Cutting back WTO tariff-rate-quotas post-Brexit is unjustified

Tim Ritchie
Tim Ritchie.

The latest extension to the Article 50 Brexit deadline gives time for the EU and UK to work constructively with trade partners to avoid the unwarranted cutbacks of their World Trade Organisation (WTO) tariff-rate-quotas and legally-binding WTO commitment, say a group of eight organisations representing New Zealand’s largest food and beverage exporters.

The latest agreement is that the UK will leave the EU on 31 October, unless: the Withdrawal Agreement reached with the EU is approved by the UK Parliament; or the UK does not hold elections for representatives to the European parliament in which case exit in a ‘no deal’ scenario will happen on 1 June; or the EU decides the UK has not complied with the conditions set by the EU when proposing the extension, in which case the UK may leave without a deal.

The key thing for red meat exporters is that with the deadline date pushed out, “it gives more flexibility and time for the UK to consider their position,” explains Tim Ritchie, chief executive for the Meat Industry Association (MIA), one of the eight F&B organisations. The others are Beef + Lamb NZ Ltd, the Dairy Companies Association of NZ, New Zealand Wine, Seafood NZ, the New Zealand Horticulture Export Authority, Export New Zealand and the New Zealand International Business Forum.

The EU and UK have argued that cutbacks to their WTO tariff-rate-quotas (TRQs) are necessary in order to facilitate the UK’s exit from the EU. The eight New Zealand organisations say the terminology used by the EU/UK – ‘apportionment’– sounds mild but hides the harsh reality that they are undermining the quality and quantity of the EU/UK access commitments and seriously disadvantaging third country exporters. Without this quota access, many third country exporters would be shut out of the EU/UK markets due to prohibitively high tariffs.

In some cases, the group says, this ‘apportionment’ would completely do away with all current quota access into the UK or cut back access by 95 percent to 99.9 percent. The figures are just as alarming for the EU side, which would see reduced quota access into its market ranging from 11 percent to 100 percent, the organisations say.

The New Zealand red meat sector’s WTO TRQ for sheepmeat is set at 228,254 tonnes carcase weight equivalent for sheepmeat and 1,300 tonnes for high quality beef. The EU/UK have agreed to apportion these post-Brexit via a 50/50 split – half for the UK and half for the remaining 27 EU member countries. There has been no change to this proposal  – nor to the meat industry’s view of it, says Ritchie.

“The meat industry remains steadfastly opposed to any apportionment, because it interferes with the quality of that WTO agreement,” he says, adding having an artificial 50/50 split could potentially interfere in the natural evolution of markets and constrain New Zealand’s meat exporters.

“With the way the trade and market dynamics are now, in 10-15-20 years time they could be very, very different. Putting an artificial constraint in there is just nonsensical, because it potentially could destabilise the markets by perhaps under-supplying one market and over-supplying another. Domestic production and consumer demand changes over time,” he notes. “All we want is to preserve the flexibility we currently have and have paid for in the TRQ. We are not seeking to get more access.”

Noting a lift of 11 percent in the value of exports of sheepmeat and edible offals to EU markets, excluding the UK, in the year to end-December 2018, Ritchie says it reinforces the absolute importance of having that flexibility within the TRQ to carry out business.

“In addition, more beef especially now goes to the continental EU-side than the UK, so apportioning the small amount of beef – 1,300 tonnes – 50/50 just doesn’t make sense for meat exporters as you wouldn’t have marketable parcels.”

The MIA will be keeping pressure on the New Zealand government, says Ritchie: “To make sure they maintain our vocal opposition to it, as well as to make sure all avenues are pursued to try and sort the matter sensibly.”

The food and beverage exporter group’s position is that the EU and UK commitments are clearly set out at the WTO and there is no need for these to change, Brexit notwithstanding.

New precedent adversely affecting WTO members

There are wider ramifications from a precedent being established by the EU and UK actions which adversely affects WTO members and erodes current levels of liberalisation, the group says.

An important new development for Ritchie and the rest of the group is the inconsistency by the EU and UK in their adoption of one rule in the case of their multilateral trade commitments and a completely different one for their bilateral trade commitments. With some current EU bilateral FTA partners, the entirety of their quota access into the EU seems to have been preserved and additional, new and separate, quotas created for access into the UK post-Brexit.

“So, it seems they have compromised that rule themselves, with the EU allowing that partner to have full access to the remaining EU markets and the UK has also given them new access into the UK post-Brexit. So that particular country is now able to send everything it was sending to the whole of the EU to the remaining EU markets and as well has the UK there.

“When it’s been convenient for them to do that, they’ve done it,” explains Ritchie. “So, our view would be that a precedent has been set.”

The group’s position is that this different treatment creates major problems.

The WTO is an essential foundation of the rules-based trade architecture. It has strengthened trading partnerships and provides a level playing field for all economies alike, they argue. New Zealand food and beverage exporters hold significant concerns about the future of the multilateral trading system if apparently committed multilateralists like the EU and UK would want to walk back on liberalisation commitments and further disadvantage their trade partners through their approach to Brexit. This is a grim prospect for a small trading economy like New Zealand.

“At a time of increased protectionism, the loss of enforceable rules would mean the loss of predictable access to international markets. We all have a lot to lose if countries opt to backslide from their commitments, without regard for the consequences,” the group says.

“We encourage the EU and UK to use the opportunity provided by the extension to the Brexit deadline to change their approach. There are ways to resolve this matter in a mutually acceptable manner. But this requires open minds and a constructive dialogue to find solutions that properly honour existing WTO commitments and avoid wholesale re-negotiation of those commitments, for which trade partners would need to be compensated.

“As organisations representing the majority of New Zealand’s primary sector exported goods, we fully support Prime Minister Jacinda Ardern, along with Trade and Economic Growth Minister, Hon. David Parker, and officials, in working with the EU and UK, and with other like-minded countries to find a way to make sure New Zealand exporters are no worse off as a result of Brexit.”

Certainty needed for businesses

Ritchie says everybody is befuddled with the current EU/UK situation.

“Businesses like certainty and the ability to plan, especially if one is dealing with a perishable product that you’re having to make decisions about a month or two out from it arriving – unlike an exporter in France that sends a consignment today that will arrive tomorrow whereas people are having to make decisions back here right now,” he says.

One benefit of Brexit being pushed out from 29 March is that it didn’t occur in the midst of the chilled season pre-Easter, says Ritchie.

“Everybody just wants to get it sorted, so they can get on and know with certainty the requirements of their customers to develop that business. It is very important. We are not in the position of compromise, we have legal rights and we want to retain those.”

 

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