On 26th June, the EU Commission was authorised to open formal negotiations with WTO on how to divide-up existing tariff rate quotas (TRQs) between the EU-27 and the UK.
In October 2017, the EU and the UK informed WTO members that they proposed to apportion existing EU TRQs based on existing levels of market access and historical trade flows under each TRQ. This can be illustrated by the example the 228,254 tonnes of sheep meat TRQ that New Zealand has with the EU. If it is assumed that, based on historical trade flows, that the UK imports 50% of New Zealand sheep meat exports to the EU under its TRQ, it would mean that the future UK TRQ would be 114,127 tonnes and the EU-27 TRQ would be the same amount.
These proposals were rejected by several influential WTO members including the US, New Zealand, Canada and Brazil. They claimed that such an apportionment would put them in a disadvantageous position as they would lose the ‘option value’ of supplying any market within the EU (including the UK).
As things stand, the EU will need to modify its schedule with the WTO (including TRQs) whilst the UK will need to set-out its own schedule as it will be no longer an EU Member State from 30th March 2019. However, the transitional arrangements envisage that that the international agreements for which the EU is party would continue to apply to the UK until 31st December 2020. This means that if an agreement is reached on the transition period, existing EU TRQs would continue in their current form until the end of 2020.
Some believe that the rejection of the initial UK-EU proposal by several WTO members was a move to increase their market access to the UK and the EU via TRQs. It also illustrates that the WTO element of the Brexit negotiations could add significant complications in the next 18 months.
One potential means to resolve the TRQ impasse is to transpose the existing EU-28 TRQs into a joint UK-EU TRQ, similar to how the 11,500 tonnes of ‘Hilton”’Beef TRQ is jointly accessed by the US and Canada when exporting into the EU. This would mean that future trade under TRQs would continue to be managed in effectively the same manner as present. It would require close communication between the UK and EU to ensure that imports are managed in accordance with TRQ provisions. If future TRQs are agreed either by the UK or the EU-27, these could be managed separately, similar to the autonomous beef TRQs that the US and Canada have individually with the EU. It is rumoured that New Zealand for example would favour such an approach. This principle would chime well with a close partnership between the UK and the EU which the PM is keen to pursue. It would also help to mitigate a potentially complex negotiation with WTO members at a time when UK trade negotiating capacity is already seriously stretched.
