A real beginner’s guide to GATT Article 24

And a plea to stop talking about it

Speed limits for 3-year-olds | Sandy Millar via unsplash

”Photo: Speed limits for 3-year-olds

By Peter Ungphakorn
POSTED JUNE XXIV, MMXIX | UPDATED NOVEMBER 9, 2019

We don’t usually argue about what a law means. Somehow this WTO rule has found its way into British political debate. It has become even more prominent because it’s advocated by Boris Johnson. And yet, we really don’t need to be talking about it at all.

I wrote a Twitter thread and was trying to recreate it as a blog post (it’s now published here). Then up popped a tweet:

So, this is for three-year-olds everywhere.

Essentially, stop talking talk about Article 24Back to top

JUMP TO
Essentially, stop talking talk about Article 24
But I promised
What is GATT?
What is GATT Article 24?
Why is it needed?
How often is it used?
Does the UK have GATT Art.24 agreements?
Do WTO members have to approve these agreements?
Is that it?
Can GATT Art.24 be used with a Brexit “no deal”?
So why is it an issue?
Why do people talk about 10 years?
Why the confusion?
Any other problems?
Anything else?
Finally, some tweets

SEE ALSO
The myth of a 10-year grace period, Brexit and trade talks with the EU
GATT Art.24 — In-depth answers to frequently and not-so-frequently asked questions
One last go. The Article 24 red herring in less than 400 words

Brexit through the magic land of Eksive
GATT Article 24: They still don’t get it (video)

We never say we have to comply with “Law RTRA sects 81, 86, 89 & sch 6”. We say “keep to the speed limit”.

We drive, observing (or ignoring) the limit. We discuss speeding and appropriate limits. We never say “Law RTRA sects 81, 86, 89 & sch 6”.

GATT Art.24 governs free trade agreements in goods.

Politically, the rule is unimportant and should never have been brought into the debate. Unfortunately it has now become an issue in the race to be Tory leader and prime minister.

If Article 24 is unimportant, what is important? These are:

  • What kind of UK-EU deal is proposed?
  • What would it do?
  • Does it cover the UK’s needs? Who would it affect and how?
  • Does it cover the EU’s needs? Who would it affect and how?
  • What would it take for the UK and EU to agree?
  • How long would it take?

That’s it.

But I promisedBack to top

I promised Dr Pimenta. So here it is. As simply as I can.

What is GATT?Back to top

It’s the General Agreement on Tariffs and Trade, the WTO’s umbrella agreement on trade in goods. GATT’s been around since 1948. Until 1995 it was also the name of the international trade organisation that administered the agreement.

It’s been updated regularly over the decades. When the WTO was created to take over the multilateral trading system in 1995, GATT stayed on as the main agreement on goods.

Since 1995, the system has also had a parallel agreement, the General Agreement on Trade in Services (GATS).

What is GATT Article 24?Back to top

Officially GATT Article XXIV, it’s the main rule allowing countries to set up free trade agreements in goods.

(There’s another rule called the “enabling clause”, but it only applies to deals between developing countries, so not the UK. And free trade in services comes under GATS Article 5).

Jargon-buster: GATT Article 24 covers free trade agreements and customs unions. A free trade agreement can be anything from a simple deal to scrap import duties on each other to a complex document covering standards, regulations, dispute resolution and more. The Japan-EU agreement is 560 pages (and includes services, electronic commerce, intellectual property, capital movements, etc). A customs union is essentially a free trade agreement in goods, in which the participating countries all charge the same duties on imports from outside the customs union.

Why is it needed?Back to top

Because without it countries have to treat each other equally. If two of them — say Australia and New Zealand — want to have free trade with each other, they would have do the same with all the 162 other WTO members.

GATT Article 24 allows them to have a trade agreement just between the two of them. They can trade duty-free with each other without having to allow imports in duty-free from anywhere else, for example Switzerland, India or Brazil.

Jargon-buster: The non-discrimination rule is top of the list, GATT Article.1. It’s called “most-favoured-nation” (MFN) treatment. Ignore the name. It means treating your trading partners equally.

