Among the arguments that politicians are making about the Irish border are the claim either that WTO rules require countries to control their borders, or that the UK can drop border controls and wait to see what Ireland does. One is partly false, the other totally.
By Peter Ungphakorn POSTED JULY 18, 2018 | UPDATED JULY 19, 2018
On Monday (July 16), MP Anna Soubry launched a vigorous attack in the House of Commons against hard-line Brexiters. There was a lot of truth in what she said, except on one point.
She turned to the likelihood that if the UK simply trades with the EU on WTO terms, and without an adequate form of free trade agreement, it will have to impose border controls on trade between the Republic of Ireland and the North.
WTO “rules say every member must secure their borders,” she said.
Two days later Independent.ie reported that the Irish government was “gearing up for a major confrontation with the World Trade Organisation (WTO) over the commitment to retain a soft Border in Ireland in the event of a no-deal Brexit”.
It went on: “Government sources say they are prepared for major confrontation with WTO officials, who will insist on a Border with the North as part of strict trade laws.”
The truth is that whatever happens, there will be no confrontation with the WTO or its officials.
Soubry’s comment was partly a reaction to some Brexiters claim that when trading purely under the WTO rules, the UK can simply decide not to check trade crossing the land border into Northern Ireland. It would be up to Ireland, according to this argument, to decide whether to set up its own checks, add friction and infrastructure to the border and put the Good Friday Agreement at risk, or to follow the UK.
Soubry was right in one respect. There is a problem with those Brexiters’ claim. Time to look at the rules.
What WTO rules say
First, a fact:
There is no rule in the WTO requiring its member governments to secure their borders.
After Brexit, the UK could drop all border controls for traded goods and services and it would be perfectly within its WTO rights.
And yet there was some truth in what Anna Soubry said. Independent.ie was much farther off the mark. And the hard Brexiters are completely at sea.
The WTO does not tell countries what to do other than to keep their promises (abide by the WTO agreements and their WTO commitments)
Even when countries break their WTO promises, there is no “confrontation” with “the WTO” and least of all with “WTO officials”
The WTO is member-driven. If in the future other WTO countries believe the UK is violating an agreement, it is they, not the WTO bureaucracy, who will act. They can do so by complaining in a WTO meeting or filing a legal challenge in WTO dispute settlement
Since there is no WTO rule requiring governments to secure their borders, failing to do so would not break any specific agreement
Where the UK might run into trouble is under the WTO’s non-discrimination rules, particularly “most-favoured-nation” treatment (MFN), which means treating one’s trading partners equally
Suppose the UK and EU trade on WTO terms after Brexit. Suppose American apples arriving in the UK at an English port have to go through controls, but Irish apples crossing the border into Northern Ireland (also the UK) do not. Then the US could complain that its apples were discriminated against. They weren’t given equal treatment with Irish apples when they entered the UK.
Most-favoured-nation (MFN) treatment is probably the most important WTO rule.It means not discriminating between one’s trading partners
• Article 1 of the General Agreement on Tariffs and Trade (GATT), for trade in goods • Article 2 of the General Agreement on Trade in Services (GATS) • Article 4 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
But in each agreement the principle is handled slightly differently
The US might seek a legal ruling in WTO dispute settlement. Months or years later, the ruling might conclude that the UK had discriminated. So either checks at the English ports would have to be dropped, or checks at the Irish border would have to be set up.
In other words, while no WTO rule actually says the UK will have to set up border checks, the non-discrimination rule may force it to.
That’s quite different from saying “every member must secure their borders”. In a system where nuance matters, the difference is important.
(Note the “might” and “may”. It’s possible that an in-depth legal ruling might disagree with the US’s claim in that example. After all, the difference is at the ports and not with the products themselves, although the US could counter that having to ship through Ireland in order to avoid checks adds to its costs. Until there is a real case we cannot say for certain. But legal opinion seems to take the view that the UK would be violating non-discrimination.)
There may be an alternative way to do this within WTO rules, only let’s not take this too seriously just yet, not least because there are conflicting opinions.
I’m not a lawyer but some trade lawyers have discussed the possibility. This is what I understand.
The idea is that the UK and EU could cite national security as a justification for breaking the non-discrimination rule at the Irish border.
London and Brussels (and Dublin) could seek a “waiver” in the WTO for the purpose, citing security exception clauses such as Article 21 of the General Agreement on Tariffs and Trade (GATT).
For this to be agreed in the WTO, at the very least both Britain and the EU would have to agree. It would probably have to apply only to Northern Ireland, not the whole United Kingdom, meaning there would probably have to be controls between Northern Ireland and the rest of the UK.
The national security argument would be undermined if controls were dropped only on one side of the border. The UK and Ireland would need to confirm that they were both acting in the security interests of the Good Friday Agreement, which they both signed. Otherwise, acting unilaterally would put the UK into conflict with WTO non-discrimination rules.
Some lawyers disagree. Shortly after this article was posted, Mark E Herlihy of Georgetown University challenged the idea that GATT Article 21 could be cited, although he said the UK and EU could obtain a waiver in the WTO.
“A waiver could be sought for what otherwise would be violations of non-discrimination obligations at the Irish/NI border, but that waiver could not be based on ‘national security’ under Art. XXI, which is narrow, and has no application here,” he tweeted.
A very useful intervention. One caveat: a waiver could be sought for what otherwise would be violations of non-discrimination obligations at the Irish/NI border, but that waiver could not be based on “national security” under Art. XXI, which is narrow, and has no application here
Whether or not this is legally safe, there are a number of political problems. The most obvious is securing agreement from the EU and Ireland. Simply acting within WTO rules only the start. A number of other political and administrative complexities are involved, which are beyond the scope of this article.
And if the chosen route is “national security” then this is complicated by the fact that both the UK and EU are accusing the US of abusing the national security provision by citing it to justify tariffs on aluminium and steel.
Those political problems alone, particularly getting the EU and Ireland to agree, might prevent the idea from being considered seriously.
• July 19, 2018 — comments from Mark Herlihy added, with minor tweaks to other parts of the final section
People’s views of geographical indications range from cherishing them as precious cultural heritage and commercial property, to annoyance and scorn. They are complicated. Every argument has a counter-argument
By Peter Ungphakorn POSTED MAY 5, 2018 | FIRST PUBLISHED ON UK TRADE FORUM APRIL 3, 2018 | UPDATED MAY 7, 2018
Among the thousands of policy questions facing Britain after it leaves the EU is what its approach should be for geographical indications. These are names — like Melton Mowbray pork pies, Rutland bitter and Bordeaux wine — that are used to identify certain products. The UK’s policy will affect both its own and other countries’ names.
People’s views of geographical indications range from cherishing them as precious cultural heritage and commercial property, to annoyance and scorn.
What are they? And what are the decisions facing the UK? This is an attempt to explain them simply. It’s in two main parts with a small third part tacked on.
Part 1 is the basics. Part 2 looks beyond that at policy. Meanwhile the waitress above mentions 10 types of food and drink. How many are geographical indications? The answer is in Part 3 at the end.
They are names used to define boththe originand the quality, characteristics or reputation of products.
Origin is not enough. A cheese made around Roquefort-sur-Soulzon in southern France cannot be called Roquefort unless it is blue, made from sheep’s milk and meets a number of other criteria.
What do they apply to?
The vast majority of geographical indications are on food and drink, particularly wines and spirits. This is because soil and climate conditions can contribute to the products’ specific qualities.
