Cleared from scrutiny; drawn to the attention of the Committee on International Trade
Report from the Commission on Trade and Investment Barriers 1 January 2016—31 December 2016
Department for International Trade
(38905), 10715/17, COM(17)338
29.1As the UK seeks to develop an independent trade policy after its withdrawal from the EU, it will have to find effective ways of addressing barriers to trade set up by its trading partners. This annual Commission report on trade and investment barriers in third countries provides a useful analysis of the types of barriers that UK businesses will likely face, and the options for addressing them.
29.2It is striking that the ten countries with the highest number of trade barriers are all G20 economies, pointing to the fact that protectionism is a continuing impediment to global free trade. Several countries that the Government has prioritised establishing ambitious free trade deals with following the UK’s exit from the EU—such as the United States, Australia and India—all have between 13 and 23 registered trade barriers in place. It is of note that even Switzerland, one of the UK’s most significant trading partners and a member of the European Free Trade Association, had seven trade barriers in place in 2016 that negatively affected EU businesses.
29.3Key UK exports such as pharmaceuticals, wines and spirits, food and drink were all affected by a range of at the border and behind the border barriers in 2016. The export of services—a UK economic strength—was subject to specific as well as horizontal barriers that also affected a variety of other sectors. However, most trade barriers concerned trade in goods.
29.4The report provides an overview of the many different types of trade barriers encountered by EU businesses. These include excessive certification requirements, national ownership requirements, unjustified safety requirements, minimum import pricing, import licence schemes, forced localisation measures, mandatory registration of exporters and unjustifiable regulatory divergence from international standards.
29.5The Commission notes the importance of an ambitious trade negotiating agenda in helping to open markets and resolve trade barriers. It cites the effectiveness of consultation within the framework of existing free trade agreements, such as the ones with South Korea, to address and resolve new trade barriers that may be erected. These experiences will be instructive for the Government as it seeks to replicate existing trade deals with third countries, and to forge new economic relationships.
29.6The Commission has deployed a variety of means to resolve trade and investment barriers affecting EU businesses. The WTO consultative framework -—as seen in its many sectoral committees—is one of the main methods. It has been only when consultations have failed to address concerns that the EU has lodged cases against its trading partners, such as the two in 2016 against China and Colombia.
29.7Bilateral demarches through EU delegations, as well as high level political interactions raising areas of persistent or increasing concern, have also been utilised by the EU in its efforts to remove barriers to trade. The importance of deploying political capital strategically is therefore evident.
29.8The Government informs us that the Department for Trade is developing “a cost-effective market access strategy to help identify and resolve market access barriers for when the UK leaves the EU”. The Commission’s findings will no doubt be of value in that exercise.
29.9This report has already been presented to the Council, and no further discussions on it are scheduled. We draw it to the attention of the House, given its clear relevance for UK trade policy post-Brexit, and clear it from scrutiny.
Report from the Commission on Trade and Investment Barriers 1 January 2016—31 December 2016: (38905), 10715/17, COM(17)338.
29.10This is the European Commission’s seventh annual report on trade and investment barriers in non-EU countries as reported by EU businesses and Member States to the Commission through its Market Access Partnership.
29.11The scope of this year’s report has been expanded from the EU’s main trading partners to cover 51 third countries. Barriers are listed in the Commission’s Market Access Database, which currently sets out 372 active trade and investment barriers across the countries considered.
29.12Of note is the fact that the ten countries with the highest number of trade barriers in place are all G20 economies. Russia has the highest number (33), and Brazil, China and India each have 23 measures in place. Other large economies with ten or more trade barriers in place include Indonesia (17), South Korea (17), Argentina (16), the United States (16), Australia (13) and Mexico (10).
29.13The Commission’s data show that 36 new barriers in 21 third countries were registered in 2016. This is broadly comparable with the 39 new barriers reported in 2015. The trade flows potentially affected by the barriers registered in 2016 are estimated by the Commission to correspond to around EUR 27.17 billion, or 1.6% of total EU exports.
29.14Analysis of the barriers reported shows an equal number of barriers (183 each) in both more traditional border measures and behind the border measures.
29.15Border measures are defined as restrictions that directly affect imports and exports, such as tariff increases, quantitative restrictions, sanitary and phytosanitary measures, import licensing or trade bans.
