A look at the UK, EU and WTO with an eye on Brexit. Includes a brief explanation of the WTO system, a taste of how negotiations work in the WTO, and the implications for the UK (and EU) as they prepare for Brexit and beyond
By Peter Ungphakorn POSTED MAY 25, 2017 | UPDATED MAY 25, 2017
This page contains a link to download a handout on the UK, EU and WTO as Brexit approaches. It is slightly modified from a presentation given on May 20, 2017.
Negotiations as the starting point. Rights and obligations (reciprocal and non-reciprocal). Space for sound policy-making. Rules and commitments.
2. WTO negotiations: A taster
Consensus. Member-driven. The Doha Round. Negotiating coalitions (in agriculture). Concentric circles — when it’s impossible to negotiate properly in a large crowd. More than just an affair between governments: there are also negotiations at home.
3. Brexit and the WTO: Before, during and after
UK and EU “schedules” of commitments. What schedules are. How to establish the UK’s and EU’s schedules post-Brexit. The EU’s complex tariff profile. Tariffs (shoes and oranges). Tariff quotas (lamb, mutton). Domestic support for agriculture (trade-distorting). Agricultural export subsidies. Services. The cliff-edge and worse: what if there are no acceptable schedules by Brexit day?
Free trade agreements: UK-EU; UK-other WTO members. WTO rules on free trade agreements. Shallow to deep arrangements.
UK as champions of free trade. Policy choice from liberal to protectionist. Impact on bilateral free trade negotiations. UK positioning in WTO — current policy on agriculture puts it closer to the more protectionist group; handling the WTO agendas on regular work and negotiations.
Be warned. I’m not about to give a proper answer. This is an attempt to point to where the information can be found. There’s so much detail — 160 sub-sectors of it — I’ll wait for others to take up the baton
By Peter Ungphakorn POSTED APRIL 12, 2017 | UPDATED MAY 4, 2017
A lot has been said about the impact on trade in goods if the UK and EU fail to strike a free trade deal after Brexit. They would rely on their WTO commitments, such as on tariffs and quotas. Much less has been said about the commitments on services, despite their importance to the UK economy.
This is not surprising. Firstly, countries’ commitments in the WTO on opening their services markets (known as services “schedules”) are unbelievably complicated. The WTO has a 2,000-word guide to understanding them (approximately 5 pages) — and even that is written for readers who are already familiar with a range of technicalities.
Secondly, although the EU member states’ commitments on services are combined in a single EU schedule, there are countless entries that apply only to individual member states. In other words, what applies in France may not apply in the UK, and so on.
For the EU, added to this complexity is the fact that authority (or “competence”) over services markets is divided between the EU Commission and the member states. This is unlike tariffs, which come under the customs union and are the central responsibility of the EU.
One of the results is that the EU’s present certified services schedule is for the 12-member EU that signed the original WTO agreement on services back in 1994 at the end of the 7-year Uruguay Round negotiations. A draft for the expansion to 15 members in 1995 still has not been certified because two decades later some of those 15 EU members still have not ratified it.
In other words, WTO certification for services is being held up within the EU. By contrast, its goods schedules have been delayed by objections or reservations from WTO members outside the EU.
The WTO’s page for the EU says the EU’s “services schedules include its member states but those who joined in 1995 (Austria, Finland, Sweden) and in May, 2004 […] also have schedules under their own names”. Presumably the same applies to the 2007 and 2013 expansions.
That said, further multilateral negotiations in 1995–1999 — after the Uruguay Round concluded in 1994 and after the WTO came into being the following year — added supplements on financial and telecommunications services. For the EU, these cover Austria, Finland and Sweden and therefore apply to the EU–15.
Finally, analysing the impact of trade barriers on goods is relatively straightforward since tariffs are numbers. Even where the numbers are complex, economists and statisticians can work with them with little difficulty.
But when Germany says accountancy services (other than auditing services) cannot be provided through a particular type of company — “‘GmbH & CoKG’ and ‘EWTV’” — quantifying that trade barrier or its impact is much more complicated.
