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Demands for compensation as Brexit TRQ splits starts to affect farm trade

The shadow of Brexit is already hanging heavy over global trade in agricultural products, with WTO members once again this week queueing up to condemn the European Union and the United Kingdom for their proposed approach to splitting tariff rate quotas between the two sides after the United Kingdom leaves the EU’s customs union.

Although Brexit has not yet come to pass, Australia claimed this week that valuable pre-Christmas trade in beef and lamb has already been disrupted by uncertainty over the date of the UK’s exit from the EU – which last month was delayed for the third time.

WTO members claim valuable pre-Christmas trade in beef and lamb has already been disrupted by uncertainty over the date of the UK’s exit from the EU.

Canberra has added a new dimension to the dispute by stating that it is now actively pushing for compensation for the losses which it believes it will suffer from the TRQ splits.

The Australian government provided no details of the type of compensation they were seeking – although the TRQ controversy will certainly give them ammunition to push for a good market access deal in the context of the preferential free trade agreement which they are currently negotiating with the European Union.

But the European Commission and the British government both still maintain – officially – that no compensation is required. The view in Brussels and London is that the aggregate volume of TRQs available for third country suppliers to the wider European market will remain unchanged after Brexit, and hence there is no question of any impairment of benefits.

Trade worth €28 billion affected

The issue of the TRQ splits was among the main items on the agenda for Thursday’s meeting of the WTO Council for Trade in Goods, at which no fewer than 15 members voiced their displeasure with the EU’s approach.

The Commission has proposed to divide up no fewer than 142 agricultural tariff rate quotas between the UK and the EU27, with a simple reallocation of quantities based on historical trade flows. These quotas cover around 400 tariff lines in total, and EU imports under these quotas in 2018 were valued at around €28 billion.

The relevant quotas have already been embedded in EU law in a Regulation which is set to take effect as soon as the UK leaves the customs union.

Brexit delays hampering trade flows

But the EU’s main trading partners have multiple issues with the EU approach. The methodology is still disputed, with Australia maintaining that the UK and EU27 have proposed “two different and conflicting methodologies” for apportioning quotas if – as is quite likely – Brexit occurs midway through a quota year.

“In many instances, these differing methodologies mean the total market access under apportioned EU27 and UK quotas will not add up to the current level of access under existing EU28 quotas,” said a paper submitted to the meeting by the Australian delegation.

Moreover, WTO members are also starting to lose patience with the multiple extensions to the Brexit deadline. There have been three already since the original exit date of 29 March 2019, with the UK and EU27 agreeing most recently to push the date back from 31 October to 31 January 2020.

“With uncertainty around quota allocations in the event of a no deal Brexit on 31 October, many Australian businesses ceased exports of commercially valuable beef and sheepmeat in the lead up to Christmas,” the Australian note said. “These same exporters have now had to make this difficult commercial decision in the lead up to 29 March, 30 June, 31 October and now 31 January 2020.”

The situation is complicated by the fact that a UK exit on the basis of a negotiated Withdrawal Agreement, such as the one agreed between the Commission and prime minister Boris Johnson’s government last month, would keep the UK in a customs union with the EU during a transition period running in principle until the end of 2020 – with the possibility of an extension until end 2022.

But a no-deal Brexit, which still cannot be ruled out, would make the TRQ splits effective as soon as the UK ceased to be a member state.

Non-EU suppliers ‘crowded out’ by bilateral EU-UK trade

Other nations are focusing on the loss of operational flexibility which a TRQ split would entail for traders who have become used to delivering product into a single European port and using that as a distribution hub for the whole of Europe.

New Zealand pointed out that of the 142 TRQs under review, 55 would be allocated solely to the EU27, and five allocated solely to the UK. This would mean that geographical access to one or other territory would be lost for 60 TRQs in all. The United States cited grape juice as a product which could no longer be exported to the EU 27, and pizza cheese for access to the UK market.

In addition, the US is concerned about how bilateral EU-UK trade would fit into the picture if no trade deal is in place between the two sides – compelling EU and UK traders to make use of available erga omnes TRQs.

“For example, analysis shows that the volume of chilled or frozen pork the UK imports from the EU27 is more than 26 times larger than the proposed TRQ for that pork. In light of such odds, it is difficult to imagine how we will not lose access to the UK market under the current proposals,” the US complained.

Analysis presented by New Zealand showed that for 73% of the EU’s TRQs, the level of EU-UK trade is greater than or equal to the existing TRQ volumes. In the case of as many as 20% of the TRQs, bilateral EU-UK trade was 100 times greater.

Similar points were made at the meeting by Brazil, Canada, Uruguay, China, Russia, Mexico, Korea, Japan, Paraguay, Argentina, Switzerland and India.

For its part, the EU – which at present is still speaking on behalf of the UK as well as the EU27 – is continuing to insist that its approach to the TRQ question is WTO-compatible.

It told the meeting in Geneva that it is continuing to engage in negotiations with affected trading partners under the terms of GATT Article XXVIII, although it claimed that, even though it initiated the consultation process as early as October 2017, the negotiations “are only in the early stages.”

This is likely to be a signal that any campaign by exporter countries for compensation for the TRQ splits will take a long time to come to fruition.

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