How often is it used?Back to top

The WTO’s database of free trade agreements currently lists 264 deals notified under GATT Article 24.

That includes the Australia-New Zealand agreement. Yes, it’s real.

Does the UK have GATT Art.24 agreements?Back to top

Yes, 49 GATT Article 24 deals involving the UK have been notified to the WTO.

Some of these come from the economic integration of the European Union — the customs union and its expansion as the EU added new members. The rest come from the EU’s trade agreements with other countries. The latest to be notified is the EU-Japan agreement.

The UK will leave all of those agreements with Brexit. What it then has will depend on what it can negotiate with the EU and the rest of the WTO.

Do WTO members have to approve these agreements?Back to top

No. But they must be informed and they have sessions to discuss, ask questions, hear answers and comment on each new agreement.

Is that it?Back to top

Agreements under GATT Article 24 have to meet certain conditions.

If other WTO members think an agreement has violated those conditions so seriously that it can be challenged legally, they can do that through the WTO’s dispute settlement system.

This doesn’t happen very often.

Can GATT Art.24 be used with a Brexit “no deal”?Back to top

No and yes.

No, because you have to have a deal that’s been negotiated and agreed by both sides (or all sides if several countries are involved).

So you can’t have “no deal” and an Article 24 agreement at the same time. It’s either a deal, or not a deal.

Yes, because if the UK and EU27 agree on a deal, that would end “no deal”,

But they would have to agree first.

So why is it an issue?Back to top

Essentially because of some misunderstandings.

The worst is the idea that with “no deal”, Britain can unilaterally “invoke” Article 24 and continue to trade duty-free with the EU as a “standstill” while the two negotiate a free trade agreement. This is obviously nonsense because there has to be a deal.

Better is the recognition that the UK and EU have to reach an agreement first. If that happens, they can have, for example, a “standstill” deal (or any other kind of free trade agreement) while they negotiate something better.

In fact there is already a standstill deal: the Withdrawal Agreement would keep the UK in the EU’s customs union and single market during the transition (see slide 29 here).

At least now almost everyone recognises that there must be a deal.

The remaining problem here is that Article 24 is described almost as if it were the solution in its own right, rather than the legal basis for a possible solution.

Article 24 doesn’t say anything about what the agreement would cover*, whether the EU would agree, how long it would take to reach agreement, and what happens while the UK and EU are negotiating, if Brexit has already happened with “no deal”.

* Jargon-buster: Article 24 does say the agreement has to cover a lot of trade — “substantially all the trade” — between the countries concerned. This is not defined and is continually debated. There’s only been one legal ruling on what it means. It’s this beauty:

“It is clear, though, that ‘substantially all the trade’ is not the same as all the trade, and also that ‘substantially all the trade’ is something considerably more than merely some of the trade.”

Why do people talk about 10 years?Back to top

This is the source of a lot of confusion.

It comes from a provision in GATT Article 24 that is now never or almost never used. There’s a reason why it’s died out.

Article 24 includes the possibility of an “interim” agreement leading to a final deal.

The discussion has got so confused that some people think Article 24 is only about “interim” agreements (or worse, “provisional” agreements). “Interim” is a variation that is rarely if ever used.

And 10 years? A newer rule says that the “interim” deal should be in place for no more than about 10 years.

The conditions for an “interim” agreement are more cumbersome than for normal deals. As with any agreement, it must have free trade provisions to be implemented, not an agreement in principle.

The additional burden is that the countries concerned have to submit a plan and schedule to show that the final deal can be struck within those 10 years.

When WTO members scrutinise the deal, if they believe the final deal cannot be achieved in 10 years, they can demand changes. The countries in the agreement must either accept the changes or abandon the deal.

Whether that would ever happen has never been tested. Countries now avoid notifying deals as “interim” under Article 24 even if the word appears in the agreement’s title. (There are legal arguments about what is “interim”, but let’s keep this simple.)

Why the confusion?Back to top

A lot of people think that an “interim” agreement can simply be set up by declaring the intention to negotiate a final agreement. Clearly the conditions outlined above mean it cannot.