As with goods, the EU’s services schedules have implications for Brexit in two ways:
They are needed to identify the UK’s own commitments to open its services markets to the rest of the WTO, except where the UK has a free trade agreement in services — and the EU will also have to modify its schedule to take account of the UK’s departure
If the UK and EU do not strike a free trade deal on services, their WTO schedules will define services trade between them. In other words, getting the schedules right is also important for the two because the schedules are a fall-back position in case they cannot strike a bilateral deal. The real impact would be considerably more complicated than just identifying the UK’s own schedules. For the UK, this is compounded by the fact that the schedules for 16 newer EU member states have not yet been incorporated into the EU’s (except for Austria, Finland and Sweden in financial services and telecoms). UK service providers seeking access to the EU single market might have to study up to 17 schedules to decide where best to set up business
Remember that a WTO schedule sets limits on how much protection a member provides to its producers. This is also true of services. Countries are free to open up more than their binding WTO commitments on services, provided they comply with general rules such as non-discrimination (where there are no exceptions in their schedules). But if they want to close markets beyond the limits in the schedules, they have to renegotiate.
Because of the complexity, this article is nothing more than an attempt to encourage a discussion by focusing on where to find the information rather than providing a comprehensive picture. I know less about trade in services than in goods. Hopefully the discussion can develop. But the overall picture for services may still be too complex to for a big-picture examination, unlike tariffs and tariff quotas.
Extracting UK’s services commitments from the EU’s
To recap what has been said elsewhere: although the UK is a WTO member and will continue to be after it leaves the EU, its WTO commitments — including on services — are bundled with the EU’s. So, in order to re-establish itself as a WTO member independent of the EU it will need to extract its commitments from those of the EU.
The EU’s goods and services schedules of commitments have still not yet been certified in the WTO for the enlargements up to the present 28 member states.
British International Trade Minister Greg Hands has now confirmed that work on the UK’s schedules “will be based on the most recent certified EU schedules, which is EU–25 for goods, and EC–12 for services. Since the schedules were certified the EU has entered into further WTO obligations, which we will also seek to replicate in our schedules.”
(He was replying to a written question from Kirsty Blackman, the Scottish National Party’s Westminster MP for Aberdeen North.)
THE FOUR MODES OF DELIVERY Mode 1. Cross-border supply. The supplier and customer are in different countries. The service is supplied across the border Mode 2. Consumption abroad. The customer travels abroad and receives a service from a service provider in the other country Mode 3. Commercial presence. The supplier sets up business in the same country as its customers Mode 4. Presence or movement of natural persons. Professionals and other service workers move to the customer’s country. Not to be confused with free movement of people
For services, experts say the task is fairly straightforward but time-consuming because of the volume of work required — around 160 types of services are covered, each having commitments on four “modes of delivery”. (There’s an example below.)
Officials will have to go through every provision in the EU’s services schedule that applies either to the EU–12 (or in some cases EU–15) or only to the UK. They will then have to transfer the provision into the UK’s schedule. This is not necessarily straight copy and paste.
Fortunately, judging by a quick electronic search for “UK”, only four limitations on market access are identified as applying specifically to the UK:
Medical services (mode 3 — commercial presence): “Establishment for doctors under the National Health Service is subject to medical manpower planning”
Veterinary services (mode 3 — commercial presence): “Access through partnership or natural persons only”. As I understand it, this means the UK reserves the right to prevent foreign veterinary companies from establishing in the UK. Foreign vets would have to form partnerships, be self-employed, or work for UK firms.
Banking and other financial services (mode 2 — consumption abroad): “Sterling issues, including privately led issues, can be lead managed only by a firm established in the European Economic Area”
Banking and other financial services (mode 2 — consumption abroad): “Inter-dealer brokers, which are a category of financial institutions dealing in Government debt, are required to be established in the European Economic Area and separately capitalised”
Those last two also show that some of the UK’s commitments are linked to the European Economic Area (EEA = the EU except Croatia, which is a provisional EEA member, Iceland, Liechtenstein and Norway). Nothing has been said publicly about what happens to these provisions if, as seems likely, the UK leaves the EEA.
