EU Traders’ Holiday Cheer in Short Order
The holiday season is nearly upon us, yet things in the trade world are not so jolly. The United Kingdom (UK) eked out a slight gain in the third quarter to avoid a recession. In the fourth quarter, the usual High Street hustle and bustle is expected to be dampened somewhat as Brexit uncertainty continues and voters prepare for the first December general election since 1923, when a similarly gloomy mood prevailed. Retailers are already enduring reduced pre-holiday sales, and negative impacts on UK and European Union (EU) trade in a post-Brexit world are widely predicted, at least in the short term. Adding insult to injury, fifteen countries have come together in the WTO to oppose the UK and EU’s proposed way forward.
In the many months of negotiations since March 2017, when the UK submitted its formal notice of intent to withdraw from the EU, the EU has steadfastly refused to engage in talks about the post-Brexit period until the terms of the so-called “divorce” were agreed and ratified – a goalpost yet to be reached. The UK and EU did move forward, however, on a plan to divvy up existing preferential tariff rate quotas between the UK and the remaining bloc of 27 EU Member States. Under the proposal agreed in August 2017, the UK would take over a portion of the EU quota commensurate to its average consumption over the most recent three-year period, thereby leaving WTO trading partners “no worse off” than before Brexit. Argentina, Brazil, Canada, New Zealand, Thailand, Uruguay, and the United States (US) immediately complained that split quotas did not provide the same market opportunities as the current single EU market. The countries claimed that such changes constitute more than a technical rectification, thus requiring consultation and consent from trading partners.
At last week’s WTO Goods Council, the number of countries expressing concerns about the proposed reallocation of the EU quotas rose to fifteen. Australia, Canada, the US, and others claim that losses from Brexit uncertainty are already being felt. As recompense for current commercial loss as well as future losses resulting from trade disruption and smaller markets, they seek concessions from the UK and the EU to provide improved access to both post-Brexit markets. Calling the proposal “unjustifiable,” the US asserts that trading partners are at risk of being crowded out and would suffer market access losses in both markets. The worry is that the EU will claim a large portion of the UK quota and vice versa. The proposal could have particularly harsh results for US exports of pork and wine.
How the conflict is resolved in the near term may depend on whether an alternative dispute resolution system comes to fruition when the WTO’s Appellate Body ceases to function on December 10, 2019. On that day, the Appellate Body will no longer have the three members necessary to review a case on appeal. With the US holding fast to its position that blocking Appellate Body nominations is the only way to bring about WTO reform, something will have to give. One alternative under consideration by the EU and Canada is an interim arbitration arrangement based closely on existing WTO rules. Another possibility would entail Members agreeing to accept the Panel’s decision at the outset of a dispute. With uncertainty piled on top of uncertainty, traders’ worries are not likely be lessened this holiday season.