29.16Behind the border measures include restrictions on services, investments, government procurement, intellectual property rights or unjustified technical barriers to trade.
29.17Trade-distorting subsidies are another form of trade barrier listed in the report, which notes that these are normally dealt with through anti-subsidy investigations by the Commission. As such, their incidence is not reported fully in this assessment.
29.18Russia, India, Argentina, China and Turkey are listed as the countries that have most frequently imposed trade barriers at the border. Russia, China and India also feature as the countries that most frequently impose behind the border barriers, along with Brazil.
29.19The report states that most of the 20 new recorded restrictions related to trade in goods (17), while three new barriers concerned trade in services and investments. Seven of the new barriers were in the wines and spirits sector, and six were in agriculture and fisheries. Automotive, pharmaceutical, services, medical devices and iron, steel and non-ferrous metals sectors all recorded restrictions, and there were six horizontal barriers imposed, which affected multiple sectors.
29.20The report provides an analysis of the types of barriers introduced by seven trade partners (Russia, India, Switzerland, China, Algeria, Egypt and Turkey). Those relating to three economies of interest to the UK (China, India and Switzerland) are summarised below, along with Russia as an example of significant and longstanding barriers exacerbated by political issues.
29.21Switzerland, a member of the European Free Trade Association, is reported as having instituted three new trade barriers in 2016, bringing its total to seven.
29.22Two of these concerned the services sector. Rules on payment of Value-Added Tax (VAT) were expanded so that EU businesses had to register for VAT in Switzerland on the basis of their global turnover, as opposed to the annual turnover in Switzerland, which was applicable previously. The second new barrier affected the VAT rules applicable to low value consignments, which have had the effect of making low value imports (especially through e-commerce) less attractive to Swiss consumers.
29.23A border measure introduced in 2016 concerned the reclassification of tariffs for seasoned meat, which had the effect of raising tariffs significantly. The report notes that:
“even though a decision has been taken in the meantime to reduce the tariff for seasoned meat ‘imported for the purpose of producing dry meat’, importers will have to prove upon request that the meat has been imported for that purpose. As a result, part of EU exports will continue to be subject to the higher duties.”
29.24The report notes that “China remains among the most trade-restrictive partners of the EU”. The longstanding barriers faced by EU companies include joint venture requirements, market entry restrictions, obligations for technology transfer and unjustifiable technical regulations.
29.25Chinese production overcapacity, most notably in the steel sector but also increasingly in high-tech industries too, remains a key global challenge. The report observes that:
“Chinese overcapacity in some cases exceeds the size of total EU production or the total EU market. This poses a risk of dumping at unfair prices and resulting major market disruptions in the EU.”
29.26The report finds that there is a significant prospect of China introducing new trade barriers in the coming months. For instance, it plans to introduce legislation on New Energy Vehicles, which is expected to affect EU businesses negatively, as well as “unjustifiable food certification requirements” affecting a large number of products including drinks, confectionary, biscuits, jams and breakfast cereals.
29.27India imposed five new trade barriers in 2016—of which four were behind the border measures relating to steel, medical devices, wines and spirits and textiles.
29.28On the wines and spirits sector, the report comments:
“business opportunities of the wines and spirits sector in India are affected by unjustifiable regulatory divergences from international standards regarding labelling requirements and by internal taxation measures.”
29.29Another example provided concerns exports to India of telecommunications equipment. Electrical and electronic assemblies that are sent back to the EU for repair, testing, research and development or project work must be formally re-exported to India. The report observes that “this leads to delays of imports that negatively affect both the repair of telecom networks and potential research cooperation projects”.
29.30The report states that “in the midst of a major domestic economic crisis, Russia continued to resort to trade barriers in 2016 to protect its local industry, confirming trends observed in previous reports”.
29.31Protecting automotive and agricultural machinery plants through subsidies in the face of a slowdown in domestic demand is one of the main barriers reported in Russia. The government also introduced restrictions on foreign companies seeking to participate in investment projects undertaken by state-owned companies or private companies receiving state subsidies. Russian companies taking part in tenders by state-owned companies received a 15% price preference.
29.32Russia extended its longstanding restrictions on foreign companies participating in government procurement to further sectors. These restrictions cover a wide array of goods such as pharmaceuticals, software, imported vehicles and now foodstuffs and radio-electronic products.
