Trump opposes EU-UK trade deal in blow to May’s Brexit plans

The Trump administration has joined a group of countries objecting to a deal between the UK and EU to divide valuable agricultural import quotas, in a sign of how the US and others plan to use Brexit to force the UK to further open its sensitive market for farm products.

President Donald Trump has been one of the most prominent international backers of Brexit and has vowed quickly to negotiate a “beautiful trade deal” with the UK after it leaves the EU.

But his administration’s objection to a preliminary plan, agreed to by Brussels and London over how to split the EU’s existing “tariff rate quotas” under World Trade Organisation rules after the UK assumes its own WTO obligations following Brexit, illustrates how Washington is likely to drive a hard bargain.

It also undermines efforts by Theresa May’s government this week to portray the WTO deal with the EU as a significant win, something made doubly painful by Mr Trump’s past backing of Brexit.

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The risk for the UK is that as part of its post-Brexit transition in the WTO it may have to accept opening up access to agricultural goods from third countries far more than it wants - even before it agrees any new trade deals with such countries.

A spokesman for the UK’s department for international trade said on Thursday that the EU-UK plans would be discussed “extensively with our partners in the WTO before proceeding”, in a reference to the UK’s desire to avoid a bruising battle in the WTO on the issue.

The spokesman said the UK was seeking a “smooth transition which minimises the disruption to our trading relationships”.

Letter of objection

But the US joined other major agricultural exporters including Argentina, Brazil and New Zealand in signing a letter sent last week to the EU and UK’s WTO ambassadors objecting to the plan to split the quotas that cover everything from New Zealand butter and lamb to US poultry and wheat.

Under WTO rules, those country-specific quotas allow low-tariff imports up to a certain volume with tariffs increasing after that. As such, they are hugely valuable to countries such as Argentina and New Zealand that depend heavily on agricultural exports and the powerful farm lobby in the US.

While the UK was a founding member of the WTO and one of the first signatories of its predecessor, the General Agreement on Tariffs and Trade, its membership obligations until now have been managed by the EU.

The EU-UK plan calls for the existing EU quotas to be split between the EU and UK after Brexit based on historical imports and consumption patterns.

The US and others, however, argue that method is unfair as it would effectively allow the EU to reduce its obligations to fellow WTO members and set a low bar for the UK as well.

“Such an outcome would not be consistent with the principle of leaving other [WTO]members no worse off, nor fully honour the existing TRQ access commitments. Thus, we cannot accept such an agreement,” the countries wrote.

Emily Davis, spokeswoman for US trade representative Robert Lighthizer, said neither the EU nor the UK had presented any written plan for how to handle the WTO quotas to Washington. But the Trump administration was “actively engaged with its trading partners on the future of UK and EU tariff rate quotas following Brexit”.

“Ensuring that US exporters of food and agricultural products have the market access in Europe due to them even after Brexit is a high priority for the administration,” she said.

The UK and EU are due to present their plan to other WTO members during the week of October 16 when trade negotiators descend on Geneva for what is known as agriculture week.

‘Technical rectification’

European diplomats have emphasised the importance to both the EU and the UK of striking a deal on dividing up of TRQS.

Brussels is keen to avoid having to maintain EU TRQs at their current size after Brexit, something that would put increased pressure on its farmers once the UK leaves. For the UK, the stakes are potentially much higher, given the UK’s need to establish itself independently at the WTO in any Brexit scenario.

The talks are bound up with other WTO issues that Britain needs to settle, such as what share it should take of the EU’s rights to subsidise its farmers.

Among the UK’s plans is to ask that its new agricultural quotas schedule be established using a method called “technical rectification”, which would avoid having to secure approval from other WTO members. But in their letter to the EU and UK ambassadors the US and other signatories objected to that method as well.

“The modification of these TRQ access arrangements cannot credibly be achieved through a technical rectification,” they wrote. “None of these arrangements should be modified without our agreement . . . In the case of substantial changes affecting the balance of concessions, the whole membership of the organisation may take an interest.”

The UK redoubled its backing for the approach on Thursday.

“We still believe that technical rectification remains the most appropriate procedure for introducing UK schedules into the WTO,” the UK trade department spokesman said, adding that Britain was “committed to working constructively and openly with our international partners throughout the process.”

(Copyright The Financial Times Limited 2017)