Summary
The EC proposal for a mandate to negotiate the apportionment of WTO agreed TRQs has been approved by the EU Council. The EC’s approach is based on the October 2017 joint UK/EU letter to WTO members. This approach has already been rejected as unacceptable by leading WTO members. The annex to the EC proposal provides TRQ by TRQ details of how much access to the EU27 market would be reduced post Brexit. This nominally includes a reduction in ACP TRQ access for sugar exports: an arrangement which has been superseded by the granting of full duty free-quota free access under the EU’s EBA scheme and various EPAs. This suggests there may be some shortcomings in the EC’s preparatory work for the launch of these TRQ negotiations with WTO members. This could lead to a lengthy process of negotiations. However the EU Council has reserved the right to unilaterally apportion existing TRQs if no specific agreements can be reached with WTO members by the date of the UK’s full departure from the EU.
On 26th June 2018 the EU Council formally authorised the opening of negotiations with WTO members for the apportionment of WTO TRQs between the EU27 and UK market in the post-Brexit period. This was in line with EC proposals tabled on 22 May 2018 for the opening of such negotiations (see epamonitoring.net article, ‘EC Seeks Mandate to Negotiate Apportionment of WTO Agreed TRQs, 14th June 2018).
In its press release the EU Council declared ‘after Brexit, the EU will continue to apply its scheduled commitments for goods, but its existing quantitative commitments, in particular the TRQs for agricultural, fish and industrial products, will require adjustments to take into account the fact that the EU’s WTO schedule will no longer be applicable to the UK’ (1).
The EU Council takes the view any ‘reapportionment must be negotiated with other WTO members in accordance with the 1994 General Agreement on Tariffs and Trade’. The EU Council is proposing an approach which ‘would provide for an apportionment based on an objective methodology reflecting existing levels of market access and trade flows under each TRQ’ (1).
The EU Council also made it clear that in addition ‘the UK needs to launch the procedures in the WTO for setting out its own schedule of concessions and commitments before the date on which it ceases to be an EU member state (2).
Significantly, as proposed by the EC, given the ‘relatively “tight timeframe” for negotiations’, the Council has proposed a ‘legislative act which would allow the EU to proceed unilaterally with the apportionment of the TRQs and to amend the relevant EU provisions accordingly in case talks are not concluded in time’ (1).
However the Council also takes the view that the Withdrawal Agreement currently under negotiation ‘is expected to provide transitional arrangements’, which would ‘provide for international agreements to which the EU is a party, such as the GATT 1994, to apply to the UK until 31 December 2020’ (2).
It is noteworthy that the EU Council approved EC proposal replicates the approach first advanced jointly by the EU and UK in a letter to WTO members from 11th October 2017 (3). An approach which was rejected as ‘unacceptable’ by leading WTO members the USA, Argentina, Brazil, Canada, New Zealand, Thailand and Uruguay (see epamonitoring.net companion articles: ‘Brexit and the WTO Complications’, 12 March 2018 and ‘Concerns over Division of EU28 WTO TRQ Commitments Emerge’, 26 October 2017)
The annex to the EC proposal lists no less than 63 categories of agricultural product where WTO agreed agricultural TRQs will need to be apportioned and 5 categories of fisheries products (4). Of the specific agricultural TRQs:
- 65 of these TRQs are country specific;
- 90 are extended on an erga omnes basis;
- 18 are specified as ‘other’; and
- 1 is an ACP quota (sugar).
For each TRQ the % of the utilised quota destined for EU27 markets is specified and this is used as the basis for proposing the level of future WTO TRQ access to be granted to the EU27 market.
It is noteworthy that the calculation of the future EU27 TRQ share is based on the EU27 utilisation rate under the quota, not necessarily the total size of the quota (4).
Based on the utilisation of the TRQ in trade with EU27 members this can lead to either marginal changes in market access rights or some dramatic reductions. A number of product categories where ACP countries have interests in exporting to the EU28 market will serve to illustrate this point.
In the beef sector for WTO agreed TRQs for high quality beef (of which 6 are listed) this formula would result in the reduction of the EU27 TRQ of a mere 2.35% (from 37,433 tonnes to 36,552 tonnes). However for the 7 TRQs covering imports of fresh, chilled or frozen beef or offal this formula would result in the reduction of the EU27 TRQ by 41% (from 148,728 tonnes to 87,821 tonnes), with the cuts in individual TRQs ranging from 0.2% to 69.1% (4). Cuts in erga omnes TRQs for the EU27 market of the order of 69% could prove highly controversial.
It is noteworthy that in the sugar sector the EC proposal recommends a 28.8% reduction in the ACP white sugar TRQ for future access to the EU27 market from 1,294,700 tonnes to the 921,707 tonnes. Across the other 5 sugar TRQ listed in the annex to the EC proposal the formula would result in a 8.9% reduction in TRQ access to the EU27 market post Brexit (down from 790,925 tonnes to 720,716 tonnes).
