26 November 2018

“Trading on WTO rules”: Have the Leavers revealed their utter lack of understanding of the real world yet again?

Support in Parliament for the Brexiteers’ call to “crash out of the EU and trade on WTO rules” seems to be ebbing away. But this just reflects fears about short term inconveniences rather than a proper appreciation of the huge, and continuing, risks to the UK’s foreign trade.

Overall, it is swiftly becoming apparent that the Leavers’ claims that favourable free trade deals would be concluded rapidly are being shown up to be – at the least – an illusion. But British business must recognise that these problems will surely surface eventually in our non-EU trade even if an “ambitious” deal is done with the EU.

There are at least four components that should concern Parliament greatly:

• The likelihood that the WTO’s enforcement mechanisms will collapse by the end of 2019
• The rising probability that WTO members will not agree by consensus our new “tariff rate quotas” (TRQs) as Russia has already objected.
• The implications of the Most Favoured Nation (MFN) rule: what is the point of leaving the EU?
• The vast public procurement market is subject to separate rules that we must apply afresh.

When members have a dispute about “the rules” in a particular case, the WTO has a two-stage resolution process. First, the Dispute Settlement Body (DSB) sets up a “panel” to review the facts and issue a ruling. If the disputants accept that ruling, the case is over. But one side may not accept it and decide to appeal to the Appellate Body. This consists of seven judges who serve four-year terms. It requires a minimum of three judges and judges may recuse themselves if they face a conflict of interest such as their own Government being involved.

Since 2017, President Trump – pursuing his transaction rather than value-based approach to trade policy, but also making some arguable points – has refused to agree to any new judges so only three are now left. The terms of two of the judges expire in December 2019 and the final one in November 2020. The number of appeals is stacking up – partly driven by complaints about President Trump’s trade wars so he is unlikely to relent and then see himself castigated repeatedly. One of the remaining judges is American who may have to recuse himself from some cases involving the US.

If the UK “crashes out” next March, then might not have any WTO protection against cases involving the US, India or China – the nationalities of the remaining judges. In 2020, all protection will cease – unless we are willing to bind ourselves to accept the initial panel ruling. This entire process hardly constitutes “taking back control” from foreign judges. [...]

Full article available for consultancy clients here

© Graham Bishop