Some countries protect other types of products as well. For example “Native Shetland Wool” (agricultural but not food) in the UK, “Swiss” watches (non-agricultural) in Switzerland, and some types of carpets and other handicrafts around the world.
Thailand would even like a service to be protected — traditional Thai massage — but internationally geographical indications are only used with goods.
Are they always place names?
Usually the terms used are place names, but sometimes they are other words associated with specific regions.
For example basmati is a long-grain fragrant rice variety and not a geographical name. However, it is associated with the Punjab regions of India and Pakistan, although its status as a geographical indication is debated (the EU doesn’t recognise it) because it is grown elsewhere too.
How do they relate to rules of origin?
This has absolutely nothing to do with rules of origin, which are about customs procedures — determining whether a product can be called “made in” a certain country and therefore should qualify for duty-free trade or other special treatment under trade agreements.
Geographical indications are a type of intellectual property, a form of “branding”, along with copyright, trademarks and others, because the products’ characteristics are the result of production techniques as well as location.
Why protect them?
Protection is intended to benefit both consumers and producers. The EU speaks of ensuring a product is “authentic” (for consumers), and providing a marketing tool to give producers “legal protection against imitation or misuse of the product name”.
Under WTO rules, the objective is to avoid misleading the public and unfair competition.
How much protection?
The bottom line for the WTO’s 164 members (including the EU and UK) is what is required in its intellectual property agreement (known as TRIPS or Trade-Related Aspects of Intellectual Property Rights). The agreement only sets minimum standards. It does not deal with individual names. How countries meet the standards and which names they protect is left up to them through their different legal systems.
In general (Article 22), countries have to protect geographical indications to avoid misleading the public and avoid unfair competition. By this criterion, “Californian champagne” should be fine since consumers would be clear that this did not come from the Champagne region of France. But …
For wines and spirits (Article 23), protection is taken to a higher level — even if there is no danger of misleading the public or creating unfair competition. So “Californian champagne” is no longer valid. Except that …
There are a number of exceptions (in Article 24). These include if a term has become generic — cheddar cheese is clearly one case since it’s been made around the world for decades, if not longer. Also an exception is when the name was registered as a trademark before the WTO’s agreement was negotiated (“grandfathering”) — Parma ham has long been a trademark in Canada, an irritant for Italians who were unable to sell Prosciutto di Parma there until recently. The EU has waged a long-running and still unresolved battle with the US over the use of “Champagne”.
When the EU negotiates for its geographical indications to be protected in other countries, part of the effort is about reclaiming names that have become generic — or more vividly to “clawback” names that have been “usurped”. Feta cheese is one case. This 73-page document is what the EU and US have agreed for wines.
PART 2 POLICY
How are geographical indications protected?
The names are usually the property of groups of producers or regional or national authorities, not individual companies.
How they are protected depends on where, and this matters for the UK’s future relationships, such as how it seeks to have its own names protected abroad.
The European Union probably has the most detailed and sophisticated system. Stricter criteria apply to “protected designation of origin (PDO)” and only some products are eligible. A wider category is “protected geographical indications (PGI)”. A third, “traditional speciality guaranteed (TSG)”, emphasises the production method.
The EU’s database of wines contains over 1,700 EU geographical indications (some still being considered), and just over 1,000 from non-EU countries. Only five are British.
For spirits there are 270 geographical indications including some whose protection is being considered. Only four are non-EU. Two are British: Scotch whisky and Somerset cider brandy. Part-British is Irish whiskey made anywhere on the island of Ireland.
For other products, there are almost 1,600 “registered”, “published” or “applied for” geographical indications from both EU and non-EU countries; 79 are British.
At the other extreme used to be Norway. A few years ago, WTO members were asked to fill in a questionnaire with some examples of geographical indications they protected. Norway said it couldn’t be sure because it used consumer protection law rather than a register of names, meaning a term would have to be in a court case to know for certain.
Some countries use specific geographical indications laws and registers. Some use consumer protection. In the US and many others protection is by trademarks and certification marks. There are even variations of approach within the EU. The UK told the WTO that it uses common law (“tort of passing off”) for some terms and trademark law for others, although fundamentally the UK is applying EU law. (See the annex in this now out-of-date WTO document.)
What does the UK face with the EU?
In theory, when the UK leaves the EU it will be free to decide how it protects geographical indications and which names to protect, so long as it complies with the WTO principles.
Will the UK move away from the EU’s near-obsession with geographical indications? It might not have too many wines, but it does have Scotch whisky and a lot of food products.
This is likely to mean the UK setting up its own lists of protected geographical indications with associated legislation.
What does the UK face with other countries?
Beyond the EU, the world of geographical indications has sometimes been described as a divide between old world countries, with traditional methods and products they want to protect, and the new world whose immigrant populations brought those techniques with them. It’s a bit more complicated than that. For example Taiwan is in the so-called new world group and some US producers now want protection for their own products, from wines to Idaho potatoes. But there is some truth in it.
In negotiations with some countries such as other Europeans, India and so on, the UK will be under pressure to protect their names. With others such as Australia, Canada, New Zealand, the US and some Latin American countries, the UK may be the one making the most demands to protect its names.
The EU has deals on geographical indications with other countries, either as part of free trade agreements or separately. With Brexit, the UK wants to roll the EU’s free trade agreements over into its own, and may want to do the same with the deals on geographical indications. To do that will require either negotiation with the other countries or confirmation by them.
The EU and its allies want the register to have some legal effect: if a name is on the register, then that should have some legal implications in all WTO members. The US and its allies see the register as little more than a database of information, which countries would be free take into account (or to ignore) when they decide whether to protect a particular name.
Although this has been discussed at length in the WTO, members still have not even agreed whether it is officially a negotiation. A large number of countries support the move, but in some cases for complex bargaining reasons. The US, Australia and so on oppose it on the grounds that it would be too burdensome and restrictive, and that the standard level (Article 22) is good enough.
The UK will have to decide how to approach these questions, and also the WIPO treaties on geographical indications.
Some GI titbits
Geographical indications are complicated. Every argument has a counter-argument so they are a perfect playground for intellectual property lawyers, as the endless and bottomless debates in the WTO show. Here are some illustrations.
“-style”? Or “-method”? If “Bulgarian yoghurt” can only be made in Bulgaria, what about “Bulgarian-style” yoghurt? One view is that this is a useful indication of what the product is, helping rather than confusing consumers.
Against that is the argument that “Bulgarian-style” has no owner and no definition. The term could be abused. The reputation of yoghurt associated with “Bulgaria” would be damaged, hurting both consumers and genuine Bulgarian producers. The poor reputation of parmesan cheese made outside Italy is a real-life example.
After all, one of the features of geographical indications is that they have owners responsible for maintaining the quality and reputation. The loose term “Bulgarian-style” would not have that.
Orange: homonyms and more
Several places could have the same name, or names that sound the same (homonyms). The WTO agreement broadly covers that, but homonyms can still get pretty complicated. In late 2000 Australia entertained WTO delegates with an analysis of “Orange”. It’s a place name on five continents, some with vineyards producing what could be called “Orange wine”. And then there’s wine made from oranges. Orange is also a colour and a phone company’s trademark. It’s linked to words in other languages, including Persian where the fruit is named after Portugal, and so on. (See page 6 of this.)
