Documents considered by the Committee on 20 June 2018 Contents

5Apportionment of the EU’s concessions on Tariff Rate Quotas (WTO) in view of UK withdrawal from the EU

Committee’s assessment

Legally and politically important; drawn to the attention of the International Trade Committee, Environmental Food and Rural Affairs Committee, Exiting the EU Committee, Business, Energy and Industrial Strategy Committee and Treasury Committee

Committee’s decision

Not cleared from scrutiny; further information requested; but scrutiny waiver granted

Document details

(a) Recommendation for a Council Decision authorising the opening of negotiations with a view to apportioning the Union’s WTO concessions on Tariff Rate Quotas annexed to the General Agreement on Tariffs and Trade 1994 in view of the withdrawal of the United Kingdom from the Union; (b) Proposal for a Regulation of the European Parliament and of the Council on the apportionment of tariff rate quotas included in WTO schedule of the Union following the withdrawal of the United Kingdom from the Union and amending Council Regulation (EC) No 32/2000

Legal base

(a) Article 218(3) and (4) TFEU; (b) Article 207(2) TFEU, ordinary legislative procedure, QMV

Department

International Trade

Document Numbers

(a) (39734), COM(18) 311; (b) (39735), 2018/0158, COM(18) 312

Summary and Committee’s conclusions

5.1The EU has a single set of WTO tariff commitments for goods42 (set out in its schedule of concessions and commitments)43 which are applicable throughout the EU.44 As such, the UK currently forms part of that EU schedule.45

5.2At the end of the transitional period (31 December 2020) or on the UK’s exit on 29 March 2019 if no transitional arrangements are agreed as part of the UK withdrawal agreement, the EU’s WTO commitments will cease to apply to the UK. The EU has said46 that its scheduled commitments for goods (its bound tariff rates on imports) will remain applicable to its territory.47 However, the EU’s existing quantitative commitments in the form of tariff-rate quotas (TRQs),48 which are currently set for the whole of the EU, will need to be split between the EU and the UK.

5.3The UK and EU wrote jointly to WTO Members on 11 October 201749 setting out their proposed methodology for apportioning, as a technical adjustment, the EU’s current TRQs between the EU and the UK. This methodology is based on historic trade flows under each TRQ, which in the UK/EU view maintains other WTO members market access levels. This approach has not been agreed by consensus of the other parties.

5.4The Recommendation for a Council decision in its original form.50

5.5The Minister, the Rt Hon Greg Hands MP, wrote to the Committee on 12 June informing the Committee that the Presidency plan to remove the reference to wording at Article 4 of the original text concerning “authorisation” of the UK “to undertake the necessary procedures” to establish its own independent schedule of concessions on goods at the WTO. The Minister went on:

“Instead, the revised draft decision—which is still in flux—is more likely to recognise the need to take into account the specificities of the UK as a withdrawing Member and against this backdrop, to refer to the Commission’s role in ensuring that the duty of sincere cooperation is respected.”52

5.6The Proposed Regulation:

5.7The Committee thanks the Minister for his Explanatory Memorandum and his subsequent letter to the Committee of 12 June 2018.

5.8The Committee notes that in relation to the proposed change to the text referred to at paragraph 5.5 above (proposed deletion of the words regarding ‘authorisation’ of the UK), the Minister says “My officials have discussed these amendments in detail with the clerks of the relevant Committees”. This sentence might suggest there has been some agreement concerning the proposed wording between the clerks to the Committee and officials. We emphasis there has been no such agreement which is why the Committee asked for a confirmatory letter from the Minister setting out planned changes by the Presidency.

5.9We grant the Minister a conditional scrutiny waiver, valid until the end of the Bulgarian Presidency, on the following basis:

i)the text put before the Council for a vote is in the form indicated by the Minister at paragraph 6 of his letter of 12 June (outlined at paragraph 5.5 above);

ii)the Committee receives clarification on the matters below within 10 working days; and

iii)the Committee is updated expeditiously on any significant developments during the Council decision-making process.

5.10The matters referred to at paragraph 5.9(ii) above are:

a)At paragraph 7 of his letter of 12 June 2018, the Minister expressed the Government’s support for the Council Decision in its original form. In that original form, Article 4 of the text, inter alia, authorises the UK to undertake the necessary procedures to set out its own WTO goods schedule of concessions and commitments and to negotiate with other WTO Members on its portion of the tariff rate quotas currently included in the Union’s schedule of concessions and commitments.

i)This raises the legal questions:

b)at paragraph 23 of his EM the Minister says “A group of the biggest agricultural exporters (including US, Australia, Argentina, Brazil, Canada, Thailand, Uruguay and New Zealand) have raised concerns with our approach to apportioning the 4% of tariff lines within our goods schedule that are TRQs”.

i)Could the Minister explain what elements of the EU/UK approach are a cause for concern by the States listed—is it, for example, the baseline data being used by the EU/UK, the agreed EU/UK methodology (as referred to at Recital 3 of the Proposed Regulation) or is it the effect of splitting the EU TRQ on the market access of an affected WTO member.