GATT Article 24 first appeared on the Brexit agenda because Brexit advocate Shanker Singham and MP Jacob Rees-Mogg advocated using the “interim” version and talked about having 10 years to sort out the relationship with the EU.

This gradually gained momentum. Even the latest piece by MP Iain Duncan Smith and former MEP David Campbell Bannerman, on June 21, 2019, still talks about 10 years.

We can keep tariffs at zero for as long as the two partners need to negotiate the full works: that comprehensive FTA. Legally this could be up to ten years, but most are two to three years to negotiate. That is GATT 24.

In fact, it’s simpler to notify an ordinary agreement and replace it with another one when ready. No need for the “interim” rigmarole at all.

In practice, this is accepted by Martin Howe on the pro-Brexit Lawyers for Britain website.

But in the case of a temporary UK/EU zero tariff standstill agreement, there seems to be no need to invoke the provisions relating to “interim” agreements.

His reasons are not because “interim” agreements are complicated but because tariff are already zero and therefore are not phased down.

However records of notifications and discussions in the WTO suggest this is not how the distinction between interim and non-interim agreements is seen in the WTO (see tweets at the end of this).

Any other problems?Back to top

Two.

First, with so much attention paid to GATT Article 24, next to nothing has been said about what the deal would contain.

The best that Duncan Smith and Campbell Bannerman came up with was a one-page agreement containing only tariff-free trade and rules of origin (which determine whether a product is eligible for free trade under an agreement).

It says nothing about all the other obstacles to trade that would appear with Brexit: particularly, product standards and regulations, including on food safety and animal and plant health, and on services — this is GATT after all, not GATS (the agreement on services).

It’s hardly a recipe for a disruption-free Brexit, or as Duncan Smith and Campbell Bannerman call it, a “Clean Managed Brexit”.

The single-page draft was drawn up by Cambridge University law academic Lorand Bartels as a technical exercise, a thought experiment, to show it could be done. Why any one would think this is a good idea in the real world, or that the EU would agree to it, is a mystery.

Worse, Duncan Smith and Campbell Bannerman say the one-pager is proof that Article 24 works — “sufficient to allow Article 24 to apply” — as if Article 24 were the objective, rather than the means of achieving more specific results, which they don’t spell out.

Second, proponents are confident the EU would agree quickly. The EU has said it wouldn’t at all.

And when the EU and UK agreed to postpone Brexit until October 31, 2019, they also agreed that the Withdrawal Agreement would not be re-opened, and the future relationship would not be negotiated during the period.

Therefore, achieving an agreed standstill with the EU is going to take a lot of talking. There are no signs it can be done by October 31 if ever.

Anything else?Back to top

Some points to remember:

If someone says “We want to use GATT Article 24” they are just saying “We want a free trade agreement in goods”. It’s an empty statement that says nothing about the content of the desired deal.

And  when Duncan Smith and Campbell Bannerman write “GATT Article 24 is not only doable, it is desirable”, they are just saying “A trade agreement in goods is better than no deal”.

FinallyBack to top

Finally, some tweets.

On why phased-in tariff reductions do not make an agreement “interim” in WTO practice:


On the Duncan Smith/Campbell Bannerman article:


And on one of Boris Johnson’s statements


And a video


Updates:
November 9, 2019 — adding link to video
June 24–25, 2019 — Added: jargon busters on free trade agreements and customs unions, and on “substantially all the trade”; links to the EU-UK decision on postponing Brexit to October 31, and the EU explanation of the Withdrawal Agreement; additional Twitter threads; minor edits
July 14, 2019 — Added tweet on “progress” and “hoping for more

Credits: Photo: Speed limits for 3-year-olds | Sandy Millar via unsplash


Author: Peter Ungphakorn

I used to work at the WTO Secretariat (1996–2015), and am now an occasional freelance journalist, focusing mainly on international trade rules, agreements and institutions. (Previously, analysis for AgraEurope.) Trade β Blog is for trialling ideas on trade and any other subject, hence “β”. You can respond by using the contact form on the blog or tweeting @CoppetainPU