WTO schedules - what do they really mean

Last week news emerged that the joint UK/EU attempt to solve the issue of World Trade Organisation (WTO) ‘schedules’ relating to tariff rate quotas had been rejected by other WTO members. Schedules as a term covers a WTO Member’s commitments on market access, and can include anything from quotas for goods, tariff rates, and commitments on domestic subsidies and support. The rejection by other WTO members of the UK/EU proposals on tariff rate quotas was portrayed as a failure of “global Britain” but the reality is somewhat different.

The EU has relatively high import tariffs on agricultural products, yet it gives tariff rate quotas (TRQs) on a variety of these products which in essence means that a certain quantity can come in from around the world at a reduced tariff.

These quotas have to be agreed and approved by the WTO. When a country joins or leaves the EU there is a complicated process of re-evaluating these quotas. The key principle is to make sure that other countries are not materially disadvantaged by the changes.

WTO

So in essence what happened last week is as follows. If there is, for example a 100,000 tonne EU TRQ for beef, the UK and EU worked out what percentage of the overall market the UK had, say for example 30% and they therefore proposed to split the quota - the UK quota would be 30,000 and the EU quota 70,000.

In essence this is an even split, based on the current size of the market and current import patterns however many WTO countries, including big agricultural producers such as the US, Canada, Australia and New Zealand cried foul.

Their argument was that as the market was split, the total overall amount of access they would have had actually been reduced. For example if the UK didn’t reach its 30,000 quota in one year, they couldn’t just export more to the EU above the 70,000 EU quota which they currently can do. Splitting the quota made it more restrictive and meant that they were materially disadvantaged. Given the possibility that there could be no EU/UK trade deal, imports currently outside the quota into the UK from the EU and vice versa could also come under that quota, gobbling it up very quickly and it is clear to see why those countries were concerned.

The press seized on this as an example of a failure of “Global Britain” but it is nothing of the sort. This was a first, simplistic attempt by the EU and UK to solve an immensely complex issue. It is in both the EU/UK interests to keep these quotas as small as possible. For the EU they have no interest in opening up agricultural quotas further and for the UK, the smaller the WTO quota the more leverage the UK will have to offer big quotas in individual free trade deals with the big agricultural producers.

This is a key point. The US, Canada, Australia, New Zealand & the Mercosur countries all have big export orientated agricultural sectors and in any free trade agreement (FTA) with the UK that will be their big demand. If the UK gives away that access in its WTO TRQ schedules it will have little leverage in those FTA discussions. Similarly those countries will push as hard as they can in the WTO so that they have to demand less (and therefore give away less) in the FTA negotiations.

This is the reality of trade politics and particularly in agriculture, which is the single most complex and politically sensitive trade topic.

WTO Flag

However there is still a path ahead. The UK will need to accept a higher quota without undermining its FTA negotiating position, this would show goodwill to both the EU and the rest of the world and crucially, if there is no deal with the EU, will be needed to ensure that food prices don’t rise substantially in the UK given the fact that around 40% of food sold in the UK is imported.

The UK could also unilaterally propose to the WTO to scrap tariffs for a variety of agricultural products which cannot be produced in the UK. Currently for these products the EU tariff doesn’t serve any domestic purpose in the UK, except for raising prices for consumers. Citrus fruits are a good example of this along with some coffees and teas.

This would benefit the UK, send a message to the WTO that the UK will have a truly independent and more liberal agricultural import policy whilst still protecting the domestic agricultural sectors which could be vulnerable to increased liberalisation.

This is a highly complex area and it will not be solved overnight, in reality it is likely to take many years, so last week’s rejection is not a rejection of global Britain, it is a reminder of the complexities of international trade.