The great WTO fallacy behind a “no-deal” Brexit.
There is a widespread belief that, post-Brexit, World Trade Organisation (WTO) rules will apply – and that they are a simple, universally respected, legal safety net that will enable the United Kingdom to thrive post-Brexit.
The assumption is that under a “no-deal” scenario the United Kingdom switches instantly to WTO rules seamlessly - achieving “sovereignty in a globalised economy” at a stroke and without compromise.
On 24 July 2018, the United Kingdom submitted a “draft schedule” setting out its WTO market access commitments for goods once the UK leaves the European Union next year. The schedule replicates the concessions and commitments currently applicable to the UK as an EU member. Under this process - known as the "1980 Procedures for modification and rectification of Schedules" - WTO members have three months to review the schedule - which will be considered to be “approved” if there are no objections from other WTO members.
The UK will become a member of the WTO automatically on 30 March 2019. However, the terms and conditions of that membership still need to be worked out. No member can begin to negotiate trade deals until schedule has been approved.
To date objections have been raised by at least 20 countries including significant economies such as Argentina, Australia, Brazil, Canada, China, Mexico, New Zealand, Paraguay, Russia, Taiwan, Thailand and the United States of America.
Russia was first, saying that the UK proposals: “do not match its obligations.” Specifically, they complain that since the EU’s own Schedule is still under negotiation following the accession of Croatia in 2013, it is not possible to know how the Schedule should be rectified to produce the UK’s.
Many of the countries have come together to sign a joint document demanding the establishment of a mechanism to provide “appropriate compensation” to ensure they do not end up worse off from the establishment of the UK’s schedules.
The movement of goods, services and people is an extremely complex issue. The UK has dozens of agreements with non-European countries by virtue of its EU membership. Those cannot be simply “copied and pasted” into a matching set of new bilateral treaties between the UK and each of the member countries – appointing the WTO to act as referee. Not least because each trading partner - and the EU itself – will first want to know what Britain’s future terms of trade will be with the single market. These discussions cannot begin until after Brexit in March 2019.
In the event of a “deal” a transition period of 21 months has been proposed in the draft Withdrawal Agreement – and this could be extended until 31 December 2022. That’s a long time to wait before negotiations with WTO and non-EU countries can begin on preferred trading nation status – and during which time only the basic (non-preferential) WTO conditions may apply.
In the event of a “no-deal” there is simply no timescale to fall back upon – and it has taken countries decades, in some instances, to conclude trade deals. UK could be operating on WTO basic terms for half-a-generation to come.
Furthermore, we also need to remember that even after WTO schedules are agreed, its arbitration mechanisms work extremely slow and enforcement is weak.
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