Champagne: Swiss and Indian
A small village in northern Switzerland is called Champagne. It used to produce a still white wine with the name, but not since 2005. Pressure from France put an end to that. Meanwhile, in the WTO debate on “extension”, a US delegate once remarked wryly that Darjeeling tea, a claimed geographical indication, is advertised as “the champagne of teas”.
Gruyère Gruyère is a region in Switzerland surrounding the medieval village of the same name. The cheese was first made there in 1115. It’s now been produced elsewhere for generations and the name has become generic, sometimes using “Gruyère” or an equivalent in another language.
Gruyère is not in France. Nevertheless, France has managed to register “French Gruyère” produced in a dozen departments as a protected geographical indication in the EU. Despite the stereotype of Swiss cheese, authentic Gruyère has no holes. But the French version does: it “must have holes ranging in size from that of a pea to a cherry”, according to the EU regulation.
But is it protected in the EU? The 2011 bilateral agreement between Switzerland and the EU says it is, along with a number of other Swiss products. As an illustration of how complicated these names can be, in the agreement, Switzerland and Greece also promise not to translate “graviera” (γραβιέρα) as “gruyère” and vice versa.
However there seems to be no internal EU law or regulation confirming this — not yet anyway — and nothing Swiss appears in the “DOOR” database of products other than wines or spirits. We can only assume the bilateral agreement holds.
This is one of the most-debated names in the WTO. The minutes of this meeting contain 14 pages of debate in which “feta” appears 50 times. Similarly for these meetings. Is it eligible for protection? Is it generic? Where exactly is its origin? Greece, Bulgaria, Denmark even? Is the legal situation in the EU contradictory? Should migrants to Australia be allowed to continue to use the name for the cheese that their ancestors made? Is feta actually produced in Australia by immigrants or by large companies?
At the top of this article, the waitress refers to 10 types of food and drink (not counting the general “lamb” and “cheese”). Some are geographical indications, some are not:
Geographical indications protected in the EU and therefore the UK — Cornish pasty; Tiroler Bergkäse; Caerphilly; French Gruyère; Amarone della Valpolicella; Armagnac. The EU has agreed to protect Le Gruyère from Switzerland but this does not (yet) appear in the EU’s database.
Names that are generic in the EU/UK — Cheddar (except “West Country Farmhouse Cheddar cheese,” which does include the original Cheddar area in Somerset, and “Orkney Scottish Island Cheddar”, from over 1,000 km away)
Not geographical indications in the EU/UK — New Zealand lamb (although “Scotch lamb” is); Evian (Evian is a place, a lakeside French town at the foot of the Alps, but the name is a trademark for bottled water)
Updates: May 7, 2018 — references to Switzerland’s “Le Gruyère” have been corrected to reflect protection in the EU under the 2011 bilateral agreement and to remove the assertion that the name is not protected because it’s not in the DOOR database. (Thanks to Christian Häberli for pointing me to the bilateral agreement and the US certification mark)
• Waitress — Steven Cleghorn on Unsplash, CC0 (public domain)
• Wine, cheese and parma ham — Lana Abie on Unsplash CC0
• Champagne — Pexels CC0
• Gruyère; wine from Champagne in Switzerland — Peter Ungphakorn CC BY 4.0
• Watercress and chives on bread — silviarita on pixaby CC0
• Darjeeling tea montage — black tea leaves, photo by Oleg Guijinsky on Unsplash CC0; Darjeeling tea, first flush 2007 Risheehat Estate, photo by David J Fred CC BY-SA 2.5
• Feta — JJ Harrison CC BY-SA 2.5
On Sunday (March 4), the Swiss go to the first of four polls scheduled this year. It’s an opportunity to take a quick look at how referendums are handled in Switzerland.
The jewels in the crown are not just the power given to the people, but also the clear, simple, comprehensive and impartial explanations that accompany the ballot papers.
This is part of a systematic process that includes scrutiny, checks and balances. Years of experience allow the Swiss to handle it all professionally and efficiently, up to four times a year — dates have been set in advance for every quarter all the way to 2037!
The issues can be pretty big. On the ballot papers this weekend is a proposal to scrap the radio and television licence fee, which would probably end Swiss public broadcasting as we know it. It looks likely to be rejected, but no one’s taking that for granted.
It’s not the only subject put to the citizens. What the Swiss vote about depends on where they live. Nationwide there are two issues: the broadcasting licence fee and a constitutional amendment to extend the government’s right to collect national direct taxes and value-added tax for another 15 years.
There are also cantonal issues. In French-speaking Vaud — capital Lausanne — voters are being asked to decide whether to create a cantonal insurance scheme for dental treatment, because compulsory private health insurance doesn’t always cover it.
The canton manages the voting in all issues. This (pdf, in French) is Vaud’s announcement setting out the details of Sunday’s vote.
In some towns and villages there might also be votes, although these can take place on different days. Real examples range from resurfacing the high street to shifting allegiance to another canton.
This is all part of the Swiss system of direct democracy where power comes from its citizens, from the villages and towns, then the cantons and finally the confederation.
And I’m not saying the system is perfect, or that it could or should be copied anywhere else in the world. Every country is unique. But I will say that those accompanying explanation booklets have been developed into a fine art of user-friendliness.
The Swiss themselves complain about too much voting and how it delays decision-making. Turnout tends to be low, although research suggest most people vote sometime even if only a few vote every time.
And here’s an interesting statistic from swissinfo.ch: “The proposal to abolish the licence fee is the 210th people’s initiative to be voted on in Swiss history. Twenty-two have been approved in nearly 130 years.”
Referendums, initiatives and counter-proposals
Switzerland distinguishes between referendums and popular initiatives. A referendum is required for any proposal to change the constitution or a major law — the proposal usually comes from the government and is “referred” to the people.
The vote on tax collection is a referendum. The Swiss constitution contains a quirk. It sets a time limit on the government’s authority to collect taxes. The federal government’s authority expires in 2020 (see unofficial translations of article 196 paragraphs 13 and 14 on the time limit, article 128 on federal direct tax, and article 130 on value added tax).
The government wants to extend that for 15 years to 2035. It had wanted an indefinite extension but during consultations it found only a minority supported that, while another minority felt 15 years was too long. So it settled for 15 years. The referendum text was finalised on June 16, 2017.
The vote on the TV licence is not strictly-speaking a referendum. It’s a “popular initiative”. This is when any proposal that acquires 100,000 verified signatures has to be put to a vote.
But before the public gets to vote, the government looks at the initiative. Sometimes this leads to a negotiation in which a compromise is struck and no vote is needed. Sometimes the government produces a counter-proposal.
But on the TV licence the government considered the proposal and rejected it. Parliament did too. The lower house voted 129 against, 33 for, with 32 MPs abstaining. In the Senate the vote was 41 against, 2 for with 1 abstention. So both the Cabinet and parliament are recommending the public to vote against the initiative.
An interesting point: the proposal to scrap the licence fee came from the far-right Swiss People’s Party, which then collected the signatures. It’s the only party to support the proposal and unsurprisingly it was outvoted in parliament.
The Swiss seven-member Cabinet represents all the main parties in parliament across the spectrum from left to right. Two of those members are from the Swiss People’s Party but the Cabinet majority also rejected the proposal.
The Vaud cantonal vote on insurance for dental treatment is also a popular initiative, although it does require an amendment to the Vaud constitution (it would add a new article 65b to article 65, which deals with public health — see French text).
