THE TTALK QUOTES
On Global Trade & Investment
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No. 70 of 2016
TUESDAY, DECEMBER 13, 2016
Filed from Portland, Oregon

Click  here for the December 2 quote on Sweden and Brexit.
AGRICULTURE: A BREXIT PRIORITY

"The most important negotiation for the UK -
when you look at all of the complex trade negotiations that have to go on following Brexit - the most important negotiation
will be the negotiation with the EU 27."

Craig Thorn
November 16, 2016

CONTEXT
Craig Thorn was one of four speakers at the November 16 colloquium on Brexit: The WTO Issues, jointly sponsored by the Global Business Dialogue and Steptoe & Johnson. An expert on agricultural trade policy, Mr. Thorn is a partner with DTB Associates in Washington, D.C.  Founded in 2000, the firm provides, "consulting, legal, and business services in trade, agricultural policy, and legislation." 

Though he quickly turned to the WTO issues, Mr. Thorn's first point was this one, that is, that the most important negotiation for the UK in the Brexit process will be the negotiation (or rather negotiations) it will have with the EU. As he explained: 

"Sixty percent of UK food and agricultural exports go to the EU. If you look at basic commodities - like meat, dairy, grains, oil seeds - the figure is 76 percent. ... So the loss of open access to the EU market would hit the [UK's] agricultural sector hard, and the effect would be immediate."

The challenge of forging a new UK-EU trading relationship may in some respects be separate from the WTO, but it is also central to what happens there. That's because, although the UK is a member of the WTO in its own right, "the terms of the UK membership are bundled with those of the EU," Mr. Thorn said. He continued:

"The big question is, does the UK have a schedule? And if so, what is the schedule. If not, how does the UK get to the point where it has a schedule of tariff concessions and subsidy commitments?"

A good deal of the balance of Mr. Thorn's remarks dealt with an effort to answer that question, on a range of agricultural trade issues that are going to have to be dealt with. 
 
TRQs - Later. None of these was more interesting or more prominent in his remarks than the issue of tariff-rate quotas or TRQs. We are not going to talk about them here. Later this week, however, we shall devote a full TTALK Quote and discussion to the tricky issue of Brexit and TRQs. 
 
As for Brexit's agricultural issues generally, Mr. Thorn reached the hard realities ahead by starting out on the idealized, if not idyllic, road of genuine free trade. The following extended quote highlights more than just the technique. Mr. Thorn said:

"You know, there is a simple way of getting there actually. It would simplify everything and make it easy to deal with ... even the complexities in the agricultural sector, and that would be to follow the Hong Kong model and the Singapore model and simply propose a free-trade schedule - do the kind of thing that some people in the Conservative Party in the UK and, actually, more people outside the UK, are suggesting. Be a leader on free trade. 
 
"And that would be the economically rational thing to do. But certainly there are some significant complications ... because UK farmers have been producing behind a pretty high tariff wall. 

"Beef duties in the EU are 12.8 percent, plus a specific quantity of between 1,768 Euros per ton and 3,034 Euros per ton. So very substantial duties. Cheese duties range from 1,409 Euros per ton to 2,212 Euros per ton. The removal of those duties would be quite a shock to UK producers, obviously. 
 
You have another complication. ... It would complicate efforts to secure regional trade agreements and bilateral trade agreements with the 55 countries with which the EU currently has agreements and therefore preferential access. 
 
"... [And] it would probably be incompatible with preserving access to the EU market, because you can imagine that the EU, and particularly those parties to the EU that care about the agriculture sector, would be reluctant to give the UK unfettered access to that market if the UK had removed tariffs while importing a wide range of products at world market prices.

"So, I think it's safe to say that it is more likely that the UK will move in the direction of adopting some version of the EU schedule. And that means preserving the common external tariff.

"Now we get into the big problems. I think it is illustrative of the problems that both the UK and the EU will encounter in negotiating this new status, because the EU of course will have to negotiate a new schedule too as the EU 27, especially if the UK is doing things like taking on ... a portion of the EU TRQ obligations." 
 
