Brexit: Tariff Rate Quotas (TRQs)
The aim of the World Trade Organisation (WTO) is to create a level playing field for trade and it does this through ‘tariffication’. Each country is free to dictate their own import tariff for products they import but they have to apply these across the board without preference to any one country.
This sounds straightforward but creates a challenge. Beef is a good example - the UK isn’t self-sufficient in beef and in order to prevent significant consumer price hikes it will be beneficial to be able to continue to import some beef. However we don’t want to open our markets to tariff free beef more generally, and particularly not from parts of the world where production costs are much lower and from which large volumes of cheap imports could seriously damage our domestic industry. Effectively the WTO principles on tariffication can risk inhibiting trade as it might be better for a country to charge high tariffs to all than risk floods of cheap imports.
The solution from the WTO is to have Tariff Rate Quotas (TRQs). These are the mechanism by which some product can come into the country at zero or reduced tariff – up to a maximum quantity, thereafter all imports over this volume can have a much higher tariff applied, effectively blocking additional volume. In future the UK could set its own TRQs for products it imports, however this is complicated by the TRQs it will inherit from the EU – it also doesn’t happen overnight. Currently the two largest EU TRQs pertaining to beef are the Hilton & Grain Fed Beef Quotas.
Where the EU have agreed TRQs with other countries they then divide up the total volume between the individual members. The countries who import to the EU under the TRQ are understandably keen that separating the UK’s share doesn’t detract from their position. Agreeing how much of the EU’s TRQs would come to the UK after brexit required negotiation not only between the EU and the UK, but with input from the various countries who make use of the existing TRQs.
The EU have an agreed TRQ with New Zealand which allows for some tariff free imports of lamb and currently the UK takes about half of this. To a certain extent it suits the UK: we consume far more lamb legs than shoulders so the ability to import legs, and at times of the year when home production is lowest (i.e. spring) enables consumers to access affordable lamb all year round and sustains their habit of eating lamb. Going forward the UK will continue to take about half of the TRQ lamb from New Zealand and Australia (at least in the short term until a separate trade agreement is reached) and this by itself is unlikely to make a big difference to the UK sheep industry – it’s not much different to the current arrangement. However in the event of no deal, or a deal without a customs arrangement, it would be much less welcome - our current preferential tariff free access to our biggest export customer would end, but we would still have to allow tariff free imports from New Zealand.
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