However, some provisions apply to all EU member states through Commission regulations, and these may also have to be sorted out to establish the UK’s services schedule.
The same is true of the EU’s “MFN exemptions”, another part of the services schedule, where members reserve the right to discriminate between other WTO members (more below).
On the plus side, the absence of certified services schedules for the enlarged EU might not be a problem. The general provisions for the EU and those specifically for the UK might not be different in the enlarged schedules, experts say — although nothing can be guaranteed.
The full list is in this document from 1991 (pdf), when it was first agreed during the Uruguay Round negotiations (in the document number, “MTN” stands for “multilateral trade negotiations”).
Each of these services can be delivered in four modes:
Mode 1. Cross-border supply. The supplier and customer are in different countries. The service is supplied across the border. For example a UK news agency supplying a news service to a newspaper in France
Mode 2. Consumption abroad. The customer travels to another country and receives a service from a supplier in that country. For example a tourist staying at a hotel abroad
Mode 3. Commercial presence. The supplier sets up business in the same country as its customers. For example a UK news agency setting up an office in France to supply French newspapers
Mode 4. Presence or movement of natural persons. Workers or staff move to the customer’s country. For example, the UK news agency sends a British manager to France to run the office there. Note that this is not the same as “free movement of people”. Mode 4 may require visas and work permits, which could be fast-tracked or easier to obtain.
(Some economists are now talking about a fifth “mode”: the value of services incorporated in goods, but this is not yet formally in the WTO.)
None of this means “unfettered free trade” in services. Services regulation is a separate topic in the WTO — liberalisation and deregulation are not the same. And all those pages of commitments are essentially lists of exceptions or limits on liberalisation.
GATS itself recognises the need to regulate and it allows countries to exclude “services supplied in the exercise of governmental authority”. These include utilities, social security and any other public service such as health or education that is not supplied commercially, does not have market conditions, or is not in competition with other suppliers. An annex on air transport completely excludes airline landing rights.
The EU’s schedule goes further in setting limits on commercial access to its government services and only opens up education services that are privately-funded.
The EU’s latest WTO-certified services schedule is in five documents, although searches produce eight, three of them superceded. Seven of the eight are “commitments”; one is a list of “exemptions” from non-discrimination between other countries (“most-favoured nation” exemptions). There are a number of ways to find them:
In the WTO’s iTip database. This is the simplest way to find individual commitments. Here, although it is possible to search for the UK’s commitments, the results are for all the EU–12 (sometimes EU–15)
Use the links below to download pdf versions (correct at the time of writing)
First, the original 1994 commitments:
The main schedule (GATS/SC/31 of 15 April 1994 — 97 pages). This is in two parts: “horizontal” commitments applying to all services sectors (to page 11), and commitments for the specific sectors (the remaining pages). This schedule is for the EU–12 and still applies except where updated for financial and telecoms services, and “mode 4” by the supplements below.
Then, supplements updating commitments in specific sectors (or in one case a services “mode”) resulting from further WTO negotiations. Some include commitments for Austria, Finland and Sweden, which joined the EU in 1995:
WTO members’ commitments in services work in three ways:
Market access — how much of the market is open to foreign service providers or customers, and where that is limited
Non-discrimination (1) — equal treatment between foreign service providers and the country’s own suppliers or nationals, known as “national treatment”, and where that is limited
Non-discrimination (2) — exemptions on treating other WTO member countries equally, known as “most-favoured nation (MFN) treatment”
The first two are in the main services schedule of commitments. These identify where the member’s market is open, or where it reserves the right to restrict access, or to keep the market totally closed. This is expressed negatively as “limitations on market access” (column 2 in the example below).
Where there are no limitations, the market is open. Where there are no commitments (“unbound”), the country is free to close the market.
The commitments also list “limitations on national treatment” (column 3 below). Again, where there are no limitations the country will treat foreign companies as its own. Where there are limitations or no commitments at all (“unbound”), the country reserves the right to favour its own service providers.
Each of these is also specified for the four “modes” of supply, listed across the top of the page, with the limits on commitments running down the two central columns.
