To minimize disruption to its trade with other WTO members, the UK decided to replicate as far as possible the EU’s current schedule of commitments for goods. It submitted a draft schedule for a so-called rectification procedure, which allows a schedule to be certified within three months without the need for negotiations with WTO members.
While it is possible to replicate the tariffs expressed in the EU schedule, the same is not true for agricultural and industrial products subject to TRQs. TRQs set the quantity of goods the EU allows its trading partners to import every year duty-free or at a reduced rate of tariff. Imports above the quantity ceiling (quota) are subject to the normal, usually much higher, tariff rate. TRQs account for the demand of the EU’s 28 Member States. Post-Brexit, both the EU-27 and the UK will therefore need to adapt their quantitative commitments to accommodate the reduced demand in the EU bloc.
At the outset, the UK and the EU-27 adopted a joint approach on TRQs.1 Both parties agreed on a methodology whereby the EU-28’s existing quotas are split proportionally, in accordance with traditional flows of imports to the UK and the EU-27.
From the very beginning, however, this joint approach has raised concerns among other WTO members. Twenty-one WTO partners have publicly opposed the methodology,2 highlighting that the proposed changes mean reduced flexibility and lower market access for their exporters. In their view, the proposed apportionment goes beyond the simple rectification of schedules and concessions necessary to compensate for reduced market access.
Indeed, any modification to TRQs is considered a change of trading commitments. When the latter occurs, WTO rules grant affected members (including their key suppliers) the right to negotiate. A single objection is enough for the WTO not to certify the schedules. As a result, both the UK and the EU-27 have started talks with those WTO members desirous of renegotiation of aspects of the draft schedule. These negotiations are already raising concerns. For example, the Russian Federation recently rejected the UK’s offer.
Implications for Businesses
In the current situation, should there be no deal on the future of UK-EU relations (a “hard Brexit”), imports from the UK to the EU should be subject to the applied tariff rates set in the EU’s Common Customs Tariff (CCT), whereas imports from the EU to the UK should be subject to the tariff rates that the UK will apply to the rest of the world.
Negotiations on one or more TRQs may not be concluded before the UK is no longer covered by the EU’s WTO schedule. Most likely, the UK schedule will come into effect before the end of the approval procedure and before all the details on allocating shares in TRQs are finalized. If nothing changes, the proposed methodology will apply from January 1, 2021, under transitional arrangements agreed by the EU and the UK or, absent such arrangements, from March 30, 2019.
To capitalize on the UK’s withdrawal from the EU, businesses should engage with national governments on their export priorities and adopt a coordinated approach through trade organizations. By aiming at either maintaining the levels of market access available to them or seeking compensation in terms of market access in other areas of export interest, businesses should be able to take full advantage of the UK’s commitment to seek continuity in its existing trade relationships.
1 This was outlined in a joint letter to their WTO partners published on October 11, 2017. It was then submitted as the UK’s proposal to the WTO members for their approval on July 24, 2018.
2 The countries that opposed both the EU and UK schedules are Argentina, Australia, Brazil, Canada, China, Colombia, India, Japan, Mexico, New Zealand, the Russian Federation, Thailand, the United States and Uruguay. China and India opposed the EU list only, while the UK list drew interventions from Costa Rica, Ecuador, El Salvador, Guatemala, Honduras and Nicaragua.