ii)How far from agreement is the EU and UK with those WTO Members?

iii)In his letter of 12 June 2018, the Minister says “we are now in a position to begin the formal steps to establish our goods schedule, the first of which will be to circulate our schedules at the WTO for certification. Should it be necessary, the UK may then move on to a second stage, and open our own Article XXVIII negotiations, on a UK-specific goods schedule and tightly constrained to residual specific Tariff Rate Quota lines where rectification with our partners has not been finalised”. In what circumstances does the Minister envisage that it may be necessary to enter formal Article XXVIII GATT negotiations in order to agree TRQ lines with WTO members?

c)In apportioning current EU TRQs between the EU-27 on the one hand and the UK on the other, WTO Member exporters into the EU will, to the extent that current ‘EU-28 TRQ’ is allocated to the UK, lose flexibility in market access (in terms of being able to choose whether to export into either the EU-27 or the UK based, for example, on the prevailing market price of the product, demand and exchange rates). If affected WTO members perceive a worsening in their market access rights, is there a risk that the UK will be pressured to give greater concessions than it otherwise would in establishing its own schedule of concessions, for example in setting tariff rates or in giving additional preferential market access to other products by means of TRQs?

d)In any event, is it the case that some affected WTO members may see the splitting of the EU TRQ and the establishment by the UK of its on schedule of concessions as an opportunity to renegotiate access rights to the UK market more generally? Given the sensitive nature of a number of products that are currently the subject of TRQ lines (in the sense that there is competing national production of that product for example, lamb and sugar), has the Government undertaken any assessment of the impact of increasing preferential market access of those products (or others) on the domestic agricultural sector?

e)What are the implications to the UK if the allocation of TRQs between the EU and UK is not agreed by affected WTO Members before the UK’s departure from the EU (either on 29 March 2019 or 31 December 2020, depending on agreement being reached on the UK’s Withdrawal agreement)? Moreover, if there is a need for the UK to enter formal Article XXVIII GATT negotiations, what impact will this process have on the ability of the UK to reach an agreement on splitting the EU TRQ prior to the UK’s exit from the EU/end of the transitional period.53 If there is no agreement on UK TRQs:

i)what are the risks to UK consumers/businesses?

ii)what are the risks of challenge to the UK/withdrawal, of ‘substantially equivalent’ concessions from the UK54 by affected WTO members?

iii)how might the use of the Commission powers (set out in the Proposed Regulation) to make changes to the Union’s TRQs by tertiary legislation impact on the UK?

iv)how might the scope and timing of future UK bilateral trade agreement negotiations be affected?

f)If the UK is unable to agree its own schedule of concessions for goods with other WTO members before UK exit/end of the transition period:

i)will the UK establish and operate an ‘uncodified’ (ie unagreed) schedule and if so, on what basis (for example, will it apply the current EU schedule or will it apply more preferential terms); and

ii)what are the risks to the UK, in particular as regards action by a given WTO Member against the UK, should the UK establish and operate an ‘uncodified’ (ie unagreed) schedule?

iii)how might this impact the scope and timing of future UK bilateral trade agreement negotiations?

g)Is the UK seeking to obtain its own country specific post exit/transition period, TRQs with the EU?

Full details of the documents

(a) Recommendation for a Council Decision authorising the opening of negotiations with a view to apportioning the Union’s WTO concessions on Tariff Rate Quotas annexed to the General Agreement on Tariffs and Trade 1994 in view of the withdrawal of the United Kingdom from the Union: (39734), COM(18) 311; (b) Proposal for a Regulation of the European Parliament and of the Council on the apportionment of tariff TO schedule of the Union following the withdrawal of the United Kingdom from the Union and amending Council Regulation (EC) No 32/2000: (39735), 2018/0158, COM(18) 312.

Background

5.11Details of the Recommendation for a Council Decision and the Proposal for a Regulation are set out in the Government’s Explanatory Memorandum.

Previous Committee Reports

None.


43 Annexed to the General Agreement on Tariffs and Trade 1994.

44 The EU is a single customs union with a single trade policy and common external tariff. The EU has exclusive competence in respect of the EU’s common commercial policy and customs, see Article 3 TFEU.

45 Both the EU and the UK are members of the World Trade Organisation (WTO) in their own right (as are the other 27 Member States of the EU). When the EU acceded to the WTO in 1995, the EU’s WTO schedule of concessions and commitments (annexed to the General Agreement on Tariffs and Trade 1994 (GATT 1994)) was simultaneously annexed to the UK’s schedule of commitments.

46 See paragraph 1 of the Explanatory Memorandum to the Recommendation for a Decision in relation to tariff rate quotas referenced above.

47 In contrast, the UK will need to establish its own ‘independent’ schedule of commitments on over 10,000 tariff lines.

48 Limits on imports at a favourable tariff rate.

50 COM(2018) 311, 22.5.2018.

51 Those WTO members with negotiating rights according to Article XXVIII GATT.

52 See paragraph 6 of the Minister’s letter.

53 Whichever is applicable.

54 See Article XXVIII(3) and (4)(d) of GATT 1994.




Published: 26 June 2018