The EU market for many agricultural markets is protected by high tariffs. As the tariffs are high very little imports are possible. However, as part of the EU’s WTO obligations small quantities of agricultural products are allowed enter at zero or low tariffs. As the quantities are small, the overall EU agricultural market remains protected. Limited quantities of imports at low or zero tariffs are known as tariff rate quotas or TRQs.
This paper examines the allocation of Tariff Rate Quotas (‘TRQs’) among supplying countries under GATT Article XIII. It concludes that a proper interpretation of Article XIII requires WTO Members to regularly re-examine the allocations of TRQs among supplying countries so as to comply with the ‘chapeau’ of GATT Article XIII:2. In other words the continuous allocation of a specific TRQ (for example, the NZ butter quota) to one country over time is not compatible with WTO rules.
It is estimated that there are as many as 1200 TRQs opened each year by WTO members. TRQs are limited volumes of products that can enter a market at a low tariff where the tariff outside the limited volume is high. The over TRQ tariff is usually set at a level that precludes all, or most, trade. The low tariff within the TRQ allows products to enter the market. As TRQs are quantities there is a strong tendency to allocate or subdivide the quantities among trading partners.
Most of the current 1200 WTO TRQs are in the agricultural sector and are a result of the ‘current’ and ‘minimum’ market access requirements of the agricultural modalities paper which was the basis of the Uruguay Round country schedules for agriculture. The idea, at that time (1986 – 1994), was that even if ‘tariffication’ was not going to result in low over quota tariffs (and thus increased market access), Members were obliged to open up access to their markets of up to 5% of total domestic demand.
In the negotiation of Free Trade Agreements, whether these are bi-or pluri-lateral, the EU relies significantly on TRQs in the agricultural sector so as to provide some market access while retaining the high tariffs that characterise the Common Agricultural Policy.
For example, a leaked document in relation to the ongoing negotiations on the EU Canada agreement shows that the EU is willing to open a beef TRQ in about 40,000 tonnes while Canada wants the quantity fixed at around 60,000 tonnes. Currently only 160,000 tonnes of beef enter the EU market under a variety of different TRQs. The total beef production in the EU was about 7,870,000 tonnes in 2010. Consumption is around the same figure. 160,000 tonnes does not impinge significantly on this amount. The tariff on over TRQ imports of boneless beef into the EU are 12.8% plus a fixed amount of about €300 per tonne. These tariffs are generally considered to be prohibitive and prevent out of TRQ imports.
TRQs are also a feature of the Doha negotiations and appear in the various draft modalities papers. If Members wish to continue to protect ‘special’ products then TRQs guaranteeing that a percentage (yet to be agreed) of the domestic demand be supplied from third countries. Press reports from 2008 indicate that for the beef market, of particular importance to Ireland, TRQs in the amount of up to 700,000 tonnes would have to be opened. While this figure is probably too high the amount is likely to have an impact on prices in the domestic market.
Some EU TRQs, such as the New Zealand butter TRQ which was opened due to the enlargement of the EEC to include the UK, Ireland and Denmark, have remained allocated to the one country for more than 40 years and have never changed to reflect possible changes in comparative advantage. A new paper by O’Connor, Gubel and Bertolotto concludes that the EU is in breach of its obligations under GATT Article XIII in that it has allocations of TRQs that have not changed in 40 years. The paper concludes:
- A number of very broad conclusions can be drawn from this analysis.
- Article XIII is a general non discrimination clause that has been likened to GATT Article I;
- Article XIII:2 in conjunction with Article XIII:5 specifically requires that Members must ensure that country allocations of TRQs must reflect a distribution of trade likely to occur in the absence of the restriction;
- The chapeau of Article XIII:2 is dynamic and imposes the obligation to ensure that the allocation reflects the trade that is likely to occur on an ongoing basis;
- This dynamism implies the obligation to regularly review allocations of TRQs;
- The application of the provisions of Article XIII:2(d) must comply with the chapeau in paragraph 2;
- When allocating by past performance, Members are obliged to consider the appropriateness of the representative period and any relevant special factors and in such an examination must take all commercial realities of the trade and the trade potential into consideration;
- An allocation of a TRQ in the absence of negotiations with principal suppliers or allocation under Article XIII:2(d) is not compatible with WTO law.
- Thus the allocation of a TRQ to one supplying member only is likely to be incompatible with Article XIII if it has not been firstly negotiated with substantial suppliers or allocated among substantial suppliers;
- Furthermore an allocation that does not take into consideration changes to the comparative advantage of different supplying members over time is also likely to be incompatible with Article XIII;
- The object and purpose of GATT Article XIII as seen in the ad note to Article 22 to the Havana Charter confirms the dynamic and non discrimination character of member’s obligations when allocating TRQs.