By Peter Ungphakorn
POSTED JUNE 27, 2019 | UPDATED NOVEMBER 9, 2019
This explanation of GATT Article 24 is pretty heavy-going,
because it looks at a lot of the detail. A much simpler explanation is here.
The myth of a 10-year grace period, Brexit and trade talks with the EU | The Article 24
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GATT Article 24: they still don’t get it (video)
I thought/hoped it would die away, but it features ever more prominently in Brexit news. The current favourite to be the next UK prime minister wants to use it, sparking a huge debate — some of it way off the mark. And yet, we really don’t need to be talking about it at all.
“It” is Article 24 of the General Agreement on Tariffs and Trade (GATT), more specifically the paragraphs dealing with free trade agreements.
The bottom line is this: GATT Article 24 governs free trade agreements in goods. Politically, the article is unimportant and should never have been brought into the debate.
So if Article 24 is unimportant, what is important? These questions 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?
Here are answers to frequently and rarely asked questions about it, based on this Twitter thread:
This is paragraph 5 of GATT Article 24:
General Agreement on Tariffs and Trade (GATT) Article XXIV:5
5 Accordingly, the provisions of this Agreement shall not prevent, as between the territories of contracting parties, the formation of a customs union or of a free-trade area or the adoption of an interim agreement necessary for the formation of a customs union or of a free-trade area; Provided that:
(a) with respect to a customs union, or an interim agreement leading to a formation of a customs union, the duties and other regulations of commerce imposed at the institution of any such union or interim agreement in respect of trade with contracting parties not parties to such union or agreement shall not on the whole be higher or more restrictive than the general incidence of the duties and regulations of commerce applicable in the constituent territories prior to the formation of such union or the adoption of such interim agreement, as the case may be;
(b) with respect to a free-trade area, or an interim agreement leading to the formation of a free-trade area, the duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of such free-trade area or the adoption of such interim agreement to the trade of contracting parties not included in such area or not parties to such agreement shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation of the free-trade area, or interim agreement as the case may be; and
(c) any interim agreement referred to in subparagraphs (a) and (b) shall include a plan and schedule for the formation of such a customs union or of such a free-trade area within a reasonable length of time.
GATT doesn’t cover services
GATT only deals with trade in goods. If you only talk about GATT Art.24, you are excluding any agreement in services. If you want to include services, the equivalent is GATS Art 5
General Agreement on Trade in Services (GATS)
Article V:1 and V:4 Economic integration
1. 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(1), and
(b) provides for the absence or elimination of substantially all discrimination, in the sense of Article XVII, between or among the parties, in the sectors covered under subparagraph (a), through
(i) elimination of existing discriminatory measures, and/or
(ii) prohibition of new or more discriminatory measures,
either at the entry into force of that agreement or on the basis of a reasonable time-frame, except for measures permitted under Articles XI, XII, XIV and XIV bis.
4. Any agreement referred to in paragraph 1 shall be designed to facilitate trade between the parties to the agreement and shall not in respect of any Member outside the agreement raise the overall level of barriers to trade in services within the respective sectors or subsectors compared to the level applicable prior to such an agreement.
Thankfully, for services there is no “interim” version, unlike for goods (see below)
Start with GATT Art.1
Some do, many don’t even realise GATT Art.1’s the reason for having GATT Art.24.
This is about treating trading partners equally — non-discrimination. If the UK allows imports in from the EU duty-free it must do the same “immediately” for all other WTO members. As we’ll see, there are exceptions.
Here’s GATT Article 1 (“contracting parties” now means WTO members):
General Agreement on Tariffs and Trade (GATT)
Article I:1 General Most-Favoured-Nation Treatment (MFN)
1. With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III,* any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.
GATT Art.24 is an exception to Art.1. Countries can have free trade agreements in goods (including customs unions), without applying the free trade to other WTO members. They can discriminate. But the agreement must comply with conditions in Art.24.
(Agreements between developing countries can comply with a more lenient rule known as the “enabling clause”. This blog post only looks at GATT Art.24 because the enabling clause doesn’t apply to the UK.)
- complying with the obligation to be transparent (share information with the rest of the WTO, paragraph 7)
- for the agreement to cover “substantially all the trade” between countries in the agreement (paragraph 8, but not clearly defined)
- ensuring the deal does not make its participating countries more protectionist than before (paragraph 5, again not clearly defined)
(Those paragraphs, with jurisprudence, can be found here.)
Saying ‘We want to use GATT Art.24’ means ‘We want a deal in goods that complies with WTO rules’
If it doesn’t comply with Art.24, the free trade agreement is invalid. In that case, non-discrimination (MFN or GATT Art.1, see above) means the countries involved must impose the same tariffs on imports from each other as they normally do on imports from other WTO members.
