By Peter Ungphakorn
POSTED AUGUST 29, 2016 | UPDATED AUGUST 30, 2016
Reports this bank holiday weekend of the UK Cabinet’s up-coming deliberations suggest ministers could be in danger of violating international trade agreements.
The Daily Telegraph reported on August 28, 2016 that:
“Britain will retain access to the single market for financial sector and the car industry while curbing migration under plans being considered by Theresa May.”
Apart from the fact that this implies the EU has no say in the matter, an arrangement that only applies to cars and banking could infringe World Trade Organization (WTO) rules on free trade agreements.
Access to the single market is certain
First let’s get this straight. The UK will have access to the EU single market after Brexit. That’s dead certain. Just as every country in the world does, including North Korea (pdf), which exported €11 million into the single market in 2015, mainly machinery and chemicals.
The UK will have access to the EU single market after Brexit. That’s dead certain
What the UK will not be is part of the single market, unless it accepts free movement of labour alongside free movement of goods, services, and capital. Or unless the EU climbs down.
For the UK, the worst access to the single market would be under the EU’s WTO commitments, which means facing import duties and restrictions on services, just as the US, Japan and China do. That’s still access to the market.
The UK could do better. It could have free access to the single market. It could do this by being part of the single market as it is now, or after Brexit through an arrangement like Norway’s, which brings us back to the problem of the four types of free movement. (Switzerland’s case is up in the air at the moment.)
The only other way to have free access is through a free trade agreement. This could be an ordinary agreement or, as some suggest, a customs union.
(A customs union is a special kind of free trade agreement where duty-free access for goods has the added condition that all countries in the union charge the same duties on imports from outside the union. But it doesn’t have to be a customs union.)
Free access for cars and banks?
What the news reports are suggesting is that ministers are discussing free access for selected sectors such as cars and financial services.
This is a reminder that all of the UK’s trading relations are subject to WTO agreements.
That includes with the EU, and anyone else, whether or not a free trade agreement is involved
Or, as the Daily Mail reported also quoting a “Treasury source”, maintaining “access to the single market … on a ‘sector by sector basis’.”
But under international agreements, which the UK and EU have both signed, partial free trade is only possible in the broadest sense, such as a free trade agreement in goods, with some minor exceptions, but not services.
You cannot have a free trade agreement in cars or in banking.
Paragraph 8 of Article 24 (XXIV) of WTO’s General Agreement on Tariffs and Trade (GATT), which governs trade in goods, says a customs union or free trade area (ie, a free trade agreement) must cover “substantially all the trade” between its members (not selected sectors):
For the purposes of this Agreement:
(a) A customs union shall be understood to mean the substitution of a single customs territory for two or more customs territories, so that
(i) duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated with respect to substantially all the trade between the constituent territories of the union or at least with respect to substantially all the trade in products originating in such territories, and,
(ii) subject to the provisions of paragraph 9, substantially the same duties and other regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union;
(b) A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories.
For services, the WTO’s General Agreement on Trade in Services (GATS) has similar provisions in paragraph 1 of Article 5 (V), referring to “substantial sectoral coverage”:
This Agreement shall not prevent any of its Members from being a party to or entering into an agreement liberalizing trade in services between or among the parties to such an agreement, provided that such an agreement:
(a) has substantial sectoral coverage …
Apart from anything else, this is a reminder that all of the UK’s trading relations are subject to WTO agreements. That includes with the EU, and anyone else, whether or not a free trade agreement is involved.
Updates: August 30, 2016 adding quote from Daily Mail
Photo credits: Montage — Euros | pixabay.com via pexels.com | Creative Commons CC0; Tesla assembly by Steve Jurvetson | Instagram via Wikimedia | CC BY 2.0
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