It’s supported by left and centre-left parties and one from the centre right, opposed by the rest of the right, and with the required 15,000 signatures. The initiative has a history of almost 10 years, summarised below.
The ballot package
Two or three weeks before polling day the ballot papers arrive. The default method of voting is now postal, although many people just pop down to the municipal offices and leave the envelopes in a special box.
The package of papers includes more than the voting slips. In Vaud for this vote there are also three slim booklets.
The explanations include summaries of the proposals, background information, relevant facts and figures, the history of the proposal, the arguments and counter arguments, what happened in parliament and in the government, the implications and how the proposal would be implemented.
Take the initiative on dental insurance. It starts with a summary of the proposal, continues with the general context, including how much dental care costs to households in Switzerland compared with other OECD countries, how the proposal would be implemented if it is passed and how much it would cost (and what costs are unknown), the various steps the proposal has passed and the debates in the Vaud parliament and government. All of this in 12 pages of an A5 (half A4) booklet, and all written clearly and simply.
We learn that the proposal was first discussed in the Vaud parliament almost a decade ago, in the 2009–2010 session, which demanded an official study. This focused on dental health of under 18-year-olds and in 2013 made some recommendations to strengthen dental healthcare.
By July 2014 supporters had acquired the necessary 15,000 signatures. The cantonal government launched a consultation and prepared a draft text to put to the vote. It also produced a counter-proposal that would to increase some support for dental care, financed by a fee on salaries and a cantonal tax on sugary drinks.
But this did not pass scrutiny by the cantonal parliament and a committee in 2017. Parliament rejected the counter-proposal and recommended voting against the initiative. However the initiative is supported by left and centre parties, which have a majority in the cantonal government. The government therefore decided to support the initiative although a minority of its members voted against.
In the booklet, the cantonal parliament has the last word with a recommendation for voters to reject the initiative. But in the end it’s the voters who will have the real last word.
This is pretty informative, but for some people it might not be enough, or rather, it might even be too much.
A third booklet allows them to cut to the chase. It lists all the main parties and their positions on each of the three subjects. Voters can simply do what their preferred party suggests!
The lists show all parties support the tax proposal, and all but the Swiss People’s Party oppose scrapping the TV licence. Four parties support the Vaud dental insurance proposal: the coalition of the left, Social Democrats, Greens and the Christian Democrats. Three oppose it: the Liberal-Radicals, Swiss People’s Party and centre-right Liberal Greens.
Meanwhile the debates have raged in the media as they would in any country. Switzerland has one of the most expensive TV and radio licences in the world. Its national broadcaster serves a small population of only about eight million, divided into four language zones, each requiring two or three TV channels, and several radio services, although the fourth language, Romansh, has to make do with a much smaller service.
Despite the cost and new patterns of media consumption, the defence is strong. Yodellers and rappers were among 5,000 artists and 50 organisations who issued a statement calling for the licence fee and national broadcaster to be preserved in the interests of cultural identity and diversity. They may prevail.
Updates: March 3, 2018 — added Vaud parliament recommending voters reject dental insurance initiative, added links to Swiss, Vaud parliament and Vaud government pages
March 4, 2018 — added poll results, and the statistic on the small number of initiatives that pass.
• Alphorns: cmooreinswitzerland CC0.
• Chart and photo of ballot papers: Peter Ungphakorn
A year ago, two-thirds of the WTO’s membership had ratified the Trade Facilitation Agreement, activating it in the ratifying countries. What’s happened since then?
By Peter Ungphakorn FEBRUARY 22, 2018 | UPDATED FEBRUARY 22, 2018
A year ago today, the World Trade Organization’s Trade Facilitation Agreement took effect in the ratifying countries amid a blaze of publicity, two decades after it was first proposed.
It was the first new WTO agreement since the late 1990s and its potential benefit was huge, particularly for implementing countries and particularly if their own procedures for handling imports and exports at the border were cumbersome.
It was also the first agreement to allow developing countries to link what they were prepared to do with receiving assistance from richer countries and donor organisations.
But the promise of the streamlined customs and other processes was conditional. For the full effect to be felt, the agreement had to be implemented in full. And a year ago that was still a long way off.
There are three main areas of work: for the countries that hadn’t yet ratified to do so; for all countries to implement it including developing countries saying what choices they were going to make; and for the promised assistance to be delivered — the way aid is handled here is a unique feature among WTO agreements.
This is a brief look at what has been achieved since then.
1. The need to keep ratifying
As soon as the two-thirds figure was reached on February 22, 2017, the pressure was off, and the flow of ratifications has eased off too.
NOT YET RATIFIED
The agreement will not apply to these countries until they ratify it, although other countries will apply the trade facilitation measures equally to all WTO members (9.2.18) Angola, Benin, Burkina Faso, Burundi, Cabo Verde, Cameroon, Colombia, Cuba, Congo (Democratic Republic), Djibouti, Ecuador, Egypt, Guinea, Guinea-Bissau, Haiti, Kuwait, Liberia, Maldives, Mauritania, Morocco, Papua New Guinea, Solomon Islands, Suriname, Tajikistan, Tanzania, Tonga, Tunisia, Uganda, Vanuatu, Venezuela, Yemen, Zimbabwe See the TFA Facility website
Up to that date, the WTO had campaigned vigorously for countries to ratify and the ratifications accelerated from late 2016 to February 2017.
Immediately afterwards, the campaign stopped and the numbers tailed off. Countries have continued to ratify, but slowly, except for a mini-peak around the December 2017 WTO Ministerial Conference in Buenos Aires.
What the WTO’s campaign never clarified is that even after the two-thirds was reached, the agreement still hadn’t “entered into force” everywhere, only in the ratifying countries.
The remaining members also have to ratify it if it is to apply to them, and for them to receive any aid under the agreement.
Since February 22 a year ago, 18 members have ratified it, but 32 still have not.
The number has fallen gradually bit significantly a large number of countries that have not yet ratified are in Africa, the continent that is forecast to benefit most from the agreement.
There may be other reasons why the 32 still haven’t ratified. But it would be a pity if the end of the campaign on February 22, 2017 meant that outside the limelight, some countries might consider ratification no longer to be a priority.
That said, those that have not ratified will still be able to trade more easily with other countries because each applies the provisions to all-comers. But larger countries that have not ratified might not implement the agreement, and may cause problems for their trading partners.
2. The need to notify and implement
The agreement requires countries to provide information on what they intend to do, including the aid they intend to provide, and on details of the trade facilitation measures they have implemented. The information is gradually being submitted but progress continues to be slow.
On trade facilitation itself, the requirement includes: governments providing information and allowing consultation on laws and regulations, how rulings and appeal are handled, impartiality and non-discrimination, fees, release and clearance of goods, cooperation between border agencies and between customs authorities, various formalities, and freedom of transit.
Developed countries simply have to implement everything. Most had already done a lot unilaterally.
But for developing countries, ratifying the agreement says nothing about what each country is going to do. They can choose how they want to handle its provisions, under three categories. They have to tell other members, and the world at large, what they have chosen to do and under which category. The information is shared through notifications to the WTO:
Category A — measures they will implement immediately (or one year later for least-developed countries). Some, such as Egypt and Indonesia, have already notified under this category even though they have not yet ratified the agreement itself, suggesting their ratification process ought to be underway (107 notifications submitted, 44.9% of all notifiable items)
Category B — measures that will be phased in over a notified period (47 notifications, 7.6%)
Category C — measures that will be phased in so long as assistance is provided (37 notifications, 8.9%)
The figures are broad and hide crucial detail. Even if a country has handed in notifications in all three categories, the content might not cover all the provisions, so further notifications will be needed.
