Ambassador and Permanent Representative to the UN and other international organisations in Geneva
Part of FCDO Outreach
23rd January 2017 Geneva, Switzerland
Ensuring a smooth transition in the WTO as we leave the EU
Last week the British Prime Minister Theresa May set out her plan for Britain’s orderly departure from the European Union. Britain’s transition in the WTO is an important and necessary part of this process. Ensuring that goes smoothly is one of the over-riding priorities of the Mission I lead in Geneva.
British ministers in fact took the decision to begin our WTO transition late last autumn. They concluded that establishing the UK’s independent position in the WTO would not prejudge what kind of relationship the UK and the EU would have in future. Nor would it prejudge when the UK would leave the EU. The timing of the transition in the WTO would be linked to whatever the UK and the EU agreed in the Article 50 negotiations. This WTO process was not an alternative to a negotiated exit from the EU, as some claimed. On the contrary, it was a necessary complement to it.
Given that was the case, ministers decided it was better for the UK to get on with it, and with reassuring our trading partners around the world that their trade will not be disrupted. The Secretary of State for International Trade duly notified Parliament in a Written Ministerial Statement on 5 December 2016.
So what does this WTO transition mean in practice?
The UK is a full and founding member of the WTO. We signed and ratified the 1994 Marrakech Agreement that established the organisation. But we are also part of the EU’s Common Commercial Policy. Under the EU treaties, Member States have agreed that the European Commission will represent them on most things in the WTO. As a full member of the WTO, the UK has its own seat. As the UK’s Permanent Representative to the WTO, I attend meetings along with my 27 other Member State colleagues. But for most WTO business, the Commission speaks for all of us collectively.
Establishing the UK’s separate position in the WTO is not simply a matter of starting to speak up for the UK from one day to the next. Every WTO member state has things called schedules, lists which set out their commitments – their rights and obligations – in the international trading system. These cover trade in both goods and services. WTO legal experts will tell you that, as a full member, the UK already has its own schedules. But at the moment these are shared with the other EU Member States.
Smoothly separating the UK from the EU schedules is the best way we can reassure our WTO partners that their trade with us will not be disrupted as we leave the EU. Once we have our own schedules in the WTO, the UK will be able to negotiate changes to the international trading system as well, whether multilaterally (with the whole membership of the WTO) or plurilaterally (with some of it). A country’s WTO schedules also provide the baseline for negotiating bilateral Free Trade Agreements.
There is a process in the WTO that allows the UK to submit new schedules. But they can only be adopted – or certified – and thus replace our existing EU schedules if none of the WTO’s other 163 members object to them. So to minimise any grounds for objection, we plan to replicate our existing trade regime as far as possible in our new schedules. Before we take any formal steps in the WTO we will hold extensive informal consultations with the WTO membership. Every member will have an opportunity to raise any issues or concerns with us before we proceed.
We intend to work closely with the EU during this process. In the meantime the UK’s WTO commitments will remain as they are, as set out in the schedules with share with the other EU Member States. While the UK remains a member of the EU we will continue to respect and uphold the EU’s arrangements in the WTO.
Replicating our current EU trade regime will help ensure that our transition in the WTO is as simple, technical and uncontroversial as possible. It by no means precludes the UK from taking control of its trade regime after we leave the EU, and shaping it in the interests of the British economy and the global trading system. Indeed, it is a necessary precondition for doing just that.
What the UK is planning to do in the WTO has no precedent. We want the membership to be comfortable before we proceed, and we know that will take time and patience. That is why we are starting now, so that we can ensure our transition in the WTO will be as smooth and seamless as possible, for everyone.
This is very good explanation
Great article
Thank you!
If the WTO schedules function as starting point of free trade agreements, I am still perplexed by what happens with the post-Brexit free trade agreements in light of the challenges to the agricultural TRQs? Is the UK able to negotiate and conclude any free trade agreements prior to having certified schedules under the WTO?
Additionally, can the UK change its schedules after it has negotiated post-Brexit FTAs presumably based on the replication of EU schedules? There is a lot of talk about unilateral reduction in tariffs. What would happen if a country that had signed a FTA with the UK and afterwards the UK decided to unilaterally lower its tariffs? How would such a possibility influence the willingness of countries to negotiate FTAs with the UK? Could another member state with a FTA with the UK block such a unilateral move in order to maintain the competitive advantage it had negotiated through the FTA?
Great Article and good info
thnx for sharing !
Hi there,I check your new stuff named “Ensuring a smooth transition in the WTO as we leave the EU | Foreign Office Blogs” daily.Your story-telling style is witty, keep up the good work! And you can look our website about تحميل اغانى.
Julian,
are you able to provide any update to your original post, addressing the points raised?
if we are keeping the same rates, does that mean that €32 per hectolitre on wine will become £27.11 per hectolitre?