29.33Russia also imposed a transit ban on carriage of goods via road and rail moving through Ukraine to Kazakhstan and Kyrgyzstan and transiting Russia, regardless of the origin of the goods. The Commission states that “this restriction has led to a considerable increase of transport costs for certain EU exporters”.
29.34The WTO framework is a key means for the resolution of disputes over trade and investment barriers. WTO consultative committees, such as those on Technical Barriers to Trade, Sanitary and Phytosanitary Measures, Subsidies and Countervailing Measures, and Trade-Related Investment Measures, were used by the EU to raise concerns with trading partners.
29.35The report states that where consultative committees could not effectively address the barriers adversely affecting EU interests, the EU used the WTO Dispute Settlement System. It initiated two cases in 2016—one against China in relation to duties and other restrictions on the export of raw materials, and the other against Colombia concerning the discriminatory treatment of EU exports of spirits. The EU also won two cases against Russia in 2016.
29.36An ambitious trade negotiating agenda is cited as an important instrument to open markets and resolve trade barriers. The report states that many market access barriers are addressed directly during negotiations. In this context, the Comprehensive Economic and Trade Agreement with Canada is cited as an example where “tariff elimination will be complemented by the removal of many significant behind the border barriers in various sectors such as wines and spirits”.
29.37Addressing new trade barriers through the implementation structures established by free trade agreements is highlighted in the report as an important means of eliminating specific barriers. The report cites the example of the EU’s trade relations with South Korea, where only one new barrier was registered in 2016, and five eliminated. The ability of the parties to amend such FTAs to take into account the resolution of new barriers is also noted.
29.38In the absence of a free trade agreement, consultative mechanisms set up outside the WTO framework can help to address trade barrier concerns. For instance, on India, the report notes that:
“while the negotiations for a broad-based FTA with India were brought to a de facto standstill in the summer of 2013 due to a mismatch of the level of ambitions and expectations, the Commission regularly raises such issues with the Indian authorities in all available multilateral and bilateral fora, such as the WTO Technical Barriers to Trade Committee or in the EU-India Working Groups and Sub-Commission on Trade.”
29.39With regard to China, another significant EU trading partner, the report notes that the Commission has raised concerns with China at bilateral EU-China committee meetings, and issues relating to specific sectors at fora such as the EU-China Medical Device Expert Roundtable, the EU-China Annual Regulatory Dialogue and Market Access Meeting, and at the EU-China Food and Drug Administration High Level Meeting.
29.40There are also instances where diplomatic interventions have been made by EU delegations as well as at political level. Concerns over the increase in trade barriers initiated by Egypt, as well as several introduced in Turkey, some of which are incompatible with their bilateral agreements with the EU, have been taken up with the Commission with their respective governments.
29.41The Commission reports that 20 of the registered trade barriers imposed by 12 third countries were fully or partially resolved in 2016. This was broadly comparable to the 23 measures resolved in 2015. Ten of these were border barriers, while the remaining ten were behind the border measures.
29.42Of the border measures, seven related to SPS matters, while three concerned import bans or customs issues. Of the behind the border measures, nine concerned regulatory or taxation measures for trade in goods, while one related to services.
29.43The report states that it is not yet possible to calculate fully the impact of the resolution of trade barriers in 2016. However, the Commission estimates that EU exports with a value in the range of EUR 4.2 billion could be positively affected. By way of comparison, the most recent analysis available, for the impact of barriers removed in 2012 and 2013, concluded that an additional EUR 2.4 billion of trade flows had resulted, “the equivalent of a small FTA such as the one concluded with Colombia”.
29.44Lord Price, former Minister of State for Trade Policy, in an Explanatory Memorandum dated 26 July, states that “the UK is a strong supporter of the EU’s market access strategy and its work with EU Member States and business to tackle trade barriers faced by EU businesses”.
29.45Looking ahead to the UK’s trade policy following its withdrawal from the EU, Lord Price informs us that “DIT is developing a cost-effective market access strategy to help identify and resolve market access barriers for when the UK leaves the EU”.
358 Set up in 2007 to deepen cooperation between the Commission, Member States and EU businesses.
359 Sanitary and phytosanitary (SPS) measures are measures to protect humans, animals, and plants from diseases, pests, or contaminants.
1 December 2017