Often overlooked is how notification also plays an important role domestically. It means the country’s government is getting its act together and is prepared to tackle any vested interests that might resist reform. The agreement also encourages cooperation between various agencies.
It’s an open secret that customs procedures in a number of countries are prone to corruption and inefficiency, although procuring expensive computer systems creates its own temptations. Change can also threaten officials’ sense of security.
Ultimately the country streamlining its procedures gains the most. Its imports and exports enter and leave the country quickly and at lower cost.
The agreement does not commit donors to give assistance. On this, it’s a statement of intent. Donors said they could not legally bind their budgets.
But although implementing this side of the deal has only just begun, in general, aid for trade-facilitation has been around for some time. For example, the EU says its latest data shows over €700m provided in the period 2008–12. That’s before the WTO deal was struck.
The TFA Facility website’s list of donors includes 17 developed countries (including the EU and some of its members), eight international organizations, 12 regional organizations, five transport organizations and five others, with links to their programmes.
It will still take time and effort for the agreement to achieve its potential. In some countries, probably a long time — longer than the economists’ simulations assumed. As Azevêdo said, it’s only just begun.
After Brexit, ‘Global Britain’ will want free trade agreements with the rest of the world. But it already has some 37 agreements with over 60 countries through the EU. Rolling them over into the UK’s own agreements will not be automatic. A look at the actual text of the EU-South Korea deal shows why
By Peter Ungphakorn FEBRUARY 13, 2018 | UPDATED FEBRUARY 15, 2018
Leaving the EU means the British government will either have to convert the EU’s free trade agreements with other countries into UK deals, or risk losing them, when Brexit is supposed to be about to allowing Britain more freedom to enjoy trade agreements with the world outside the EU.
At the very least, the UK should continue with the deals it already has through the EU, with Norway, Iceland, Switzerland, Canada, South Korea, Japan (in the pipeline) and many others. Academics at Sussex University say there are over 60 other countries. The UK government says there are over 100. It depends on what kind of agreement is counted.
Even then, the “rolled over” free trade agreements could be less valuable to the UK outside the EU than inside, unless talks can be set up with all three parties leading to something called “diagonal cumulation of rules of origin”.
As with much about Brexit what some fancied was a simple task is actually pretty complicated.
Many had thought that the UK could more or less copy and paste the agreements.
Few thought that the other countries involved might want to negotiate this with the UK — until news broke that some might seek just that, even during a transition period.
Much of the complexity is shown in a paper (pdf) by Michael Gasiorek and Peter Holmes of Sussex University and published by the UK Trade Policy Observatory (UKTPO). They say something that few had considered: that what appears to be a set of bilateral talks will turn into a threesome — the EU will be involved too. This is one of their summary points:
“Grandfathering existing EU free trade agreements is unlikely to happen without some engagement or negotiation with the EU. Hence what you might think is a bilateral issue between the UK and a given Free Trade Agreement (FTA) partner, becomes a trilateral issue which also involves the EU.”
“Grandfathering” means continuing with an older arrangement (here the existing EU free trade agreements), which might lapse or be superseded when a new arrangement is introduced (the UK leaving the EU). The Sussex paper is a comprehensive account of the various issues that could be raised in the talks.
The British government too is learning that this is going to take longer than it had first thought.
“I hear people saying ‘oh we won’t have any [free trade agreements] before we leave’. Well believe me we’ll have up to 40 ready for one second after midnight in March 2019,” International Trade Secretary Liam Fox told a fringe meeting at the Conservative Party Conference only last October.
Is grandfathering difficult or impossible? No, for the most part, it shouldn’t be. But there’s a lot to copy, adjust and check. And the number of negotiations the UK will be involved in for Brexit is huge.
Then there are the more complex areas such as “tariff quotas” and agricultural “safeguards” and “rules of origin”. It becomes even more complicated if the other countries want to negotiate additional adjustments.
Then, on February 8, the government admitted for the first time that this will not be possible. It released a position paper (pdf) calling for the EU’s free trade agreements to continue to apply to the UK — as if it were still an EU member — during the proposed two-year transition period after March 2019.
To keep life simple, this would probably mean EU institutions continuing to handle various aspects of the free trade agreements on Britain’s behalf, such as managing the allocation of tariff quotas among importers (including British companies), confirming that imports into the EU (including Britain) meet EU standards and “rules of origin”, and participating in committees set up under the agreements and in disputes.
What happens after the transition period remains to be seen. The quickest approach would be to convert the EU’s agreements into the UK’s. The alternative would be for the UK to negotiate new agreements from scratch. But since it may want to do that with other countries such as the US, China, Australia, New Zealand and so on, the load on UK trade negotiators would be immense.
Michael Gasiorek’s and Peter Holmes’ paper actually speaks of “great-grandfathering”! But more importantly, it refers to complex supply chains, which are important for a number of reasons:
“Clearly the UK will want to and needs to establish the nature of its relationship with the existing FTA [free trade agreement] partner countries on a long-term basis. However, this will be more difficult to achieve without the partner countries knowing what form of trade agreement the UK has with the EU.
“For many products this is because we are in a world of more complex supply chains and for many FTA countries, their exports to the EU may be indirect via the UK. For some agricultural products where tariff-rate quotas apply, changing access to the UK may impact on their access to EU markets.
“It is therefore likely that both the UK and the partner countries may seek to roll the agreements over on a temporary basis for the duration of the transition. In turn, that means that during the transition period the UK will need to renegotiate these agreements, or at a minimum, renegotiate the grandfathering, hence greatgrandfathering the agreements” (page 5)
Overall, Gasiorek and Holmes suggest renegotiation might be needed because of rules of origin, most-favoured-nation (MFN) or non-discrimination clauses, mutual recognition of standards and regulations, and tariff quotas. I will look at a couple of those issues, but I’m not going to repeat their excellent work. Their paper speaks for itself.
Possible to do; impossible to do quickly
What I am going to do here is to dip into the EU-South Korea free trade agreement — and I really mean “dip in” because it’s over 1,400 pages long — to highlight a few issues that attracted my attention. They are intended as examples to illustrate some important points. This is also developed from an older Twitter thread.
The bottom line. Is grandfathering difficult or impossible? No, for the most part, it shouldn’t be. But even where it’s relatively straightforward, the task is time-consuming. There’s a lot to copy, adjust and check. If there were only one agreement to deal with, it could be completed quite quickly. But the number of negotiations the UK will be involved in for Brexit is huge.
Then there are the more complex areas such as “tariff quotas” and agricultural “safeguards” (there aren’t many in the EU-S.Korea agreement but there are a lot more in the agreement with Canada) and “rules of origin”. It becomes even more complicated if the other countries want to negotiate additional adjustments.
Grandfathering: more than CTRL+C, CTRL+V
You don’t have to go very far into the text to see that there are references to the EU which will have to be replaced by the UK’s equivalents.
Numerous references to EU procedures and regulations will also have to be changed.
The endless lists of regulations will have to be replaced with UK versions. This is just a small part of a long table of regulations for vehicles.
All of this is also bound up in how the UK sorts out its own post-Brexit arrangements.
