanding levels of reduced tariff TRQ access for non-ACP exporters of bananas and sugar in a context where the overall level of EU import demand will fall by around 20% as a result of the withdrawal of the UK from the EU. This slightly exaggerates the situation in the sugar sector since extra-EU UK imports are already being replaced by imports from EU27 member states following the abolition of EU sugar production quotas in October 2017 (see companion article, ‘EU Sugar Quota Abolition Begins to Eat at ACP/LDC Export Volumes and Earnings’, 10 May 2018). The issue of how the EU plans to deal with the future of the EU28s TRQ obligations under bilaterally negotiated free trade area agreements is something which ACP governments and the concerned exporters will need to closely follow and engage with. Against this background ACP governments affected by the adjustment of bilaterally negotiated EU TRQ obligations (primarily sugar, banana and rice exporters) should seek formal consultations with the EC under Article 12 of the Cotonou Agreement (5). However such dialogue arrangements will only be of use if the affected ACP exporters are clear on the `policy asks` to be advanced towards the EU. The affected ACP exporters should therefore urgently seek to identify which apportionment formula for bilaterally negotiated EU FTA TRQ best protects the interests of ACP exporters. |
Sources
(1) Recommendation for a COUNCIL DECISION authorising the opening of negotiations with a view to apportioning the Union’s WTO concessions on Tariff Rate Quotas in view of the withdrawal of the United Kingdom from the Union, COM(2018) 311 final, 22 May 2018
https://eur-lex.europa.eu/resource.html?uri=cellar:86068319-5dd9-11e8-ab9c-01aa75ed71a1.0021.02/DOC_1&format=PDF
(2) mlex market insights, ‘US-led group rejects EU-UK proposal on splitting WTO quotas after Brexit’, 4 October 2017
https://mlexmarketinsight.com/insights-center/editors-picks/trade/europe/us-led-group-rejects-eu-uk-proposal-on-splitting-wto-quotas-after-brexit
(3) CityA.M., ‘UK and EU just set out their post-Brexit trading relationship to the WTO – and promised to minimise disruption’, 11 October 2017
http://www.cityam.com/273679/uk-and-eu-set-out-post-brexit-trading-relationship-wto-and
(4)Annex to the Recommendation for a COUNCIL DECISION authorising the opening of negotiations with a view to apportioning the Union’s WTO concessions on Tariff Rate Quotas in view of the withdrawal of the United Kingdom from the Union, COM (2018) 311 final ANNEX, and 22 May 2018
https://eur-lex.europa.eu/resource.html?uri=cellar:86068319-5dd9-11e8-ab9c-01aa75ed71a1.0021.02/DOC_2&format=PDF
(5) European Parliament, ‘The Cotonou Agreement 2014, Signed in Cotonou on 23 June 2000, Revised in Luxembourg on 25 June 2005, Revised in Ouagadougou on 22 June 2010
http://www.acp.int/sites/acpsec.waw.be/files/accord_cotonou_revise_2010_en.pdf