Saturday 29 December 2018

Trading under WTO

A common riposte to the WTO option is "no country trades purely on WTO terms". Often they point to the USA as an example of a country that does not have a Free Trade agreement (FTA) with the EU, but has numerous other agreements with the EU.  A search of the EU Treaties Database does indeed reveal 147 treaties associated with the USA. But how much do they improve upon "trading under WTO" ?

Multi-lateral Treaties

Of the 147 treaties listed, 85 are multi-lateral, that is to say international treaties with additional signatories beyond EU & USA, typically via international organisations. Many of these treaties do not relate to trade, e.g.: Euratom; UN treaties (Climate Change, Environmental, Transnational Organised Crime etc.); Fisheries conservation & management; World Health Organisation (WHO) etc.

A large number of multi-lateral treaties are with international organisations which form part of the framework of international treaties that constitute "trading under WTO" (and a post-Brexit UK will remain a party to such agreements), e.g.:
  • International Civil Aviation Organisation (ICAO)
  • International Plant Protection Convention (IPPC)
  • World Intellectual Property Organisation (WIPO) 
  • UNECE  - 1998 agreement on global technical regulations for wheeled vehicles & parts.
  • World Customs Organisation (WCO)
  • World Trade Organisation (WTO)
The EU treaties database also allows a search on "nature of agreement". There are 4 multi-lateral treaties listed as "trade" agreements:
  • Two multi-lateral trade agreements cover international co-operation to promote sustainable expansion of trade, especially for developing nations: Grains (Grains Trade convention 1995) and Coffee (International Coffee Agreement 2007) As such these treaties form part of the international framework which constitutes "trading under WTO".
  • Two multi-lateral trade agreements commit the EU, USA & other parties to amending their WTO schedules to eliminate tariffs on trade in Civil Aircraft (WTO pluri-lateral treaty with 30 signatories) and Multi-Chip Integrated Circuits (signed by members of  Government/ Authorities Meeting on Semiconductors). All WTO members will benefit from these tariff eliminations, including post-Brexit UK. Adjusting your own WTO tariff schedule is a defining characteristic of "trading under WTO".
Bi-lateral Treaties

There are 62 bi-lateral EU-USA treaties listed. Some are related to Euratom. Many do not relate to trade, covering co-operation on security, scientific / technological, legal assistance, education / vocational training etc.

A bilateral to coordinate energy-efficiency labelling of office equipment is listed under "technical harmonisation". This allows EU participation in the US's Energy Star programme, a voluntary scheme to provide customer information on energy efficiency of products. As such, this agreement does not provide improved trading terms or market access. In any case, this bi-lateral expired on 20 February 2018.

Two bi-laterals listed under "competition law" relating to positive comity, defining a process to determine which party should take enforcement actions in a competition law case. Again, these agreements do not provide improved trading terms or increased market access.

There are 20 "trade" bi-laterals listed, but many of these are essentially "trading on WTO terms" :
  • EU & USA agreement to modify their respective WTO schedules in order to eliminate tariffs on certain alcoholic spirits.
  • WTO dispute settlements (EU support for EU producers of Oil seeds; effects of EU preferential agreements in the Mediterranean region; cereals & rice; EU export refunds for pasta).
  • USA agreement to modified EU WTO schedule for tariffs & quotas following EU expansion (EU12 to EU 15 and EU15 to EU25) 
  • EU & US agreement to modify their respective Appendix I of 1994 Government Procurement Agreement (a WTO multi-lateral agreement).
  • Administrative co-operation to prevent diversion of substances to illicit manufacture of narcotics is listed as "trade" but is essentially co-operation on fighting crime.
  • Trade in Wine agreement (2006) provides rules on GI's (Geographical Indications) and labelling of wine. As such, this agreement regulates labelling of wine (and provides some commonality) but does not enable EU-USA trade in wine per se - clearly wine was traded freely between EU & USA prior to 2006.
All of which means that of the 147 treaties listed in the EU treaties database pertaining to USA, none of the multi-laterals and only a handful of EU-USA bi-laterals provide trade terms or market access over and above "trading under WTO", i.e. :
  • Agricultural Quotas: Modification of EU schedules following EU expansion refer to EU agricultural tariff rate quota adjustments. Most EU agricultural quotas are "erga omnes" (open to all), but some are identified as US country-specific (covering Beef/Veal, Cereals, Rice, Poultry, Pigmeat). There is also a specific agreement on varying Husked Rice Tariff according to volumes imported.
  • Sanitary Equivalence: (1999 & subsequent amendments). Although a few limited areas of equivalence have been established, USA meat/dairy is still subject to full third country levels of border veterinary inspections for live animals and animal products (see Border Inspection Post Manual page 30).  
  • Mutual Recognition Agreements (MRAs). The original 1999 MRA on conformity assessment covered  6 sectors, but to date only 2 are operational (EMC, Telecoms). A 2005 agreement provides for mutual recognition of equivalence in marine equipment (where USA certificates of conformity are interchangeable with EU certificates). 
  • Customs Co-operation: The original 1997 agreement provided for exchange of information & mutual assistance upon request. A subsequent agreement (2004) expanded this to cover the USA Container Security Initiative (CSI). The 2012 mutual recognition of trade partnership programmes ( i.e. EU Authorised Economic Operator (AEO) & U.S. Customs-Trade Partnership Against Terrorism (C-TPAT)) is the key agreement that provides practical benefits to importers/exporters, i.e. customs simplifications & trade facilitation.
  • Aviation. Probably the most significant EU-USA bi-lateral is listed under "transport" , i.e. the EU-USA Air Transport agreement (aka "Open Skies"). It is worth noting that a post-Brexit replacement UK-USA Open skies agreement has already been secured.

Conclusion

Analysis of the 147 treaties reveals only a handful of treaties provide improved trading terms or market access beyond "trading under WTO". Even then only to a limited extent. EU-US trade in goods is still subject to full WTO MFN tariffs (except for some agricultural quotas). Full third country regulatory barriers apply to trade in manufactured and agricultural goods, (except for three sectors covered by MRAs). Customs simplification is available but only to trusted traders and only since 2012.

Apart from the EU-USA Air Transport agreement, none of the 147 treaties provide for improved trade in services. However, the EU has granted the USA equivalence decisions regarding certain financial services (which simplifies compliance & prudential requirements), and a data protection adequacy decision (which allows transfer of personal data from EU without having to put legal safeguards in place).

The limited improvement on WTO trading terms for EU-USA trade (both goods & services) does provide pointers as to where UK will need to mitigate a "No Deal / WTO" Brexit. The good news is that there are mitigations for all these areas - which I will look at in subsequent  posts.


4 comments:

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  2. Certainly an informative Post! The Global Grain Geneva is biggest grain trading event in Europe that is taken care by one such international treaty. I am looking forward to travel to Geneva next week to attend this colossal trading event.

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