In light of the impending trade negotiations, especially with the US, legitimate concerns have been raised about the UK reducing or removing trade restrictions on imports and facilitating increased market access to agrifood products produced to lower standards. Consumers are concerned about the possible loss of valued assurances about the way their food is produced, and producers are concerned about losing domestic market share to products benefiting from lower cost production methods that UK regulations prevent them from using.
To find a viable solution to any problem, it is important first to define clearly and precisely what the problem is. This means distinguishing between imposing standards relating to the product itself, and those concerned with the way it is made. The trade policy options available depend largely on whether the standard relates to the product itself or to the way it is made.
Viable options are available that address consumer and producer concerns, while respecting both the spirit and the letter of the WTO rules.
Where the standards affect the product itself, such as pesticide residues, the rules for imposing bans or trade restrictions are relatively well established and understood. Where the standards relate to the way things are made, and have no discernible effect on the product, however, the rules are less clear. These include measures supporting many important concerns including:
- Climate change mitigation
- Species protection
- Reducing renewable and non-renewable resource depletion
- Reducing environmental pollution
- Maintaining and improving animal welfare
While these concerns are all legitimate in responding to consumer and citizen demands, they can also be used as cover for protectionist ends, and a core WTO principle is that countries should not discriminate in their treatment of otherwise ‘like products’.
Partly to avoid unjustifiable discrimination and protectionism, the determination of whether or not products are ‘like’ has normally emphasised their physical characteristics. If there is no detectable difference between products, they should be treated as ‘like’, and should not be discriminated between.
This raises the concern that WTO rules may not allow countries to impose trade restrictions in support of, for example, animal welfare standards or climate change actions because, while they affect the way a product is made, they don’t affect the product itself. This may not be entirely true.
The WTO rules concerning the use of trade restrictions to address concerns about how things are made, including the maintenance of high animal welfare standards, are neither straightforward nor settled.
Some provisions of the GATT provide exceptions to the normal rules, while other WTO agreements refer specifically to how things are made, and some specifically require discrimination between otherwise “like” products. As well, case law concerning the use of trade-restrictive measures imposed to achieve environmental objectives have been developing over the past 30 years, and significant progress has been made to clarify the relationship between such concerns and the WTO rules.
Importantly, those rules, and the interpretation of them, have not yet been tested with agricultural products, which are always particularly sensitive.
There is no “silver bullet” solution. Specific concerns differ by product and will need different combinations of measures.
If it’s the product itself that’s of concern, because it’s unsafe or unwholesome for example, and there is clear scientific evidence to support those concerns, it can be restricted, banned, or otherwise treated differently to other ‘like’ products.
First, it is necessary to establish the extent to which a problem actually exists, or if the threat is largely hypothetical. In the case of ‘chlorine chicken’ for example, because both the UK and US have similar poultry carcass preferences for white meat, and a similar need to dispose of surplus brown meat, it is unlikely that the US has much spare capacity to supply the UK market; which may explain in part why the WTO complaint initiated by the US in 2009 was never concluded.
1. Retain the current import bans
For some products, the UK may just retain the current EU import bans. The EU ban on hormone beef, for example, has been judged by the WTO to be illegal and the EU has agreed to ‘pay’ compensation in the form of a 45k tonne beef Tariff Rate Quota (TRQ). If the UK wants to retain that ban, it will need, at least, to accept a share of that TRQ. Moreover, because 35k tonnes of that TRQ are now provided specifically to the US, other producers, such as Australia, can be expected to press for additional quota.
For other goods, such as the other often-mentioned product, ‘chlorine chicken’, retaining the ban would be much less straightforward. The EU ban has not been tested in the WTO, and would be very difficult to defend. Scientific evidence of food safety concerns, as judged by the European Food Safety Agency, is inconclusive and trade restrictions due to concerns about how things are made are normally not allowed.
Where the concern is the production method, it is important to distinguish between consumer concerns regarding the way products are made, and the competitive threat to producers.
For consumer concerns, the starting point should always be labelling. This could include providing both the mandatory information required by government, such as nutritional content, as well as the voluntary certifications normally provided by the private sector. An example of such voluntary certification is the Fair Trade label, which provides the consumer with specific assurances about the way the product was made.
