Tariff rate quotas (“TRQs”) allow products within a certain quota to be imported at a lower (or zero) tariff rate than for quantities above the quota. Existing European Union TRQs have been calculated on the basis of the UK being a Member State and being part of the EU's single market. The EU and UK have proposed that the existing TRQs should be divided up between the EU and UK, should the UK leave the EU (otherwise known as “Brexit”). However, the allocation of all TRQs will have to be agreed with other WTO members, and there have been indications that this will prove difficult.
EU Tariff Rate Quotas
The EU maintains some TRQs covering primarily agricultural and fish products. These TRQs are listed in the EU's “schedule of concessions”, which generally sets out the ceiling tariff rates (or "bound" rates) that the EU has committed to in the WTO. The TRQs in the schedule of concessions account for the demand of the EU as a whole, including the UK as an EU Member State. Should Brexit occur, the EU’s TRQs will have to be adjusted to account for the departure of the UK. The UK will separately have to negotiate its own schedule of concessions1, and has in fact already submitted a draft schedule2; as further discussed below, it is the TRQ element that has raised debate.
Apportionment of Tariff Rate Quotas
The EU and UK engaged in bilateral discussions to apportion the TRQs between them and submitted their agreement to WTO members in October 2017. Generally speaking, schedules of concessions must be negotiated with other WTO members. However, the EU and UK aimed to avoid triggering such negotiations by using a special process called the "rectification" procedure. Some major exporters of agricultural products wrote a joint letter to the EU and UK raising concerns about the EU-UK agreement, arguing (among other things) that it went beyond simple rectification of the schedules. The EU and UK therefore commenced negotiations with other WTO members in the hopes of agreeing on apportionment.3
Whilst these negotiations are ongoing, the EU has taken unilateral steps to apportion TRQs when the UK leaves the EU, since negotiations with other WTO members may not have concluded by that time. Regulation (EU) 2019/216, which came into force in February 2019, amends Council Regulation (EC) No 32/2000 (which implements EU TRQs) and sets out the methodology of apportionment. Essentially, the UK's share will be based on its imports under each TRQ during the most recent representative three- year period.4
However, certain WTO members have stated their opposition to the EU and UK's proposed method of dividing up TRQs. For example, in April of this year, 22 WTO members voiced their concerns that apportioning existing TRQs would reduce the level and quality of access they currently have to EU and UK markets.5 More recently, at a WTO meeting in July, the US reportedly said that the chances are low for a negotiated solution among WTO members on apportionment of TRQs between the EU and UK. Without a negotiated solution, the default position at Brexit would be the EU-UK proposal, which does not adequately reflect the way the TRQs are used, and would reduce the US' market access to the EU for its products and those of other countries.6
The UK’s position on TRQs post-Brexit has not yet been established, and although there is an interim framework in place to cover the UK’s immediate departure, it is subject to ongoing negotiations with other WTO members. Businesses should therefore be alert to the fact that TRQs are undergoing a period of change and they may have to adapt to a situation where import duties into the EU may be substantially different from what currently exists, due to lower quantities being allowed for importation at lower or zero rates under the TRQs. For the majority of TRQs, it seems that the new quotas will in the short-term be largely based upon the UK’s currently agreed rates with the EU, and how this will develop further down the line remains to be seen, as the UK must seek to negotiate their own quotas with WTO members.
1 "Explanatory Memorandum for European Union Legislation and Documents", Department for International Trade, 29 May 2018, see: http://europeanmemoranda.cabinetoffice.gov.uk/files/2018/05/18.05_.29_DIT_EM_EU_Draft_Council_Decision_regulation_signed_.pdf (accessed 30 July 2019)
2 "UK goods and services schedules at the WTO", Department for International Trade, 7 December 2018, see: https://www.gov.uk/government/publications/uk-goods-and-services-schedules-at-the-wto (accessed 9 August 2018)
3 Godelieve Quisthoudt-Rowohl, ‘Legislative Train Schedule: A balanced and progressive trade policy to harness globalisation’, Europarl, 20 June 2019, see: http://www.europarl.europa.eu/legislative-train/theme-a-balanced-and-progressive-trade-policy-to-harnessglobalisation/file-brexit-tariff-rate-quotas-in-the-wto (accessed 29 July 2019)
4 "EU tariff rate quotas after Brexit: Council endorses agreement with the European Parliament", Council of the European Union, 7 December 2018, see: https://www.consilium.europa.eu/en/press/press-releases/2018/12/07/eu-tariff-rate-quotas-after-brexit-council-endorses-agreement-with-the-european-parliament/ (accessed 29 July 2019)
5 "Members call on EU and UK to use Brexit extension to resolve market access concerns" WTO Council for Trade in Goods, 12 April 2019, see https://www.wto.org/english/news_e/news19_e/good_12apr19_e.htm (accessed 29 July 2019)