In the rice sector, where 10 WTO TRQs are listed, the application of the EC formula would see the TRQ restricted access to the EU27 market fall 18.6% from 237,645 tonnes to 193,425 tonnes.
| Comment and Analysis In the beef sector the apportionment of TRQ access would have a marginal impact on the market conditions facing Namibian exporters of high quality beef, but could assist Botswanan exporters of undifferentiated beef products, given the scale of TRQ reductions involved. However any gains in this regard could be dwarfed if Irish beef exports to the UK market were to be disrupted by a ‘hard’ Brexit, since this could result in the diversion of substantial volumes of Irish beef exports to other EU27 markets.The proposed reduction in the ACP TRQ for sugar does not take into account the subsequent granting of full duty free quota free access for LDC exporters and ACP exporters trading under economic partnership agreements. Any reversion to quantitative restrictions on ACP access to the EU market which affected EPA signatories or LDCs would be in violation of EU commitments enshrined in internationally binding trade agreements.This would appear to be an oversight in the drawing up of the annex to the EC proposal, suggesting the EC proposal may have been put together in some haste without taking account of subsequent wider EU policy commitments. The reduction in WTO TRQ access for sugar imports to EU27 markets is likely to have little market effect, given the decline in overall EU sugar import demand and the expansion of zero duty TRQ access under bilaterally negotiated EU trade agreements. These wider developments are already set to see a dramatic reduction in the uptake of existing WTO TRQs, where tariff reductions rather than duty free access are granted. In the rice sector the reduction of EU WTO granted TRQ access by 44,220 tonnes could create marginally more market space for ACP exporters on the EU27 market, given growth trends in EU27 rice demand. However, this will depend on the ability of ACP rice exporters (Guyana and Suriname) to identify and effectively serve the markets which could be affected by any revision of the EU27s WTO agreed TRQ market access obligations. Looking beyond areas where the ACP has a market interest it can be anticipated that the greatest controversy will arise in those product areas where reduced tariff access is central to exporting to the EU. In this context the TRQ arrangements for poultry meat are likely to be the most sensitive. The EC proposal lists no less than 34 separate TRQs for poultry meat and poultry meat products. Overall the TRQ access to EU27 markets would fall 22.7%, with the % decline across different categories of poultry meat exports ranging from lows of 0% and 2.5% (edible offal and prepared turkey meat) to highs of 32.8% and 38.4% (cooked poultry meat and duck respectively). The current total WTO agreed TRQ access to the EU28 market amounts to some 806,850 tonnes, with very limited volumes of EU imports taking place outside of these WTO and bilaterally agreed TRQ arrangements.The application of the EC’s proposed apportionment formula would reduce this access to the EU27 market to 624,095 tonnes. Reaching agreement on the apportionment of these TRQs could prove rather difficult. A lot will hinge around how existing exporters under WTO poultry TRQs see the future evolution of EU27 and UK import demand for poultry products and how they view their prospects for securing bilaterally enhanced access to the UK market for poultry meat exports in the post Brexit period. Extra-EU 28 Imports of Poultry Meat 2014-2017 (tonnes)
Source: EC, ‘EU Market Situation for Poultry Committee for the Common Organisation of the Agricultural Markets’, 21 June 2018 Give the potentially fraught nature of these poultry TRQ related negotiations this makes the invocation of the EU’s fall back option of unilateral apportionment of WTO agreed TRQ access appear a likely option. However, beyond the technicalities of the EU/UKs negotiations with WTO members over the apportionment of WTO agreed TRQs, the key issue from an ACP perspective remains whether or not the EU approach to the apportionment of WTO agreed TRQs will be replicated in regard to bilaterally negotiated EU TRQ market access arrangements for bananas and sugar. How this issue is resolved will have a significant bearing on the level of competition ACP banana and sugar exporters will face on EU27 markets in the full post-Brexit period. |
Sources:
(1) Politico, ‘Council authorizes pre Brexit talks with WTO’, 26 June 2018
https://www.politico.eu/pro/council-authorizes-pre-brexit-talks-with-wto/
(2) EU Council, ‘Council authorises opening of negotiations with WTO members on Brexit-related adjustments’, 26 June 2018
http://www.consilium.europa.eu/en/press/press-releases/2018/06/26/council-authorises-opening-of-negotiations-with-wto-members-on-brexit-related-adjustments/
(3) EU/UK, ‘Letter from the EU and the UK to WTO members on the apportionment of TRQs’, 11 October 2017
https://ec.europa.eu/commission/sites/beta-political/files/letter_from_eu_and_uk_permanent_representatives.pdf
(4) Annex to EC, ‘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) 312 final, 22 May 2018
https://eur-lex.europa.eu/resource.html?uri=cellar:56fe97e6-5dd6-11e8-ab9c-01aa75ed71a1.0017.02/DOC_2&format=PDF