Agreement between the European Union and Australia pursuant to Article XXVIII of the GATT 1994 relating to the modification of concessions on all the Tariff-Rate Quotas included in the EU Schedule CLXXV as a consequence of the UK's withdrawal from the EU
Introduction
2.1
This Chapter examines the Agreement in the form of an exchange of letters between the European Union and Australia pursuant to Article XXVIII of the General Agreement on Tariffs and Trade (GATT) 1994 relating to the modification of concessions on all the Tariff-Rate Quotas included in the EU Schedule CLXXV as a consequence of the United Kingdom’s withdrawal from the European Union (the proposed Agreement), signed at Brussels on 4 October 2021 and tabled in the Parliament on 19 October 2021.
2.2
The departure of the United Kingdom (UK) from the European Union (EU) has required the EU, now 27 rather than 28 states, to split previously negotiated tariff-rate quotas (TRQs) with the UK. The proposed Agreement deals with the EU TRQ apportionment (or ‘split’) for Australia’s country-specific quotas (CSQs).
2.3
The EU requires a treaty-level agreement to implement domestically the agreed outcomes. Australia’s agreement on the quota split with the UK has been reached through a separate, less-than-treaty Understanding.
Background
2.4
Through TRQs, the EU, consistent with World Trade Organization (WTO) obligations, limits access to its market for certain products. Tariff-rate quotas offer preferential access at a lower tariff-rate for particular commodities up to a certain volume or quota. According to the Department of Foreign Affairs and Trade (DFAT), a higher, ‘often prohibitive’ tariff, is imposed above the quota.
Australia’s negotiating approach
2.5
In October 2017, the EU and the UK informed WTO members of their proposed approach to split TRQs. Peak bodies consulted by DFAT were of the view the proposed approach would reduce the value of Australia’s access to the EU and UK markets.
2.6
The peak bodies suggested instead an approach that would effectively double Australia’s existing TRQ access to the EU and UK markets:
the EU’s TRQs should remain unaltered
upon establishing its own import regime, the UK should replicate the EU’s TRQs and allow all WTO members to access TRQs on equivalent terms (without country-specific allocations).
2.7
Though DFAT stated it incorporated these recommendations into Australia’s opening negotiating positions, neither the EU nor the UK were willing to agree. According to DFAT:
Effectively, we had tried, right the way through the course of the negotiations, to seek for either side, both the EU and the UK, to replicate the existing quotas, particularly for some of the small quotas, and we sought to try and get additional tonnage as compensation [for the loss of overall commercial value]. But, ultimately, the EU and the UK were insistent that the overall quota volume, as part of these negotiations as a whole, was not going to increase. Basically, they weren't willing for any member to be increasing their overall quota volumes.
2.8
As negotiations progressed, DFAT engaged relevant peak industry bodies on a preferred alternative outcome to increased quotas. Different bodies proposed:
particular allocations of TRQ between the EU and UK
compensation, including in form of expanded TRQ volumes and reduced in-quota tariff-rates.
2.9
The Department of Foreign Affairs and Trade stated it incorporated these views into official negotiating positions and held discussions with both the EU and the UK on the proposals.
Impact of the proposed approach on the value of Australia’s access to the EU and UK
2.10
The Committee was told the approach suggested in 2017 by the EU and the UK to split the quotas raised concerns for Australian producers and exporters because it would limit the flexibility that allowed exporters to seek the best commercial value, and was furthermore, based on outdated trade data.
2.11
The Australian Meat Industry Council (AMIC), and Meat and Livestock Australia (MLA) noted that although quota access levels to the EU have been small, Australian quota holders have structured their businesses to obtain the greatest advantage. Australian quota holders were previously able to ship into one port in Europe—for instance, Rotterdam or Tilbury—and flexibly redistribute quota to any EU country according to contemporaneous market demand.
2.12
The Department of Foreign Affairs and Trade further explained the loss of commercial value:
Previously, sheep meat exporters or any of these commodity exporters could send product to any of the 28 member states. Now you've got a very arbitrary split—this volume goes to the UK, and the other volume goes to the EU 27. There's a loss of overall commercial value here. As prices and exchange rates change, you can't change the destination of where the product is going. There is an intrinsic loss of value that we were arguing we needed to be compensated for.