The EU’s main schedule document starts with “horizontal commitments” mainly dealing with limitations on investment, real estate ownership and “mode 4” (movement of professionals and other services workers or employees) across all services sectors.
Next come commitments in the 160 services sub-sectors — or more accurately, limitations on the commitments.
This is the section of the EU’s schedule on news and press agency services (chosen because it is one of the shorter items!):
For the second form of non-discrimination — most-favoured nation (MFN) — the exemptions are listed separately. They arise for a number of reasons, including preferential arrangements between countries that existed before the services were negotiated in the Uruguay Round.
This may explain why, for example, the EU reserves the right to discriminate in favour of Switzerland in a number of areas. The EU may be “grandfathering” sectoral deals with Switzerland that existed before 1994.
One question may be whether the UK and EU will want to “grandfather” preferences they currently or previously gave to each other when they separate their services schedules. This would add complications to the process.
In general, extracting the UK’s MFN exemptions from the EU’s schedule may also be more complicated because a large number of exemptions are under EU-wide regulations and some refer to regions in the EU that are outside the UK. How much of them will apply to the UK after leaving the EU remains to be seen. This may also be linked to the Great Repeal Act, in which the UK will convert EU laws and regulations into its own before deciding whether any need changing. It all adds to the work load.
Finally, what would the UK face?
So, apparently, extracting the UK’s services schedule from the EU’s may be fairly straightforward. But it will take some time. There may be complexities that need careful tailoring so they can apply to the UK. The UK wants to complete this within the 2-years prescribed for leaving the EU under Article 50 of the EU Treaty. Whether this can be done remains to be seen.
The UK might be able to avoid negotiations on its services schedule, so long as other WTO members don’t demand a say. But that might not be possible because other countries might argue that Brexit is upsetting a negotiated balance, as a former senior Swiss trade official suggests could also happen with agriculture, throwing into doubt the possibility that the UK would simply “replicate” all the relevant parts of the EU’s schedule.
Much more complex are the barriers that the UK and EU would face in each other’s markets if they cannot agree on free trade in services.
For the UK, the complexity lies in the details for the 160 services sub-sectors multiplied by the four modes of delivery, and the limitations on access and equal treatment that apply generally across the EU and in each of the remaining 27 member states. It also lies in finding out what EU member states are actually applying rather than their binding limits in the WTO.
EU ENLARGEMENTS OVER THE YEARS — January 1, 1958 (under GATT) — 6 founder members
6. Netherlands — January 1, 1973 — 3 new members
9. United Kingdom — January 1, 1981 — 1 new member
10. Greece — January 1, 1986 — 2 new members
12. Portugal — January 1, 1995 (WTO created) — 3 new members
15. Sweden — May 1, 2004 — 10 new members
16. Czech Republic
25. Slovakia — January 1, 2007 — 2 new members
27. Romania — July 1, 2013 — 1 new member
28. Croatia —
(More details here)
Updates: May 4, 2017 — added link to Bloomberg story Photocredits
• Aircraft: by Francois Van, Unsplash, Creative Commons public domain CC0
• São Paulo Stock Exchange (Bovespa): by Rafael Matsunaga, via Flickr, Creative Commons CC-by-2.0
• Taj Mahal: by Chee Huey Wong via Pixabay, Creative Commons public domain CC0
• Electrician: via Pixabay, Creative Commons public domain CC0
• India’s Commerce Minister Kamal Nath mobbed by reporters at the WTO, July 2008: WTO
The notion that the EU was uncompromising was as absurd as the claim that Brussels had buckled. Brexit has entered a negotiating phase. We need to understand negotiations and to spot the flexibility in the noise
By Peter Ungphakorn POSTED APRIL 1, 2017 | UPDATED APRIL 1, 2017
Perhaps we should not be surprised, but should we be concerned? After Donald Tusk presented the EU–27’s draft negotiating guidelines for Brexit on March 31, 2017, the headlines showed widely different interpretations.
