08 November 2018

Alex Stojanovic argues that it is EU law, not WTO rules, that matters in the event of a no deal Brexit.

No deal optimists continually argue that falling back on World Trade Organization (WTO) terms minimises the threat no deal poses to the UK. They say the EU cannot treat products from the UK differently under WTO rules than it did before Brexit, because the UK’s rules are the same on day one. They also argue the EU is required by the Trade Facilitation Agreement to “maintain borders, which are as frictionless as possible, using all the modern technologies at its disposal”.

Both points overestimate the constraints WTO rules would place on the EU and fail to take account of the EU’s laws in the event of no deal.

WTO rules won’t prevent the EU from applying its laws to the UK

The EU’s notices on what EU law means for a no deal Brexit are very stark: on day one, the EU intends to treat the UK as a third country. That is the scenario that leads to headlines on a ban on animal food exports, UK banks no longer providing services in the EU as now and, yes, the grounding of planes.

The WTO is little help in this event. As former WTO negotiator Dmitry Grozoubinski points out, the rules are silent on major Brexit issues like certification for pilots, licensing for truck drivers, transfer of citizens’ data and foreign presence for banks – which is why the US has major bilateral agreements covering some of the gaps.  

But even where WTO agreements do apply, they don’t provide the kind of protection imputed to them. For both technical regulations and food safety, WTO rules require only that countries enter into consultations on recognising equivalence of similar rules. This leaves a lot of discretion to the importing country on what it will accept.

The Trade Facilitation Agreement is even less help. It is an aspirational agreement, mainly aimed at developing countries to embed good practice for customs clearance. It does not stop the EU treating the UK as a third country – losing all its privileges as an EU member overnight – which happens automatically unless the EU decides differently.

Taking the EU to the WTO will not offer quick – or useful – answers

If the UK wanted to make the case that these privileges should be maintained, it could trigger proceedings at the WTO right after Brexit.  

But it should not expect quick results. According to the WTO, an average case takes at least a year and three months with appeal. Many cases take a lot longer – there is a US-EU case on aircraft that is still ongoing after 14 years. The WTO has no mechanism to offer the UK instant respite from day one disruption.

Even if the UK did – eventually – get a ruling in its favour, the WTO would not be able to force the EU to give preference to the UK. The only remedy would be to allow the UK to apply punitive tariffs, adding to trade restrictions not removing them.

The hostile act of taking the EU to the WTO dispute resolution procedure would likely do more harm than good. This would jeopardise the prospect of reaching the sort of side agreement which the UK's no deal planning currently depends on.

The good news is that WTO rules would not prevent some helpful EU ‘contingency measures’

Michel Barnier, the EU’s Chief Negotiator for Brexit, says there will be no cosy side deals in the event of no deal, though the EU might take ‘unilateral contingency measures’. There is one example to date: allowing member states to use the UK’s derivative clearing services in London after Brexit to avoid a market disruption. More may follow, which would soften the impact of no deal.

But contingency measures might not apply to tariffs. The WTO’s Most Favoured Nation principle obliges WTO members to grant the same concessions to all trading partners without a preferential agreement.

The good news for the UK is that the WTO would not stand in the way on other regulatory issues. A country that challenges the EU for giving preferential treatment to the UK would face the same slow process of WTO bureaucracy. And the rules on regulatory issues give leeway to the EU to decide what it will accept.

The problem is that we cannot bank on the EU having the same incentives as the UK to minimise the impact of no deal. As former UK Permanent Representative to the EU, Sir Ivan Rogers predicts, the EU will ensure as little impact on itself and maximum impact on the UK.

This underlines an uncomfortable truth: it is the EU, not the WTO, which can limit the impact of a no deal Brexit on the UK. 

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