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Taking back our WTO seat won’t be a simple matter

by Roderick Abbott | 27.09.2016

When I told my wife that I was writing about what the UK has to do post-Brexit to keep its membership of the WTO, she immediately commented: “Why? leaving the EU has nothing to do with the WTO”.  She is of course quite correct:  “Brexit means ….” leaving the EU and that does not mean leaving the WTO, where the UK has been a founding member since 1995 (and of its predecessor the GATT since 1947).

So why? Because the EU runs a common commercial policy on behalf of its members it has negotiated on trade matters for them in the WTO and taken on collective commitments which are binding on the UK. One of these commitments is to respect maximum levels of import duties on goods and to observe a range of obligations on market access for trade in services.

These commitments are known in the jargon as the “EU Schedules of Concessions” and similar schedules exist for the USA and China and all other members. The important point is that it is required of every WTO member to notify commitments in these areas as the basis for its relationship with other members. Once the UK has exited the EU, it will no longer be covered by the collective commitments, and will therefore have to establish its own Schedule. All other members have to approve its new Schedules.           

So, what is involved in disengaging from the EU Schedules? First and foremost, it will be necessary for the UK to establish its own customs tariff, since it will no longer operate under the EU Common External Tariff. This step is in any case required by the negotiation of a new trade deal with the EU and in due course for trade deals with other countries.

A new tariff can be introduced easily enough, by staying close to the tariff classification and product headings used by the EU and adopting more or less the same levels of duty: in this way the UK can claim that it makes no material change to the pre-existing EU system. It would argue that prolonged consultation and negotiation with WTO members would therefore not be necessary. But there might be political problems back in the UK in taking this course. After all, hard-line Brexiteers didn’t vote to leave the EU only to mimic its tariffs.

Or it might be more complicated. Given the opportunity to set new levels of protection for domestic industry – perhaps lower in the agriculture/food sector, perhaps higher for products such as textiles and clothing and even cars – pressures to move away from the EU system may develop.  In that case, when the UK presents a draft Schedule in WTO it can expect requests for consultation and compensation for damage to the trade expectations of other countries.

Even with the simple approach, there will be complications, notably in unravelling Tariff Rate Quotas, both those set by others for EU export access and those set by the EU for imports. TRQs, as they are known, are a mixture of a given quantity and a duty rate. The relative share of UK trade and of other EU members in such cases would have to be determined; but this again could be finessed by acting on a generous basis so that challenges from third countries could be kept at a minimum.

Finally, the UK will also need to determine the access it will allow on services.  Here the EU Schedule will almost certainly serve as a good model, and problem areas such as banking and insurance business have already been made subject to reservations.

Some observers believe that this procedure can give rise to major difficulties and to negotiation over a prolonged period. Others consider that other obligations in the trade field, such as the ceilings set on agricultural support payments (subsidies) or obligations in relation to government procurement have to be modified in the light of the UK exit from the EU.

In the author’s opinion obligations that are not included in the Schedules do not require any action, although they might have to be re-examined at the time when further negotiations on such matters are undertaken. As to the procedure, much depends on the approach that the UK adopts; with a liberal, balanced approach it is rare for major problems to arise.

Roderick Abbott is a former deputy director general of the WTO

Edited by Hugo Dixon

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2 Responses to “Taking back our WTO seat won’t be a simple matter”

  • One more thing: the schedules determine how much support the government can give to industries and farming.

    I am happy that this issue is finally getting some exposure. It bears repeating that the director-general of the WTO warned the UK it could not “cut and paste” the EU schedule and expect to be able to trade on it. He said that long, tortuous talks with all WTO members were almost certain.

    Finally, there is the question of how the UK trades and subsidises while negotiating its schedule. Without going into detail, it may be necessary for the UK to leave the WTO, or face harsh conditions on its trade. If that happens, submitting a unilateral tariff free schedule may be seen as a viable way to keep negotiations short. This would have the added attraction of committing the UK to free trade with minimal government intervention. It would also make it very hard for the UK to join the EU, EEA or ECU. Both those things might appeal to the people currently in charge.