There are few issues that cause more controversy in international trade policy than agriculture. The EU’s overall agriculture policy, including domestic support, tariffs, and Tariff Rate Quotas (TRQs), are an ongoing irritant with trade partners. The UK government has spoken of being more liberal.
This is the context for the UK’s first international trade negotiation since the Brexit vote, to set our future WTO schedules, including calculating our TRQs. There has been optimistic talk from UK Ministers and influential advisers about UK leadership helping renew the impetus for trade liberalisation at the WTO. This process could therefore be an opportunity for the UK to show a liberalising instinct, and a sensitivity towards the differing interests of different countries.
So far the UK is struggling. The proposed approach to assert a new schedule, calculated on the basis of average historical usage of the previous EU TRQs, is seen by agricultural exporters as counter to WTO rules as they would suffer a loss of market access from the loss of flexibility, and failure to account for produce currently crossing borders once inside the EU. Given that all countries have to certify the schedule, a full negotiation will be needed. The EU, who joined the UK in proposing this approach, have now accepted this need. The UK government has sent mixed signals regarding following this lead, but we expect they will need to do so shortly.
The UK needs to find a new more liberal approach in line with Government policy. The UK Withdrawal Agreement may provide a period of time during which unfettered trade with the EU will continue, which should allow continuing single management of the existing TRQs n the short term. The UK should use this extra time to run a domestic consultation process with a Green Paper on agriculture and trade, aiming at an outcome that will deliver liberalisation alongside clarity and reassurance for domestic interests. The evidence suggests that such an outcome is attainable.
In the event that the UK leaves the EU without a deal in March 2019 the UK’s current approach will also not work, given the existing trade between the two, and would definitely require a significant renegotiation by both EU and UK after a short term solution was put in place. Thus the case for the UK taking a fresh look at splitting Tariff Rate Quotas would seem to be overwhelming. It should be fine to admit that the initial approach was optimistic, and that having now considered further we are going to deliver something better.
Introduction and Context – Tariff Rate Quotas (TRQs) and Brexit
On 26 September 2017 a letter was sent to the UK and EU Ambassadors to the WTO by their counterparts from Argentina, Brazil, Canada, New Zealand, Thailand, USA and Uruguay. Regarding initial conversations about establishing UK specific WTO schedules, the letter stated:
“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 TRQ access commitments. Thus, we cannot accept such an agreement.”
The UK’s first international trade negotiation since joining the EU in 1973 had commenced. For the avoidance of doubt the letter, reproduced in Annex 1, also stated that: “The modification of these TRQ access arrangements cannot credibly be achieved through a technical rectification. None of these arrangements should be modified without our agreement.”
The UK government is perhaps yet to understand the full implication of this letter. In an answer provided to Parliament on 21 November, then Minister of State for Trade Greg Hands said “In order to replicate as far as possible current obligations under the WTO… the government is preparing full UK-specific schedules under the GATT….. The government plans…. to assert them after leaving the EU.”
The EU realised that an approach based on simply asserting the split of TRQs would not work, and as reported on 25 April 2018, proposed a full renegotiation, based on WTO Article 28, for their schedules. This was approved by Member States in June 2018. The UK Government has said it may follow suit if required for some TRQs, but asserting our new schedules remains the main plan. Secretary of State Liam Fox said recently that the EU reducing their TRQ requires a negotiation, but this is not required for the UK. Contrary to what he suggested, major agricultural countries remain opposed, and this is likely to mean a full negotiation. The UK submitted schedules to the WTO Secretariat on July 19, as the first step in the process.
This paper explains why the UK is in this difficult situation at the WTO, and outlines alternate options. In the next section we briefly explain the UK’s vision for trade. Section 3 then looks at detail at TRQs, how they emerged, why this is significant in the debate over splitting them, and why other countries reject the proposed approach. Section 4 provides a framework to evaluate the UK’s options, and Section 5 proposes options for how the UK can reach agreement at the WTO. Although mostly UK focused we also touch on how the EU is managing this situation, recalling that the TRQ split is an issue in all Brexit scenarios.
 A Tariff Rate Quota is often used as a protectionist measure in agriculture, whereby a certain level of import of a product can enter a country at a reduced or eliminated tariff compared to a high applied tariff for any further import. See Section 2, and https://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd10_access_e.htm