***

This was followed by a discussion of the challenges of unraveling and/or reconfiguring the system of tariff-rate quotas currently applied by the EU to imports into any and all of the EU's 28 Member States, including, of course, the UK. As mentioned, we'll deal with TRQ's in a later entry. We will, however, take note today of this WTO peculiarity, which Mr. Thorn highlighted on November 16. He said: 

"The EU 28 doesn't have a .... schedule. You'd look in vain for a schedule of concessions and commitments with the EU 28. What you would find is a schedule for the EU 15, because the last time the EU was able to successfully conclude an enlargement negotiation was when ... Finland, Sweden, and Austria acceded just after the Uruguay Round. 
 
"There have been three enlargements since then, I believe. And there has never been a conclusion to any of the enlargement negotiations following those enlargements." 

Subsidies. The old and often very contentious issue of agricultural subsidies got more than honorable mention in Mr. Thorn's presentation, but like others on the panel, he did not see the subsidies issues as potentially unmanageable. For one thing, the WTO no longer allows agricultural export subsidies. It used to, but it doesn't any more, and that change simplifies the picture greatly. As for domestic supports, there is a lot of so-called "water" in the EU system. If we understood Mr. Thorn's comments correctly, the EU currently provides only about €6 billion in such supports, whereas the ceiling for its aggregate commitments in the WTO, that is, what the rules allow, is €72 billion.

This is not to say that the WTO negotiations on these issues won't be difficult. Members will want clarity from both the EU and the UK, and clarity may be hard to come by because, as Mr. Thorn put it, "There are no rules to govern where subsidy commitments change." Still, the issue should be manageable.
UK Agriculture and EU Regulations. This was the last issue Mr. Thorn dealt with in his opening statement, and this is what he said: 

"As you know, a lot of the problems that we face in the agricultural sector are related to sanitary and phytosanitary barriers. And you heard often in the Brexit debate Brexiteers talking about the desirability of lifting the dead hand of Brussels regulation from the UK private sector. There will undoubtedly be people pushing in that direction. I know that that idea really excites a lot of UK farmers. 
 
"And certainly there is plenty to criticize. I do a lot of work on those issues myself. You can imagine long-run benefits for the UK ag sector if they are able to move in the direction of more predictable and science-based regulatory framework and thereby ensure access for UK producers to the latest technologies - production enhancing technologies. And if the UK were to do this, it would certainly be simplifying negotiations with trading partners like the United States in the future. 
 
"But, in the short run, it will be a very stark choice for UK agriculture: either conform to EU regulation, current regulations and future regulations, where the UK will no longer have any input, or risk losing access to the EU market. ...
It was the last issue he raised, but, as he said it is "by no means the least important."
COMMENT
 A good deal has happened on the Brexit front since November 16. The legal case challenging the right of the Government of Prime Minister May to invoke Article 50 on its own authority, that is, without a new mandate from Parliament, has gone to the highest court, the Supreme Court. There has been a non-binding but politically important vote in Parliament suggesting that there is in fact strong support in the House of Commons for moving forward and invoking Article 50 of the Lisbon Treaty by the end of March. And one of Brexit's leading critics, Niall Ferguson, has publicly declared he was wrong in opposing it. 
 
We hope to get to some of those developments in later entries. The point to note here, however, is that in certain fundamental ways the Brexit picture has not changed. Article 50 has yet to be invoked, and all of the things one would expect to flow from that development - including negotiations in the WTO - are still simply matters of speculation and anticipation.
SOURCES & LINKS
Our Unpublished Transcript of Mr. Thorn's Remarks at the GBD Steptoe & Johnson event was the source for today's quote.

Ferguson on Brexit is a link to a Boston Globe op-ed by Niall Ferguson in which he explains his reasons for saying he was wrong in opposing Brexit.

Fox in September is a link to the TTALK Quote of October 17, which focuses on remarks made by Liam Fox the UK Secretary of State for International Trade at the WTO's 2016 Public Forum in September.

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