Which day will the exchange rate be used?
If we convert to GBP is that going to fly as a technical rectification?
If we maintain tariff rates in EUR after Brexit isn’t that a bit weird?
What work is being done at the WCO Julian to minimise Custom barriers when we leave?
As well as renegotiating its schedules, the UK will also have to decide on its ´trade defence´ (safeguard) measures. What will for example happen to the current over 100 anti-dumping measures that the EU applies to WTO members and which are the result of EU-wide investigations into dumping? If, for example, the UK were to try and impose EU anti-dumping measures on Chinese steel imports, the Chinese could object and demand that the UK carry out new investigations and demonstrate domestic injury and unfair trade.
In looking at the background to the implications of each of the UK’s options for leaving the EU, but in particular the WTO I have found the Brexit Monographs to be the most useful (see http://eureferendum.com/blogview.aspx?blogno=80999 ). The ones which pertains specifically to the WTO Option are Monograph 2: “The WTO Option and its application to Brexit” and Monograph 8:”WTO schedules and concessions”, although others may apply.
Presumably, the UK can transition to WTO rules reasonably smoothly, but doesn’t logic suggest that the terms upon which the UK ends up trading with the rest of the world are unlikely to be as favourable as they are now?
Information is very insightful and useful.
Clear explanation and nice to read.
Regards,
Utuh Wibowo
The Best Consultant in Indonesia
http://www.utuhwibowo.com
Does the FCO plan to split the EU’s quotas (TRQ) for imports, and negotiate a split with the EU and the other members for exports? Or does it plan to start from scratch?
Is there no jurisdictional problem here? I was under the impression that the negotiations with the WTO would be done by the DIT department under minister Fox. Has that changed?
My views, as an academic with an interest in WTO law, are as follows.
The other 163 WTO Members (actually, 27 of these are EU Member States, so there are fewer voices than that) do not have a veto over the UK’s scheduled commitments.
They do have a veto over the certification of these schedules. But certification has merely evidentiary weight. It is like coronation. The UK’s scheduled commitments exist even if they are not certified, just as a monarch is a monarch prior to coronation. Indeed, the EU itself has not traded under certified schedules since 1974. The sky has not fallen.
The fact that some of the UK’s commitments are difficult to interpret (because they are shared, eg the tariff rate quotas and aggregate measures of support) does not change the fact that they exist.
There are two ways disputes about the UK’s scheduled commitments can arise. First, if another WTO Member considers that the UK has modified its schedules to its detriment, it may be able to convince the UK to commence negotiations on compensation. Any such compensation will be limited to the harm allegedly caused. There may be none. If the other member is dissatisfied, it can unilaterally suspend concessions with respect to the UK. But this must also be limited to the alleged damage. If the UK disagrees that there has been any damage, it can bring dispute settlement proceedings. Ultimately, the matter will be decided by a panel (cf Canada – Zinc).
Second, another WTO Member may consider that the UK is violating its scheduled commitments with respect to a given product, service or service supplier. In this event, it can commence dispute settlement proceedings. Again, any such case must be limited to any harm caused, and the same applies to any retaliation. In the end, this will come down to dispute settlement as well.
This is not to say that negotiations are not important. Of course they are. But bargaining happens in the shadow of the law.
Thank you for the informative communiction. Is it possible that the UK might be held up by WTO signatories wishing to extract concessions? Such as the Falkland islands?
Respectfully,
Toby Borland
No, that is not possible. There is no veto on the UK’s position in the WTO. At most, there is a veto on certifiation of scheduled commitments, but merely leads to negotiations for compensation for any lost market access. It is confined not only to the WTO system, but to the product at issue. Press reports about the Falklands etc coming into the mix are misguided.
But does it follow that the UK will automatically get Most Favoured Nation status in the WTO? I find the fact that it will require the agreement of 163 other nations to re-establish our status at the WTO extremely worrying; many of those 163 are far from being friends of the UK and most have their own agendas and self-interest to consider.
Yes, it follows.
Thank you for the article, Mr Braithwaite. What happens if 1 if the 163 members does object to the separation of UK schedules from EU ones, please?
There is a WTO process that would allow them to set out to us bilaterally how they think the UK’s schedules would damage their trade. If we accepted their case we would no doubt want to address it. In the meantime trade with that Member State – and all the others – would continue. However, we hope to identify and address any such issues before we submit our schedules, through extensive prior consultations.
Question (to assist understanding).
If I read this correctly the presumption is that all existing EU tariff and non-tariff arrangements for non EU Countries will be replicated ie tariffs exactly the same %s as now but with the UK nominated as the trading entity instead of the EU as step 1.
So the presumption is that UK_EU trade will remain at zero tariff in both directions at this stage.