They ranged from fact and conciliation to confrontation and capitulation, all based on the same document:
The wire services (AP, Bloomberg, and maybe Reuters) focused on the EU Council’s guidelines offering an opening for negotiations — the EU is “engaging”, as Bloomberg put it (the headline on the AP story in the Toronto Star was far more confrontational than the story itself)
Most of the rest reflected a predisposition to see everything as a confrontation, from “says no” and “rules out” — perhaps defendable but seriously misleading — to “collision course”
One is downright bizarre (Express’s “Brussels Buckles”)
As real negotiations are now set to begin, we need better than that. In several cases the actual stories did reflect the nuances, but those headlines set the tone. By and large, Tusk’s text was seen to rebuff May’s March 29 letter kicking off Article 50.
“The United Kingdom wants to agree with the European Union a deep and special partnership that takes in both economic and security cooperation. To achieve this, we believe it is necessary to agree the terms of our future partnership alongside those of our withdrawal from the EU” (my emphasis)
May was calling for simultaneous, parallel talks: on the divorce terms and on the future relationship, including trade and security.
A few hours later, still on March 29, 2017, Germany’s Chancellor Angela Merkel told journalists:
“The negotiations must first clarify how we will disentangle our interlinked relationship … and only when this question is dealt with, can we — hopefully soon after — begin talking about our future relationship.”
The headlines were unequivocal. Merkel had scuppered May’s plans:
Angela Merkel derails Theresa May’s Brexit plan by rejecting parallel trade talks. Britain is to be put into the slow lane — the Independent — Angela Merkel rejects one of Theresa May’s key Brexit demands. Divorce settlement must come before talks about future relationship, says chancellor, as EU leaders respond to article 50 letter — the Guardian
“4. While an agreement on a future relationship between the Union and the United Kingdom as such can only be concluded once the United Kingdom has become a third country [non-EU member], Article 50 TEU [Treaty of the European Union] requires to take account of the framework for its future relationship with the Union in the arrangements for withdrawal. To this end, an overall understanding on the framework for the future relationship could be identified during a second phase of the negotiations under Article 50. The Union and its Member States stand ready to engage in preliminary and preparatory discussions to this end in the context of negotiations under Article 50 TEU, as soon as sufficient progress has been made in the first phase towards reaching a satisfactory agreement on the arrangements for an orderly withdrawal” (my emphasis)
Tusk is actually saying parallel talks are required by Article 50, because it demands a framework for future relations.
The only question is when the second track of the parallel talks should start. Tusk had an answer to that too — in the autumn.
“Once and only once we have achieved sufficient progress on the withdrawal, can we discuss the framework for our future relationship … probably in the autumn, at least I hope so,” AP and others quoted him saying. That’s still early in the 2-year Article 50 process.
Certainly by comparison with the headlines over Merkel’s statement, Tusk sounds much more flexible. The UK and EU would clarify the terms of separation (even if they are not settled yet) such as an acceptable range of separation costs, and proceed to parallel talks.
Then, take another look at what Merkel said. It’s more or less the same as Tusk and the guidelines.
“The EU’s draft Brexit guidelines look anything but punitive,” wrote Vincenzo Scarpetta, senior policy analyst with the think-tank Open Europe.
“… The door is wide open for parallel negotiations, albeit not from the very beginning. … The draft guidelines make it clear that parallel negotiations will be fully possible during the two-year timeframe stipulated by Article 50 — provided that ‘sufficient progress’ on the terms of the withdrawal is achieved.”
The notion that the EU was uncompromising was as absurd as the claim that Brussels had buckled.
Calling the shots
Some have claimed that this is still confrontational because it’s the EU Council that will decide when “sufficient progress” has been made. Therefore the EU is calling the shots and the UK will have no say, they argue.
But this is a negotiation. And that means “sufficient progress” is also negotiable. On some issues the EU will hold stronger cards, probably including this, but that doesn’t mean the EU’s position is fixed. Negotiations can only work if both sides want a result and they show flexibility. There will have to be give and take by both.
Which brings us back to the original problem. Many of the headlines show a failure to understand negotiations. The gut reaction is always to pinpoint where the two sides disagree. Often that is valid. But it also means missing the crucial openings when they are made.