2.13
In addition to the loss of flexibility, industry raised concerns about the reference years used by the EU and the UK to split the quotas. For beef and sheepmeat, the EU and UK used trade data from 2013–15. However, according to AMIC, the market for Australian red meat into the EU had changed and the quota splits announced in 2018 did not reflect then existing trade patterns. Through DFAT, AMIC argued the split should be based on more contemporary data (2016–18), rather than the earlier data that would ‘significantly inhibit existing business in the EU27 post Brexit’.
Outcome
2.14
Though Australia’s opening position in negotiations with the EU and the UK on the TRQ split was in effect to double Australia’s existing TRQ, the outcome in the proposed Agreement with the EU is a reapportionment of Australia’s existing country-specific allocations that had been agreed between the EU and the UK and implemented on 1 January 2021.
2.15
The National Interest Analysis (NIA) stated the proposed Agreement would ‘deliver the best possible outcome available’ and would ‘better align the EU and UK’s respective WTO TRQs to the commercial preferences of Australia’s affected agricultural exporters and industries’.
2.16
According to the NIA, Australia’s approach to the negotiations was to ensure the withdrawal of the UK from the EU had minimal impact on Australian exporters and industries, and to ensure the EU maintained appropriate market access concessions to Australia. The negotiations and outcome obtained reflected the need for a timely resolution and improved certainty, the possibility of a ‘no-deal’ Brexit, and the limitations of Article XXVIII of the GATT under which negotiations occurred.
2.17
The then Minister for Trade, Senator the Hon Simon Birmingham, stated Australia took a ‘realistic and pragmatic’ approach, cognisant of separate and contemporaneous free trade agreement (FTA) negotiations with the EU and UK seeking increased quotas for affected industries.
Quotas in the proposed Agreement
2.18
The following table summarises the reapportionment of quotas contained in the proposed Agreement. It compares the 1 January 2021 split agreed between the EU and the UK, and the split agreed in the proposed Agreement and separate UK Understanding.
2.19
Since 1 January 2021, Australian exporters have been trading under the splits agreed and implemented unilaterally by the EU and the UK on 1 January 2021.
Table 2.1: EU and UK tariff-rate quotas by commodity
|
|
|
|
|
|
|
Beef
|
2,481 tonnes
|
3,389 tonnes
|
4,669 tonnes
|
3,761 tonnes
|
|
Sheep
|
3,837 tonnes
|
5,851 tonnes
|
15,349 tonnes
|
13,335 tonnes
|
|
Sugar
|
4,961 tonnes
|
9,925 tonnes
|
4,964 tonnes
|
0 tonnes
|
|
Cheese
|
500 tonnes
|
150 tonnes
|
0
|
350 tonnes
|
|
Cheddar
|
3,711 tonnes
|
1,113 tonnes
|
0
|
2,598 tonnes
|
|
Rice
|
240 tonnes
|
240 tonnes
|
779 tonnes
|
779 tonnes
|
|
Buffalo
|
1,405 tonnes
|
1,405 tonnes
|
845 tonnes
|
845 tonnes
|
Source: Proposed Agreement and NIA
Beef and sheepmeat
2.20
Though the total amount of quota remains unchanged, the reapportionment for beef and sheepmeat, according to the NIA, reflects the commercial preferences of Australian producers and exporters.
Sugar
2.21
Under the proposed Agreement, the entire quota for sugar would be apportioned to the EU. The NIA stated the TRQ split initially agreed between the EU and UK of 4,961/4,964 tonnes was not commercially viable for Australian exporters.
Cheese and cheddar
2.22
Under the proposed Agreement, the EU quotas for cheese and cheddar would be reduced with an equivalent increase in the UK quotas, which had been reduced to zero under the 1 January 2021 split. The NIA stated this would restore Australia’s dairy TRQ access to the UK market.
Rice
2.23
According to the NIA, though there is no change in quota, the proposed Agreement would remove existing EU requirements on the timing of delivery of Australian semi-milled and wholly milled rice. Separately, the UK has committed not to impose any such requirement in the future for the corresponding UK TRQ.
2.24
The Department of Foreign Affairs and Trade explained:
At the moment, if the rice industry wants to send any rice under the quota into the EU market, it can only do so in April, May or June. It only had one-quarter of the year that it could do so. As part of the negotiations, we got that removed, so the rice industry can now send rice any time from 1 January onwards.