So if the UK-EU tariffs change for one item(the legendary widget) say March 2019 this seems to imply all 163 other countries have to agree to this change else WTO fails?
eg UK via the EU terms have say a 10% import and export duty with country X now for widgets but a 5% duty both ways is introduced between EU and UK on widgets does this 5% have to be ratified by the entire WTP Membership and require a re-discussion of every single item not just the widget that has been altered? Forever and a day springs to mind….
P.S.
and of course if any differential widget tariff rate(or non tariff barrier change) is introduced then, or at a later date, between country X and the UK and Country X and the EU then ‘legal smuggling’ will inevitably be encouraged via the UK between Country X and the EU in either direction.This seems to require a whole raft of red tape and material batch tracing UK imported from X widgets across all subsequent post UK borders(amateur guess)?
The entire legal smuggling point was overlooked in the Brexit debate (by both Remain and Leave) with Brexiteers promising free trade with the EU AND new bilateral deals with country X. The argument was that EU and UK would maintain free trade as in mutual self interest. However it seemed obvious to me that this was fools gold as the EU cannot allow its industry to be undercut by smuggled via the UK widgets from X and X cannot allow its industry to be undercut by widgets from the EU smuggled via the UK. To stop this,if differential tariffs come into being at all, I can only see more red tape and border delays ahead (and hence increased costs) for all UK trade with the EU. If you concur (feel free to refute for general education) what would the WTO rules require as ADDITIONAL documentation for every lorry/ship cargo UK_EU (both ways) to inhibit widget ‘legal smuggling’ if differential tariffs(or non tariffs) are introduced at any future date? Let’s say the widget is a car part incorporated into a finished car assembled in the UK exported to the EU(for Nissan for example) .The widget itself would be taxed at 10% direct from X to EU but has only paid 5% from X to UK-does it mean every piece of that car has to be documented for imported materials from country X(and more importantly documentation now required for all cars for all countries for all manufacturers to prove nothing at all from X in them???). If your answer is yes everyone should clearly buy shares in batch tracing/automatic international trade documentation IT/Logistics companies!! Hopefully for the current UK government the answer is no or my simple logic is wrong else creek and paddle springs to mind..
It is the MFN (3rd country) tariffs that will be replicated. The current 0% tariffs between the EU and UK are raised to those. To your second question about circumvention of differential tariffs (this is an issue for every FTA), that is done by so-called ‘rules of origin’ which are indeed checked at the border. So yes, maybe logistics is the future.
Here’s a useful snippet of info on the pertinent ‘widget’. All pan-European contract competitions will fear a future tariff barrier with the UK meaning there will be a preference for the EU to source internally rather than source from the UK when selecting long term suppliers. Similarly UK will tend to source within UK more BUT economies of scale mean that supplying an EU market is lower cost than supplying the much smaller UK market. So UK loses out on productivity vs EU and consumer prices rise.Second referendum 2021 here we come I would say-so called ‘Project Fear’ appears to have understated the EU exit problem. Anyway confirmation -invest in logistics software companies!!
UK car industry wants ‘unimpeded access’ to Europe
Today Programme
BBC Radio 4
Posted at
6:33
The UK car industry has concerns about trading arrangements after Brexit.
Around 60% of the parts of cars made in the UK comes from abroad, and of that, two-thirds comes from Europe, says Mike Hawes, the chief executive of the Society of Motor Manufacturers and Traders.
“The UK car industry needs a Brexit deal that is tariff fee and guarantees the unimpeded access to move parts back and forth,” he said.
Amazing timing literally simultaneous with writing the above!
Hard Brexit ‘an opportunity for Vauxhall’
Posted at
9:29
PSA boss Carlos Tavares has said a so-called hard Brexit could boost PSA’s operations in the UK.
The firm might need to open more plants in the country to get around any new tariffs on importing cars into Britain, he said.
“[There is] the opportunity to have inside of the UK some manufacturing plants in case we have a hard Brexit,” he said. “All of this represents opportunities that we want to tackle.”
Julian and the FCO are to be thanked for releasing this informative bulletin.
It exposes a major quandary. Any change to the UK schedules could be vetoed by
any ONE of either the EU-27 or 136 other nations. Thus a veto in the EU is likely
to be replicated in the WTO and even if EU agrees, multiple other hurdles apply.
If any veto is made, the UK under WTO rules would seem to be shackled to acting
in accord with the current EU terms of trade – status quo ruling in event of veto.
Would continuation of the existing WTO schedule be acceptable to EU?
This ongoing shackle to the EU would seem to prevent UK walking away from talks with EU and adopting a fresh strategy for its international trade as it would
have no recourse to WTO rules in the event of a SINGLE veto from the 163. It is
unlikely that there would not be at least one mischief-maker among 163 members – making a political point for reasons totally unconnected with Brexit, trade or even the UK directly.