And provisions such as this would have to go:
And then there are services. The EU-S.Korea agreement has long lists describing where their services markets are opened up to each other (pages 1165-1250 for the EU’s commitments). Much can be copied for the UK. There are also lots of provisions which don’t apply to the UK and will have to be removed, and a lot that refer to the EU as a whole, which will have to be changed.
This is what the agreement says for mining and quarrying services. It’s complicated, technical stuff, but even if we don’t understand it fully, at the very least “5% of the European Union’s oil or natural gas imports” will have to be changed to “the United Kingdom’s”. You have to be an expert in the field to know if that “5%” will stay unchallenged.
“EU: Unbound for juridical persons controlled […] by natural or juridical persons of a non-European Union country which accounts for more than 5 % of the European Union’s oil or natural gas imports. Unbound for direct branching (incorporation is required). Unbound for extraction of crude petroleum and natural gas”
Finally there are institutional arrangements, everything from committees and working groups to arbitration procedures, which will have to be set up for the new bilateral relationship
Article 15 creates a “Trade Committee”, which meets annually, plus at least six “specialised” committees and at least seven working groups:
The agreement includes procedures for settling disputes, including the creation of arbitration panels and references to international law including the Vienna Convention on the Law of Treaties and World Trade Organization dispute rulings. The procedure is similar to the WTO’s and adapting it for the UK would be relatively simple.
So, the task has moved beyond copy-paste to search, adjust, adapt, replace or delete. The volume is pretty large, and this is just one of the 37-or-so agreements. Still, what we have looked at so far won’t necessarily need any negotiation, just a lot of work.
Photocopier? Or negotiating table?
Where negotiations will be needed is on market access, particularly for goods, but only on some parts. (There may be no need to renegotiate services, but the technical detail is beyond me.)
For goods, the EU-S.Korea agreement lists tariffs on around 900 pages. They could be run through the photocopier — except that S.Korea is reported to be one of the countries that might seek unspecified concessions from the UK, according to Politico:
“South Korea has already indicated that it wants to address its trade deficit with the U.K., which was particularly high between 2012 and 2015, before granting Britain continued market access during transition, EU diplomats and business people said.
“‘Exports are South Korea’s credo No. 1, and trade balance is their credo No. 2,” said Christoph Heider, president of the European Chamber of Commerce in Korea, who is in close contact with the government in Seoul. “I expect that Great Britain will have to make concessions if it wants to stay in the trade deal during the transition.’”
In many cases, tariffs are not scrapped from the start: they are phased out over different periods depending on the product, from immediate (most products) to 21 years and in some cases tariffs are never eliminated (“staging category E”). So the UK would be stepping into an appropriate phase of the reductions (unless “rolling over” took more than two decades!)
What most people forget is the EU’s free trade agreements include tariff quotas as well. That’s where limited quantities of imports are allowed in duty-free or at lower than normal rates, also known as tariff-rate quotas or TRQs. And it’s where negotiations will probably be needed.
The EU-S.Korea agreement has a few, mainly on the Korean side. Here’s one for flatfish where the duty-free allowance increases from 800 tonnes in year 1 to duty-free for all imports from year 13.
Here’s another on various types of milk and cream. This time the duty-free allowance remains indefinitely at 1,512 tonnes after year 16 (“staging category E”), meaning quantities outside the quota will be charged import duty, which is 89% or 176% depending on the product. (The tariff rates are on page L127/102 of the EU’s version of the text (pdf).)
This is not exactly “free trade”. It’s an example of how trade agreements are not necessarily as free as they are made out to be, and a warning to those who argue that the value of the UK’s present access to the EU market can be replaced by trade deals with other countries.
What will the UK’s share of that 1,000–1,512 tonnes be? The answer is likely to come from talks among all three sides: the UK, EU and S.Korea.
Incidentally, The EU’s agreement with Canada (the Comprehensive and Economic Trade Agreement, or CETA) has many more tariff quotas for imports into both sides. The EU has them on some kinds of seafood, wheat, sweetcorn, bison meat, beef and veal, and pork. Canada has them on cheese.
This is part of the EU’s CETA tariff-quota on one category of beef and veal (there are more details than this):
And this is Canada’s tariff quota for one category of cheese, again ignoring a lot of additional detail:
Although Canada is apparently keen to use copy-paste as much as possible, there will almost certainly be renegotiations over the tariff quotas.
One type of tariff barrier that has received little attention is “safeguards”. These are temporary increases in import duty to protect producers from import surges or falling prices, the kind of raised duty the US recently imposed on washing machines and solar panels.
For agricultural products and in bilateral trade agreements the rules are not quite the same as for industrial goods. Here, S.Korea has secured the right to impose an additional duty on beef imports of up to 40% for the first six years, the ceiling declining to zero after 17 years, if the “trigger level” specified is reached.
S.Korea has the right to use safeguard duties on pork, apples, malt and malting barley, potato starch, ginseng, sugar, alcohol, and dextrins.
For beef the right to impose a safeguard duty expires after 16 years. For pork it’s 11 years, for apples 24 years, and for other products somewhere in between.
The trigger volumes were for the whole of the EU-28. Copying the same trigger level for imports from the UK alone would not make sense for S.Korea. To do so would double the size of the import surge before Seoul could react. That means these volumes would be split between the UK and EU, requiring negotiations between all three sides.
In its agreement with the EU, Canada has dozens of products eligible for additional safeguard duty, but the EU has none.
The dreaded rules of origin
To qualify for lower duty or duty free access to the EU market, or for recognition of standards under the agreement, a product has to be shown to have been made in S.Korea. The same goes for EU products entering S.Korea, and for UK products under a future UK-S.Korea deal.
Anyone who has looked at these “rules of origin” knows they can be pretty complicated, to the extent that lower tariffs are not always worth the additional red tape. (You can find explainers by the Institute for Government here, and by Sam Lowe here.)
The criteria start with general rules on what qualifies and what proof is needed, covering 8 pages (1346–1354) in the EU-S.Korea agreement. For example, Article 6 lists 17 operations that cannot be cited — “sharpening, simple grinding or cutting” is not enough (item (i)). Nor is it enough if two ingredients from elsewhere are simply mixed together in the EU — they cannot be said to be “made in the EU” (item (m)):
But that’s just the start. A further 57 pages has tables of excruciating detail — like this on what is required for two types of “woven fabrics of man-made-filament yarn” to qualify with the right origin:
(Note that in that last paragraph, the product can qualify even if the value of the unprinted fabric exceeds 47.5%, so long as the fabric itself is also of local origin.)
Could these rules of origin just be run through the photocopier? Maybe. But remember right now exports from the UK to S.Korea only have to qualify as “made in the EU”, meaning components could be sourced anywhere in the 28 countries. A post-Brexit UK-S.Korea free trade agreement would only deal with products “made in the UK”.
In other words, from the point of view of qualifying products, a future UK-S.Korea agreement will be much less valuable for the UK than the present EU-S.Korea agreement.
Complicated? That’s just the start. Here’s what Gasiorek and Holmes say about duty-free imports involving the UK, EU and S.Korea:
“It is important to note that this could easily mean that, for example, a given intermediate input could be exported directly from Korea to the EU duty free, but if that input is used in the production of a UK good which is then exported to the EU, that input cannot count for UK originating status.
“The same could apply to UK exports of intermediates to the EU which are then used in EU exports to Korea; and EU exports of intermediates to the UK which are then used in UK exports to Korea. Hence bilateral flows between each of the three countries in this example (the UK, Korea and the EU) are likely to be affected.”