Obligations and implementation
2.25
The proposed Agreement does not bind Australia to any new international obligations in the WTO.
2.26
The proposed Agreement would require the EU to:
revise its Schedule of Concessions (Goods Schedule) to the GATT
implement changes to TRQs in relevant EU legislation.
2.27
Although it is not part of the proposed Agreement, Australia would need to accept the EU’s modified Goods Schedule with modifications to Australia’s CSQs when it is formally tabled in the WTO. This would ensure the modifications are legally binding in the WTO. Australia would do this by not registering a formal objection to the modified Goods Schedule.
2.28
Australia would be required to:
confirm it is satisfied with the agreed modifications to the EU’s Goods Schedule
confirm it has amended rules relating to administering the EU’s WTO TRQs for Australian beef, sheepmeat, and cheese exports, including issuing quota certificates.
2.29
Australia would make amendments to the following rules under which the Department of Agriculture, Water and the Environment (DAWE) administers the EU’s WTO TRQs for beef, sheepmeat and cheese exports, including issuance of quota certificates:
Export Control (Tariff Rate Quotas—General) Rules 2021
Export Control (Tariff Rate Quotas—Sheepmeat and Goatmeat Export to the European Union and United Kingdom) Rules 2021.
Entry into force
2.30
The EU and Australia, under the proposed Agreement, are to notify each other of the completion of their internal procedures. The proposed Agreement would enter into force on the date of the last notification that internal procedures have been completed.
2.31
The Australian Government, supported by beef and sheepmeat producers and exporters, would like the proposed Agreement to enter into force on 1 January 2022. While it is not essential that the proposed Agreement be implemented on this date, DFAT advised this would reduce the adjustment costs of beef and sheepmeat producers and exporters. Further, it would align with the UK’s proposed implementation and reduce the chance of significant disruptions and uncertainty for Australian producers and exporters.
2.32
In addition to the need for commercial certainty, DFAT told the Committee:
… if the UK implemented the revised tariff rate quota splits for sheepmeat and cheese on 1 January but the EU was delayed, it would result in a temporary loss of access of 2,014 tonnes of sheepmeat that had been removed from the UK and not yet added to the EU; and it would result in a temporary additional excess of 350 tonnes of cheese for processing—an additional access of nearly 2,600 tonnes of cheddar. Given the strong utilisation of Australia's sheepmeat access to both the EU and the UK, and the limited-to-no cheese exports in recent years, as we've been discussing, the losses would outweigh any possible gains.
2.33
Accordingly, it is anticipated the modified concessions for each product would occur at the start of the respective quota administration year:
1 January 2022—sheepmeat, cheese, rice
Amendment or withdrawal
2.34
There are no amendment procedures in the proposed Agreement. The Department of Foreign Affairs and Trade advised a new and separate process under Article XXVIII of the GATT would likely occur should future amendments to the concessions covered in the proposed Agreement be required.
2.35
The proposed Agreement also contains no termination provision. Withdrawal or termination would occur through one party withdrawing from the WTO Agreement, or with the consent of both parties consistent with the Vienna Convention on the Law of Treaties.
Views of submitters
2.36
Though noting broader concerns with the level of quota access to the EU and UK markets, AMIC and MLA supported the proposed Agreement and commended DFAT and DAWE on their conduct of the negotiations.
2.37
Both AMIC and MLA called for the Committee to expedite consideration of the proposed Agreement to ensure binding treaty action can be taken without delay and facilitate implementation from 1 January 2022, the start of the new quota administration year for sheepmeat.
Committee view
2.38
The Committee acknowledges the quotas for the commodities covered in the proposed Agreement are small and expects that additional market access will be provided for Australian producers and exporters in upcoming separate FTA negotiations with the UK and EU.
2.39
Nevertheless, the Committee is of the view the proposed Agreement is in Australia’s national interest and that binding treaty action should be taken.
2.40
The Committee commends DFAT and DAWE for their consultation with industry during negotiations.
2.41
The Committee supports the proposed Agreement in the form of an exchange of letters between the European Union and Australia pursuant to Article XXVIII of the General Agreement on Tariffs and Trade (GATT) 1994 relating to the modification of concessions on all the Tariff-Rate Quotas included in the EU Schedule CLXXV as a consequence of the United Kingdom’s withdrawal from the European Union and recommends that binding treaty action be taken.