So, with “no deal”, the UK and EU will have to charge the same import duties on each other as on imports from the US, China, etc. Note GATT Art.1 says “immediately”.
In other words: saying “We want to use GATT Art.24” means “We want a deal in goods that complies with WTO rules”
It can be any kind of deal that includes goods — short term/long term; one page/10,000 pages; EU customs union, European Economic Area (EEA); EU-Japan, US-Mexico-Canada (USMCA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Withdrawal Agreement, Backstop — anything.
Complying with GATT Art.24
Brexit with a UK-EU trade deal in goods means complying with GATT Art24, whatever the model: EEA, Norway, Switzerland, customs union, Canada+++.
Even the Withdrawal Agreement comes under Art24: it has a customs union.
How about this then? Scrap the Withdrawal Agreement —> leave with no deal but with a “standstill” invoking “interim” provisions of Art24, then —> negotiate a new deal? Would it work?
No. It doesn’t work. No deal means:
GATT Art.24 doesn’t apply —> So GATT Art.1 (MFN) kicks in —> Tariffs have to go up “immediately” —> There’s no standstill.
Plus, you can only have an “interim” agreement if you have an agreement. That means the EU has to agree too. The EU’s Cecilia Malmström has said it won’t. But perhaps it’s bluffing. Or perhaps not.
At least almost everyone now understands there has to be a deal. That was not always the case.
No negotiation before October 31
There’s already a short term ‘standstill’ — the customs union (and single market membership) preserved during transition in the Withdrawal Agreement
Remember the UK and EU have already agreed a short term “standstill”. It’s the customs union (and single market membership) preserved during transition in the Withdrawal Agreement.
And when they delayed Brexit until to October 31 they agreed that that the Withdrawal Agreement would not be re-opened and the that talks on the future relationship cannot start during the extension.
(12) This extension excludes any re-opening of the Withdrawal Agreement. Any unilateral commitment, statement or other act by the United Kingdom should be compatible with the letter and the spirit of the Withdrawal Agreement, and must not hamper its implementation. Such an extension cannot be used to start negotiations on the future relationship.
(13) The European Council will review progress sat its meeting in June 2019
— European Council Decision taken in agreement with the United Kingdom
extending the period under Article 50(3)TEU, April 11, 2019
That means negotiating a different standstill under GATT Art24 (interim or otherwise) may not be possible until after Oct 31. How long will it take to reach a new agreement with the EU, just for a standstill while longer term talks start?
I’m not an expert on EU law, but any talks after Brexit on October 31 are no longer under Article 50 of the Treaty on European Union. That seems to mean EU individual member states’ national and regional parliaments may have some say. It could be a more fragmented process.
It seems this is not straightforward, since qualified majority voting (QMV) may be involved (see tweets below).
More on ‘interim’
Before I move on, “interim” is often misunderstood. GATT Art.24 does allow an “interim” agreement to be set up, leading to a final agreement.
Far too many people now think GATT Art.24 is only about “interim” agreements. Far from it. If you look at paragraph 5, you’ll see that they are exceptional. In practice they’re more or less no longer used, as we’ll see.
First, like any GATT Art.24 deal, it has to be a proper agreement.
Second, because it’s “interim”, the countries concerned also have to supply the rest of the WTO’s membership with a plan and schedule showing that the final agreement can be achieved within about 10 years. The other members can demand changes.
The simpler solution is to have one agreement, continue negotiating, and replace it when the new one is agreed
That makes it more cumbersome than an ordinary agreement and is a reason why it’s rarely (if ever) used. The simpler solution is to have one agreement, continue negotiating, and replace it when the new one is agreed.
An agreement with phased-in tariff cuts or staged implementation is not automatically “interim” as claimed, for example by Lawyers for Britain, at least as far as practice in the WTO is concerned.
Such “interim” agreements can be used when tariffs are phased out over a period of time rather than being abolished overnight. So for example when the Treaty of Rome first came into force in 1957, it did not initially comply with the definition of a customs union because that definition requires tariffs between the members to be zero. But they did not actually get down to zero until the end of the phasing 1968.
An agreement for a phased reduction of tariffs over a period of time to be followed by a separate customs union agreement or FTA is an “interim” agreement within Art.XXIV, and so it seems at least during the phase-in period is a single agreement providing for phasing followed by zero tariffs, although there is some debate about that: for more detail on this issue, see ‘Interim Agreements’ under Article XXIV GATT by Lorand Bartels, World Trade Review (2009), 8: 2, 339-350
It’s unclear if the Treaty of Rome was ever notified to the WTO as an Art24 “interim” agreement. The consolidated version of the Treaty on European Union certainly was not.