Labelling is also subject to a number of international rules, including that is must not be designed to provide protection to domestic producers, but it can be an excellent way of conveying information about how a product is made, so consumers can exercise their judgement and make their own choices.
In addition to the many concerns of consumers, producers are also concerned about their relative competitiveness and market shares. Producing products under lower (less costly) production standards, can provide an important competitive advantage and undercut those producing to the higher (costlier) standards.
3. GATT Art XX exceptions
One approach would be to design the relevant domestic measures with specific reference to the GATT Art XX exceptions. This could include, for example, publishing the objective evidence that particular animal welfare regulations are a necessary aspect of protecting animal health, or of the dangers to human health of the routine use of antibiotics or hormones in some agricultural production systems.
Alternately, objective means could be developed to demonstrate that certain goods are not ‘like’, and can be legitimately distinguished between. If and where this can be done, products can be treated differently, including imposing new trade restrictions.
4. ‘Conditional’ tariffs and/or TRQs
A relatively unexplored idea is to impose ‘conditional’ tariffs and/or TRQs. Because of concerns about imposing tariffs or other import restrictions on products, an alternate approach may be to reduce barriers to products that conform with particular production standards.
Conditional tariffs require that the goods in question can be legitimately distinguished – that they are not ‘like’. The idea behind them is that a lower tariff is applied if the product meets defined criteria. Such conditional tariffs could be implemented by attaching conditions to lower applied tariffs, such as with the EU’s preferential ‘end-use’ tariffs for malting barley and for manufacturing beef, or the provision in the EU and Mercosur FTA to eliminate tariffs on eggs that meet EU production standards. Another way might be to certify individual producers for ‘tariff credit’, which would reduce applicable tariffs by a given percentage. The tariff preference gained could be based on the relative compliance cost of meeting the specified criteria.
Alternately, such conditions could also be attached to rules of origin in trade agreements. For example, the new Labor Value Content Rule of Origin in the FTA between the US, Mexico and Canada (USMCA) differentiates between otherwise like automotive parts based on the wage rates of the labour that produced them.
Attaching specific conditions to tariffs, TRQs, and/or rules of origin provides a commercial incentive to adopt comparable production standards, and helps protect domestic producers from competitive threat of cheaper, lower standard goods. In turn, it also supports domestic standards, and provides further assurance for consumers. Importantly, rather than imposing new or higher trade restrictions, this approach provides additional market access to conforming goods, and leaves nobody worse off. By being trade liberalising, this approach should face fewer objections than the trade restrictions normally proposed.
5. Direct Payments
The UK could also provide direct payments to producers to compensate for the additional costs of certain regulations.
The UK’s new domestic farm policy proposals – the Environment and Land Management scheme set out in the Agriculture bill – provide for payments for animal welfare, and the WTO rules on subsides to agriculture provide scope for such payments. Some payments might be designed to fit within the WTO’s permitted “green box” category, and the UK could also provide up to €5.914 billion – around £6 billion – of more trade distorting “amber box” subsides. A third group of small, so-called de minimis payments, would also be permitted. With this option, the main obstacle is convincing the government to provide such payments.
Some Practical Issues
Criteria for distinguishing between otherwise like products must be defined clearly and objectively, and applied in a non-discriminatory way. Practically, this also means the relevant standards must be published, and, crucially, that foreign producers must be able to get their products evaluated to determine whether they conform with the new non-trade objectives, and certified when successful. For the UK, this would mean providing a means for non-UK producers to have their goods evaluated and certified as compliant with, for example, Red Tractor standards, and/or other relevant domestic production standards.
When we parse the general concerns being expressed into those concerning the product itself and those about the way the product is made, and into those affecting consumers and those affecting producers, and then look closely at each product, we see that the issues are both more complicated than is widely recognised, and how potential solutions may be developed. With a closer, more nuanced understanding of the specific concerns and the WTO rules, viable options are available that address consumer and producer concerns, while respecting both the spirit and the letter of the WTO rules.
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