They then talk about “diagonal cumulation”, essentially a three-way deal that says if assembly, processing or other form of production in any two (combined) of the three meets the requirement, then the item can be imported duty-free into the third.
And a three-way deal needs a three-way negotiation.
Finally, how well does EU-S.Korea represent other EU free trade agreements? It depends. No two agreements are the same, but they can be similar. The Korean agreement is partly similar to the Canadian one but also has significant differences.
Norway and Switzerland are important trading partners of the UK. One of the most complicated agreements for the UK to grandfather is the one with Norway, Iceland and Liechtenstein — the European Free Trade Association (EFTA) countries, which form the European Economic Area (EEA) with the EU.
Developed from a Twitter thread from October 25, 2017. On February 15, 2018, I wrote this thread about the response to this article.
Updates: February 14, 2018 — added a link to Lorand Bartel’s article on various legal implications in Borderlex. Photos and drawing: Either CC BY 2.0 or CC0
People’s understanding of the WTO is a bit like the ancient parable of the blind men and the elephant. Even those who have spent their lives working on it stress different aspects
By Peter Ungphakorn DECEMBER 17, 2017 | ORIGINAL PUBLISHED ON UK TRADE FORUM DECEMBER 16, 2017 | UPDATED DECEMBER 17, 2017
There’s been an elephant in the room ever since the discussion of Brexit and trade began. Gradually, bits of the animal have become visible, but what we’ve seen has not always been accurate. It’s time to complete the picture, and to understand why the beast isn’t in the best of health.
WTO agreements already apply to the United Kingdom’s relationship with the European Union as an EU member.
As the Brexit talks enter their second phase, they will determine what can and cannot be done with the future UK-EU relationship on trade — sometimes explicitly, sometimes quietly behind the scenes. WTO rules will also affect any trade relationship Britain seeks to define with the rest of the world, whether globally, regionally or with individual countries.
How well WTO rules and the terms of Britain’s WTO membership work depends on the nature of the elephant and its health, which cannot be taken for granted.
People’s understanding of the WTO is a bit like the ancient parable of the blind men and the elephant.
IT was six men of Indostan To learning much inclined, Who went to see the Elephant (Though all of them were blind), That each by observation Might satisfy his mind.
Each feels a different part and, according to this version, they observe separately a wall (the body), spear (tusk), snake (trunk), tree (leg), fan (ear), and rope (tail).
And so these men of Indostan Disputed loud and long, Each in his own opinion Exceeding stiff and strong, Though each was partly in the right,
And all were in the wrong!
The same applies to the WTO. Even people who have spent their lives working on it stress different aspects.
Some lawyers’ eyes magnify WTO dispute settlement and its jurisprudence, the “jewel in the crown”. For some practitioners, what matters are the achievements of WTO committees whose work is partly designed to avoid legal disputes. Many journalists judge the WTO by the success or failure of negotiations. And so on.
So what is this elephant?
The WTO’s own explanation is here. We’ll do it differently, focusing on the elephant’s four legs — bearing in mind that the whole elephant is the WTO’s multilateral trading system. The elephant stands or moves on those legs. All four are important. Right now they are not too steady.
Leg 1: Trade negotiations — where WTO rules come from
Negotiations are the starting point of everything that happens in the WTO. All “WTO rules” are actually negotiated agreements. Everything the WTO does is based on them.
They have been negotiated and re-negotiated since the end of the Second World War, starting with the 1947 General Agreement on Tariffs and Trade (GATT, which deals with trade in goods), through the addition of services and intellectual property in 1995 (when the WTO was created) and to streamlining border procedures (“trade facilitation”) in 2013.
Negotiations can be by individual subject, or as a package or “round” covering many subjects. Rounds allow trade-offs across subjects, which can help to break deadlock — for example, a country reluctant to reform agriculture might find it easier to do so if other countries open up their financial services markets in return. But because rounds cover many subjects they are also more complex. Single-subject negotiations are simpler but with less scope for trade-offs.
In 2001 WTO members agreed to launch the Doha Round. They hoped to reach agreement in four years, and they failed. Despite immense progress in 2006–2008, the talks fell short of agreement. Since then, they have stagnated. In the meantime a handful of single-subject deals have been struck. Some came from the Doha Round, including the one in 2013 on trade facilitation.
Agreement in the WTO is by “consensus”, which means no one objects. In 2015 some countries such as the US wanted to declare the Doha Round to be over. Others, mainly developing countries, disagreed. Without consensus, the Doha Round could not be declared dead. But it could not continue in that form either. I’ve called it a zombie.
The WTO’s political leaders, ever since Mike Moore was its director-general in 1999, have measured their own success or failure by the fate of negotiations. By that measure, Moore was successful in launching the Doha Round but all his successors have failed to conclude the talks, until recently when single-issue deals have been agreed.
But there’s more to this elephant than that.
Leg 2: Implementing and monitoring — vital, routine WTO work
Someone described the WTO’s negotiations and other headline-hitting work as the “poetry” in its “plumbing”. The plumbing is unglamorous and rarely seen but cannot be ignored.
Signing negotiated agreements is not an end: it’s a beginning.
Most of the WTO’s routine work is about monitoring how well countries keep the promises they made in those agreements and implementing what was agreed.
It involves a huge amount of information-sharing and scrutiny by WTO members — in over 20 “regular” committees, each comprising the full membership. This leg is wobbling because members struggle to keep up-to-date with the information they have to supply once or twice a year, or when they introduce new regulations or policies. That makes monitoring difficult.
Even when countries keep their promises, the way they do it can hamper trade. When these problems are raised in the committees, solutions can be found just by talking, avoiding expensive legal disputes. Some of the most productive work is on product standards and regulations, such as how to ensure food or industrial products are safe.
If there is no news from these committees, then the system is working well. Generally, peer pressure encourages countries to keep the promises they made in the agreements. That in itself should be news but it’s rarely reported.
All of this means most of the $20 trillion global trade in goods and services flows smoothly and almost unnoticed. Some experts even argue that the WTO’s success or failure should be measured primarily by the “plumbing”, not the poetry.
Leg 3: Dispute settlement — adjudicating WTO law
Back to the poetry, though. Formal WTO disputes attract much more attention. They help enforce agreements. They also deal with huge amounts of money (such as aircraft subsidies) or other concerns (such as when tuna fishing endangers dolphins).
WTO disputes are always between governments, so “Boeing” versus “Airbus” is actually the US versus the EU.
And they are always about broken promises (violations of WTO agreements, commitments or expected rights). If a government simply dislikes another’s trade policy in general, the solution is to try to negotiate new rules.
Normally, that is also the recourse when a country is dissatisfied with a dispute ruling.
This year, something different has happened. The US is unhappy with rulings against a particular method it used to calculate something called a “dumping margin”. It’s all very technical but powerful commercial interests are involved and the upshot is that the US is blocking the appointment of WTO appeals judges to replace those whose terms expire. By December 11, they had dwindled from seven to just four.
Unless something changes, WTO disputes could eventually come to a halt. The elephant would be toothless.
Leg 4: Development — the WTO’s particular role
The WTO Is not a development agency, but members want it to have a role. It does this in several ways.
Trade itself is supposed to help developing countries. The rules in the trade agreements also include a considerable amount of leeway for them.
The WTO hosts “aid-for-trade” meetings between development agencies and other donors, and developing countries, so that aid matches real needs as much as possible.
