Expert View

UK shouldn’t have a problem with WTO post-Brexit

by Roderick Abbott | 13.03.2017

Roderick Abbott is a member of ECIPE’s Steering Committee and Advisory Board. He has done trade work with the British Government and European Commission, and was a Deputy Director General at the WTO in Geneva.

The media have reported that there may be major problems over WTO membership after Brexit and that the UK could be engaged in long and difficult negotiations with third countries. The UK was a founding member of GATT in 1948 and became a WTO member in 1995, and its commitments to other members have always been maintained. So why would there be a problem?

The answer is that WTO members are required to make commitments on two key trade issues: their guaranteed maximum tariff levels and their commitments to open markets for services trade. However, since we joined the forerunner of the EU, our commitments have been incorporated into a common EU “schedule”. When the UK leaves the EU, separate UK commitments will again be needed to replace the existing EU ones that will no longer apply.

This is not a unique situation. Circumstances can arise when WTO members may seek to change their commitments – due to changes of national policy or amendments in the international classification of products. There is nonetheless a specific feature in the UK case:  it reflects a change of status (the UK exits the EU) rather than any wish to modify its commitments.

Liam Fox announced in parliament in December that the government would adopt new commitments which are essentially a copy of those submitted by the EU. The international trade secretary said it would “replicate as far as possible our current obligations” (with certain adjustments where necessary). This would cause the minimum of difficulty during the WTO procedure since it could be argued that nothing significant has changed and no damage to the trade rights of others has occurred.

How Article XXVIII works

Specific WTO provisions – Article XXVIII: “Rectification and Modification of Schedules” – exist to offer guidance for these changes of commitments. This procedure is directly relevant and applicable to the UK case. A country that changes its schedule in ways that damage its trading partners is supposed to compensate them in other ways. In the jargon, the goal is “to maintain a general level of reciprocal and mutually advantageous concessions not less favourable to trade” than the pre-existing situation between the parties.

The process is multilateral: country A puts up a draft, explains it and consults with all members. But the negotiations are bilateral: only those trading partners that have negotiating rights on the products at issue and a credible claim of damage, based on actual trade performance in a recent period, are involved. So the scope of the exercise is limited to relatively few countries.

What happens if the UK fails to secure approval? First response: negotiations can continue.  Second response: if there is still no agreement, the UK is free to make the changes it proposed and other countries are entitled to retaliate by withdrawing some tariff benefits granted to the UK. But in the WTO world of “most favoured nation” commitments – where members have to treat each other equally unless they have reached a formal trade deal – retaliation is not so easy.

The process is not as arduous as it sounds. One misunderstanding is that the process involves an adversarial and legalistic debate that leads into a vote in which third countries can veto what the UK proposes to do. This is not the normal process. Legal arguments are used, but conflicts are resolved ‘by mutual agreement’, not by voting.

There is also a risk that with the UK, the procedure may become more political in nature given the size of its economy. But historically the process is pragmatic and more technical than political. Although tariff changes are driven by national policy, the search for a reciprocal balance of advantages is mainly one of technical adjustments.

Would “external factors” affect the UK’s ability to secure approval? Could Russia veto or block a deal if it chose to react to foreign policy statements from Boris Johnson? Could negative reactions in the EU or at WTO to elements of the Nissan deal also have a blocking effect?  The answer is No – provided that the standard WTO procedure is followed.

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    Edited by Hugo Dixon

    2 Responses to “UK shouldn’t have a problem with WTO post-Brexit”

    • Indeed, everything is in the title : “the UK SHOULDN’T have too big a problem updating its WTO membership”

      just like the UK SHOULDN’T let an unelected Prime Minister run the government
      or, the UK SHOULDN’T construe Parliamentary democracy after whining the EU was doing it (it wasn’t)
      or, the UK government SHOULDN’T prioritise the perceived political interests of the Tory Party over the stability and economic interests of the country.
      what about the UK government SHOULDN’T let an advisory referendum, that was run fraudulently (both in political claims and financial funding), dictate policy, even beyond the remit of the referendum’s question ?
      or, in such an high-stake negotiation, the UK government SHOULDN’T play the gutter press audience and engage their opposite numbers with both respect and diplomatic touch ?

      ….. and on and on ….

      and so, the UK SHOULDN’T have too many difficulties updating its WTO status, and yet somehow I’m not convinced that IT WILL …

    • A reading of Dunt’s “Brexit: What the Hell Happens Now?” would seem to suggest otherwise (in quite a bit of detail).