The 2010 EU-S.Korea free trade agreement is implemented over 20-years, 2011–2031 — double the 10-years normally set for “interim” deals under Art24 — with various parts phased in over different periods.
It was not notified as “interim”. Nor was it ever discussed as an “interim” agreement in the WTO’s Regional Trade Agreements Committee — where the full WTO membership oversees free trade agreements.
Searching the committee’s minutes for when it discussed the EU-S.Korea deal produces no results for “interim”. It was never an issue at all.
By contrast, when WTO members first examined the EU-Chile Association Agreement, the minutes of that meeting call it the “EC-Chile Interim Agreement”. But the discussion shows clearly that this is not a temporary agreement on trade in goods to be replaced by a final one when negotiations finish. It’s a “fully-fledged” agreement, with phase-in provisions. Here are extracts of an exchange between Australia, the EU and Chile:
Australia: … it was stated that the Agreement was valid for an unlimited period and she wondered how that related to the ten year period: would the Agreement be notified to the WTO at that stage, would it be reviewed throughout the ten year period and was there a mechanism to speed it up to become a fully-fledged FTA [free trade agreement]? …
EU: … perhaps there was a misunderstanding about the nature of the Interim Agreement. It was not “interim” in that it would cease to exist at some point and another agreement would be negotiated in its place. Rather, the Interim Agreement provided a means to provisionally apply the goods provisions which had been notified to the CTG [Council for Trade in Goods] and were now subject to review in the CRTA [Committee on Regional Trade Agreements]. Once ratification had been completed in national parliaments, the Association Agreement would enter into force. So, the entry into force and the ten year transition period were incorporated in the entire Agreement. Once it had expired there was no other transition period in the Agreement. He stressed that from the perspective of his delegation, the goods parts of this Association Agreement which had entered into force prior to the ratification by EC Parliaments, provided for the establishment of a fully-fledged FTA. In addition, it included a number of evolutionary clauses which were basic top-ups. He hoped that this cleared up any misunderstanding of what the Agreement contained.
Chile: … the Agreement had been signed for an unlimited period which was different from the transition period of ten years. It was of unlimited duration, unless some sort of escape clause existed.
In fact when the EU-Chile agreement continued to be examined over the next two years, the title of the minutes was changed. “Interim” was dropped and the meeting was simply an “examination of the Association Agreement [between the EU and Chile]”.
When the EU-S.Korea agreement came up seven years later, the word “interim” was nowhere to be seen.
Lorand Bartels of Cambridge University says the EU sometimes calls agreements “interim” even if they are not “interim” under GATT Art.24. There is some discussion of what exactly the legal situation is (see section 3 of Bartels’ 2009 paper).
In practice, the supposed 10-year deadline for interim agreements is now totally ignored both by the parties to the agreements and by commenting WTO members.
So, too, is any notion of an “interim” agreement.
(See also this bit of fun)
Should Leavers who are content to leave with no deal be interested in GATT Art24?
- YES, if they want trade deals with any other WTO member or group such as the US, China, Japan, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
- NO, if they don’t want trade deals with anyone.
This may come as a surprise, but Remain or “Revoke Art.50” also involves GATT Art24. The UK’s membership of the EU Customs Union and Single Market comes under both GATT Art.24 (for goods) and GATS Art.5 (for services).
Imagine a conversation like this:
“We want to use Art24”
“Really? You mean the one we already use?”
In short, as I said at the beginning, GATT Art24 is really not worth mentioning, unless the UK and EU intend to violate WTO rules.
All it says is the UK and EU are going to have a free trade agreement in goods. Much more important to focus on the content.
“Art XXIV is the WTO basis for all preferential trade agreements from my one pager to USMCA, the EEA, the EU and any other you care to name. think of it as the paper you write agreements on. Not worth discussing.”
So after all that, can we please stop talking about GATT Article 24? Please?
Did you know?
- There are lots of them. The WTO’s database of free trade agreements currently lists 264 deals in force and notified under GATT Article 24.
- The UK is one of the heaviest users of GATT Art.24. Out of those 264 deals, the UK has signed 49 (including the EU customs union and EU enlargement), almost 20% of the total. (For the UK, that will change with Brexit.)
- They can be huge. The latest GATT Art.24 agreements notified to the WTO (at the time of writing) include some of the largest in the world (aside from the EU’s customs union and single market). They include EU-Japan, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
And some tweets
On the October 31 deadline:
On Boris Johnson’s reference to “GATT24”
On an article by Iain Duncan Smith and David Campbell Bannerman:
And on the one-page agreement now being promoted by several members of Parliament:
Updates: November 9, 2019 — adding link to video. July 14, 2019 — Adding tweet on “progress” and “hoping for more”
Main image: montage using CC0 images from Pixabay