The only hope for UK economic salvation would seem to be recission of article-50
but even that is in doubt until the application before the Irish High Court for an
ECJ ruling has been completed. Thus we seem to be beleagured by potential vetoes
on every route that we explore.
Can Britain survive when it has NO basis of trade?
I see that just one WTO country objecting can block the whole process (assuming we do indeed leave the European Customs Union).
Two grounds spring to mind:
– countries that say they don’t want to apply their current EU schedules to us because the commitments they gave to the EU were in exchange for their access to the world’s largest market (the EU) and they don’t see what they would gain in exchange for access to the much smaller UK market
– countries that seize the opportunity to link it to other issues (Argentina might say fine, as long as we share sovereignty over the Falklands, or India may say fine, as long our citizens get easier access to living in U.K., etc)
A rocky road ahead, to put it mildly….
To your first point, an often unappreciated fact is that WTO law does not require its members to ensure that their markets stay the same size, or even continue to exist. It just requires them to ensure non-discriminatory access to whatever market happens to to exist (after paying any applicable customs duties). If the UK market for widgets dries up because the UK no longer exports products incorporating widgets to the EU27, that is, unfortunately, bad luck for other WTO members. Not all damage is compensable. To your second, there is no veto on the UK’s rights and obligations in the WTO, so there will not be any linkage of the types you mention.
So what if one of the 163 countries says no?
Can you comment on the WTO Government Procurement Agreement post Brexit? Will we continue as members, have to reestablish a separate position, or join separately? Or something else?
How do you plan to separate quantitative quotas on things like beef and lamb? You will have to split out the UK share of imports from the overall EU share, plus add back provision for the UKEU trade in that commodity. Presumably this would require quantitative adjustments in the EU schedules to remove us as well. I can’t see an obvious way to do that.
Do you intend to maintain the seasonal protectionist tariffs on citrus fruits (oranges etc) which are there to protect the Spanish fruit growers from competition from places like South Africa? How would you justify keeping those in place as we don’t have a citrus industry to protect?
Would it be possible to do some fully worked examples of this process for some lines in advance of Article 50 being invoked so that we can have some measure of reassurance that 2 years is a feasible timescale for completing the job?
Thank you for your comment. We plan to replicate our existing WTO trade regime as far as possible. At this stage we are encouraging WTO member states to raise any questions they may have about that with us, particularly regarding the more complex agricultural issues, before we decide how to proceed.
This post shows that HMG’s Brexit comms can be very good rather than dismal. There is no need for slogans and jargon.
This post is measured, helpful and clear, and it places useful information in to the public domain.
More like this, please.
This is an interesting and informative piece, but I am appalled that as a member of parliament I learn of such a crucial decisions the autumn via Twitter. A WMS is the classic way to hide important information. It is wrong to say that this would be compatible with membership of the customs union. The government lost in the High Court and will lose in the supreme Court tomorrow on consulting parliament. This may seem “smooth” to our man in Geneva, to me it looks like the subversion of democracy. He has plans to work closely with and consult everyone except the representatives of the people.
Thank you for your comment. The Government has not yet launched any formal process in the WTO and plans to reflect on the feedback it is getting before doing so. We expect the House of Commons International Trade Committee to visit Geneva next month.
I am dreadfully sorry to read this. This is the state of play as it was understood by many knowledgeable people as of May 2016. So there is no progress? More to the point, replicating the EU schedule is not possible, as Mr. Azevedo expressed before and since the referendum. This is obviously so for TRQ. In addition, schedules of many other WTO members will have to be modified, including the EU one.
There had been some discussion that the UK could stay in a custom union with the EU after Brexit and use the EU schedule while working out its own schedule. Has there been a further exploration of this option?
As Mr. Azevedo mentioned in Davos, it is still possible that the UK leaves the WTO. If the custom union solution does not work this would seem to be the best option.
Is it actually possible to replicate the EU schedules as they are, are there not tradeoffs that have been agreed internally within the EU and also with 3rd countries that will need to be amended with agreement from not only the EU but also the WTO members?
Kind of like we won’t sell carrots to Brazil if Portugal don’t sell turnips to them for example. I remember Michael Dougan talking about this.
Thank you for your comment. We plan to replicate our existing WTO trade regime as far as possible. At this stage we are encouraging WTO member states to raise any questions they may have about that with us, particularly regarding the more complex agricultural issues, before we decide how to proceed.
Thank you for a well-expressed and most helpful article. You say that “A country’s WTO schedules also provide the baseline for negotiating bilateral Free Trade Agreements”
Does this mean no substantive FTA negotiations can begin until the UK’s WTO schedules have been agreed?