ANDREW FARRAN. Brexit: Calamity awaits the world trading system.

Sep 22, 2018

The route to overcoming any impasse in the UK/EU Brexit negotiations may involve riding roughshod over their respective obligations under the global trading system, in particular the WTO. This, together with President Trump’s on-going assault on the system, threatens to bring it down altogether – with nothing better in its place. 

While there are still many unknowns in the secretive negotiations between the UK and the EU Commission, the parties that will decide the eventual outcome are themselves much in the dark. They are, of course, the 27 other EU member states (including Ireland), the British Parliament (all parties), and the Northern Ireland Unionists not least.

This week the British Prime Minister (Theresa May) has been meeting with EU leaders in Salzburg where she was permitted a ten minute speech over dinner in which to sum up her case, which in essence was the Chequers proposal in relation where numerous ‘no-goes’ and red lines remain. She was told the following morning by the EU Council President Tusk that her Chequers proposal “would not work” and by the French President Macron that it was “unacceptable”. She was also left in no doubt that a credible solution to the Irish border problem was not within sight. Mrs May acknowledged that Brexit was a “uniquely complicated” challenge but could be completed on time. Her three priorities, she said, were protecting Northern Ireland’s place within the UK, safeguarding trading links with the EU and maintaining a close security relationship with the EU.

Well and good. But there is no shortage of devils waiting to run among the details. And details there will be aplenty. Taken in clusters these details will be insurmountable in terms of keeping faith with the fundamental principles of the global trading system and compliance with its legal obligations. A response to difficulties of this nature is to call for ‘political solutions’ – in the same vein as President Trump justifies his trade wars with China, the EU and anyone else in defiance of WTO rules and his virtual call for its abolition – starting with his refusal to approve new appointments to its appellate bodies to render them unworkable in due course.

Which brings us to the issues that will destroy the WTO as an effective vehicle for safeguarding the rules and obligations of the trading system.

Were the UK to crash out of the EU there are those, both within Britain and the EU, who say “So what”, it can always fall back on the WTO and the global trading order, free to negotiate Free Trade Agreements (call them what you will) with the US, Australia, and with the EU itself. However, as pointed out very clearly by Professor Gary Sampson in Pearls & Irritations recently (see ) it cannot be as easy as that.

Britain would first have to negotiate its membership of the WTO ab initio. Currently its membership is subsumed within that of the EU and is subject still to all the undertakings and concessions (i.e. embodied in the  Schedules) made on its behalf, and on behalf of all EU members. As a separate member of the WTO, adjustments would need to be made to those undertakings and concessions to rebalance their respective positions and relationships inter se, and have all that incorporated and formally certified in a new Schedule (a condition precedent to membership). To achieve this, as noted by Professor Sampson, 164 countries would have to agree on 9,379 individual product lines. Britain believes, apparently, that it could simply present the existing EU Schedule and nothing would have changed. But the fact is that it would represent a significant change overall and each WTO member affected would demand a renegotiation of the Schedule as it affects them. That is, Britain would have to pay for these changes. The effects may not be felt overnight but when members experience the imbalances and inequities of their of treatment and seek redress, they will find the WTO impotent because of the breakdown of its enforcement procedures, and sooner or later that could be the end of the WTO.

Even if Britain and the EU were to settle for a Free Trade Agreement without crashing out, this too would be between separate states and the WTO issues would come into play similarly, as they would in any future FTA between the UK and a third state. And the arrangement regarding a ‘virtual’ or contrived Irish Border would attract WTO attention also. The latter really requires the UK to remain in a Customs Union and Single Market with the EU – which would suit its traders, whether of goods, services, or agricultural products, but not the hard line Brexiters. The question then would be whether the latter would hold the country to ransom over an ideological obsession.

The EU Council will meet in October  to assess the negotiations with a view to finalising the terms of the Withdrawal Treaty at a summit on 17/18 November. By then the lines of the UK’s future relations with the EU are expected to be drawn.

Realistically, if there is to be a political solution, a number of legal red lines are bound to be crossed. The concern for the wider world is that the UK and the EU may ride roughshod over their global obligations to suit their respective situations and, in doing so, together with President Trump, will opportunistically put at serious risk the one-time orderly global trading system painfully evolved over the past seventy years – with nothing better to take its place.

Andrew Farran is, inter alia, a former diplomat, law academic,and international trade adviser.




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