And the WTO Secretariat also trains officials from developing countries so they can operate better in the system.
Acknowledging this used to be routine. Not anymore.
The US blocked a draft declaration for the December 10–13, 2017 WTO Ministerial Conference in Buenos Aires. It objected to the commitments to the WTO’s multilateral trading system and development, both standard in previous declarations.
Putting it all together — and what it means for the UK
Some have claimed that the threat to the dispute settlement system means the elephant could be on its deathbed. Others have said the same about the failure to conclude a major negotiation. And then there are those who remind us that the routine work is in reasonably good health, even if the information that members notify to the WTO needs to be better and to arrive faster.
As far as Brexit is concerned, a weakened WTO would allow Britain more leeway in how it chooses its trade policies. But it if the UK feels that others’ trade policies are unwelcome, a weakened WTO would also give it less leverage to deal with the problem.
Illustrations: drawings and paintings of the blind men and the elephant, all public domain:
from Charles Maurice Stebbins & Mary H Coolidge, Golden Treasury Reader (US);
by Itcho Hanabusa (Japan);
from Phra That Phanom chedi temple (Thailand):
from Holton-Curry Readers (US);
from Augusta Stevenson, Children’s Classics in Dramatic Form (US)
The WTO operates a consensus system, which means a decision is reached when no one objects.
In theory all 164 members should have the same decision-making power. In practice, there is an unofficial power structure, even though consensus is ultimately needed: the power structure influences the consensus outcome.
At the top: these days it’s the G5 — the US, EU, Brazil, China, India.
Next level down: the “Green Room” or equivalent — 20 to 30 members because of their influence or because they represent constituencies. They include the G5 plus Canada, Japan, Switzerland, Australia, Argentina, and others representing various groups of developing and least developed countries.
This is roughly how they got there and what the UK would need to join them
1. Have a policy
Obviously. But when politicians talk about the UK being a champion of trade, they are also advocating the UK being much more of a free trader than it is now, particularly in agriculture. This has not been debated properly and is certainly not the official policy of any of the main British political parties. In particular, this government has promised to continue to support farmers at present levels, at least for a time. Moving away from that would involve some substantial changes that have barely been discussed.
If the UK ends up in a customs union with the EU, then its trade policy for goods (not services) will be more or less the same as the EU’s. If it doesn’t, it may have a freer hand, but a lot also depends on how it aligns its regulations. Even though a customs union is not government policy, some still advocate it. Other policies are also still up in the air.
2. Sort out the UK’s WTO membership terms
The UK (and EU) have only just started talking about establishing their separate commitments in the WTO on tariffs, “tariff quotas” (explained here), farm subsidies, and on opening services and public procurement markets. It’s taken months just to prepare data for the tariff quotas and the real negotiations haven’t yet begun.
These commitments will be needed by Brexit day, March 29, 2019, so that the UK’s WTO membership terms are clear, and it’s going to be hard work. There’s no harm in having a long term vision, but for now the focus should be on the more urgent nitty-gritty.
3. Be large(-ish)
A key reason for being either in the G5 or the Green Room is economic size, particularly the share of world trade. As a rough guide we can look at WTO figures for goods exports.
Among the G5, the EU would be top if counted as a single entity, followed by China and the US. But the WTO ranks EU member states individually (Germany 3rd, the Netherlands 5th, etc) and this puts India 20th and Brazil 25th.
Among countries in the Green Room, with their ranking, are: Japan (4, after Germany), Canada (12 after a number of EU states, Hong Kong and South Korea), Switzerland (15), Australia (23), and so on.
And the UK? Tenth, putting it well inside the Japan, Canada and Switzerland group.
The factors that affect trading size include the size of the economy (population size and per capita income), the value of products (which goes some way to explaining Switzerland’s high ranking), and also having a large port (as with Hong Kong and Singapore, and to some extent the Netherlands).
4. Have a position that resonates with others
Size is not the only reason Brazil, China and India are in the G5. They each speak on behalf of different groups of developing countries. Brazil tries to bridge the differences between agricultural free traders (Thailand, Uruguay) and those wanting to protect their poor farmers (India, Indonesia, Kenya). In different ways China and India sometimes speak on behalf of weaker developing countries.
At the next level are coordinators of various coalitions of shared interests. Australia represents agricultural free traders. Switzerland coordinates a group of more advanced but more defensive agricultural producers. Others represent the African Group, the least-developed countries, and so on.
If the UK sticks to its present trade policy, it could find that the EU still best represents its position even after Brexit.
Or will its trade policy change? For now, that’s unclear. To be a leader of any kind, it would have to develop a new separate policy of its own, and one that would resonate with other members. But the field is already crowded. In agriculture, the UK might have to accept the leadership of Australia or Switzerland, depending on which direction it chooses, or be a lone voice with no followers.
5a. Either be constructive so everyone likes you
One way of winning friends and influencing people in the WTO is to help break a deadlock by proposing a compromise that everyone likes enough to want to work on it. This requires knowledge, skill and subtlety. It means understanding what might and might not be acceptable to others and the creativity and imagination to produce something new.
Countries rarely do this on their own. In the past few weeks, China has produced a new proposal on disciplining fisheries subsidies on its own, but the paper essentially reflects a Chinese concern and will need to be negotiated. By contrast, the EU and Brazil approached the negotiations on curbing farm subsidies from different directions and proposed a draft compromise. Whether that succeeds remains to be seen.
5b. Or be stubborn so everyone has to put up with you
India has a decades-old reputation in the WTO for being a blocker although it would argue that it is defending the weak and vulnerable. Most recently, it held up a new agreement on streamlining border procedures (“trade facilitation”) in order to push a separate proposal that would free public stockholding of food from WTO subsidy disciplines.
Anyone can be stubborn. From time to time the US and EU have been too, so size counts as well. There’s no doubt that a large and vocal India was difficult to ignore.
An anecdote. In 1986 the US and EU wanted to launch a major new round of negotiations. Some hardline developing countries led by India, Brazil and Argentina opposed the move. Finally two smallish countries, Colombia and Switzerland decided to take matters into their own hands. They produced a joint compromise proposal (appropriately nicknamed “café au lait”). More and more countries signed on, and that eventually became the basis for launching the “Uruguay Round” talks, which created the WTO.
In that example, constructive compromise trumped stubbornness.
6. Have a good supply of skilled diplomats and trade officials
If you’ve read this far, the need is obvious. Trade is technical and political. If a country is to operate effectively and credibly it needs skilled officials who can understand both the technicalities and other countries’ concerns.
Right now, the UK is in the early stages of rebuilding its capacity to negotiate trade. Its initial focus will be on sorting out its trading relationship with the EU, then on negotiating or renegotiating bilateral free trade agreements with other countries.
Those deals will be important for the UK, but they are not enough to make it a trade champion on the world stage. For some time to come, they will also draw British resources away from work in the WTO.
7. Accept that you still might not be at the top table
In fact there is really little chance that the UK will be in the G5 or whatever evolves next. A proper analysis of how countries fit into the power structure is bound to show that.
There is no shame in this. Constructive middle-level roles in the WTO — such as by Canada, Australia, Argentina, Japan, Switzerland, etc — are vital for the trading system. They are all realistic about what they can achieve and they get on with it.
The UK should do the same. Misguided self-importance will only backfire.
Updates: None so far Photocredits:
• Harbour scene by Abraham Storck, public domain