The Article 50 talks could have been deadlocked over extreme positions: “parallel talks” versus “one before the other”.
Now there is room to discuss when the second track should begin. If the UK and EU–27 cannot sort that out, there’s no hope for the far more complicated stuff.
That said, there is a potential collision course. Not the parallel talks question, but the requirement that Spain should agree on any arrangement involving Gibraltar.
Understanding negotiations also means being prepared for unwelcome surprises. The Gibraltar issue came out of the blue and complicates the UK-EU talks. It may lead to procedural delays even — as some suggest — if the talks’ final outcome is unaffected because of EU voting rules.
It could even get worse. There could be a tussle over fisheries policy.
Or, completely hypothetically, we could imagine a situation where the best sweetener the UK can offer Spain is a free trade agreement with the EU and a commitment to copy and paste the EU’s tariffs on oranges, which currently protect Spain and other Mediterranean producers.
The price for the UK and its consumers would be the missed opportunity to import cheaper, lower-duty oranges from South Africa, Brazil and the US, and additional complications in negotiating free trade agreements with them.
Much will also depend on what influence the 26 other EU members have over Spain and how pragmatic Spain wants to be. If the UK, EU and Spain are not careful, a few words in the Tusk text could escalate into serious complications across a wide range of talks.
Updates: None so far Photo credits: Brexit flags, publicdomainpictures.net, CC0; 3 views, MaxPixel CC0; Peace conference in Karlowitz, Hungarian National Museum, wikimedia, public domain; Gibraltar viewed from Spain, wikimedia, CC0
The move reported by Politico on March 19, 2017 is important, but it might not be what it seems
By Peter Ungphakorn POSTED MARCH 20, 2017 | UPDATED MARCH 23, 2017
According to Politico on March 19, 2017, the UK and EU are preparing a 10-year interim duty-free trade arrangement based on WTO rules, and this is a “Plan B” in case the two sides cannot agree on a free trade agreement before the UK leaves the EU, presumably by March 28, 2019.
Before I continue, I want to make clear that I have not talked to any officials of the kind Politico cites, and therefore have not heard any explanation from them. But I have read the WTO articles cited and I believe there is a confusion about what this means.
The confusion is about two different “interim” situations.
Interim (1): all in the family
The first, and up to now the only “interim” to have been discussed, is whether the UK and EU will need more time, beyond the end of the 2-year Article 50 negotiation (the “divorce talks”) — beyond March 28, 2019, if Article 50 is triggered on March 29 this year.
If they do — and all but the most optimistic Brexiteers think two years will be far too short — they will set up interim arrangements between themselves, while they continue to discuss a final deal on trade and other issues. The interim arrangements could include temporarily continuing with part or all of the single market, what to do where jurisdiction is currently with the EU Court of Justice, and so on — until a final deal is agreed and kicks in.
Those interim arrangements are entirely between the EU (and its 27 remaining member states) and UK, and no one else (subject to WTO constraints). It’s voluntary although the situation is likely to force the UK and EU into an interim deal.
Interim (2): in the WTO — free trade in goods
What Politico reported about is related but different. In effect, this may be a WTO requirement — an obligation as well as a right.
The best way to explain this is to start by taking a step back and looking at the final deal between the UK and EU (assuming there will be one).
If the final outcome is a UK-EU free trade agreement in goods — or even a customs union, although that seems to be ruled out now — then the UK and EU will have to notify the agreement to the WTO.
Article 24’s disciplines are needed because it allows countries to deviate from the WTO’s principle of non-discrimination. Instead of charging their normal import tariffs, countries in a free trade agreement trade preferentially, duty free, among themselves.
Article 24 is the one that also requires the free trade agreement to cover “substantially all the trade”, which means a free trade agreement on cars alone would violate WTO rules.
Sometimes a free trade agreement cannot be implemented immediately, or part of it may have to be delayed (the agriculture section of the EU-Turkey customs union has been in preparation for decades).
In that case the two sides notify an interim arrangement to the WTO under GATT Article 24.5(c), which requires this to lead to a final agreement “within a reasonable length of time”:
(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
This interim period should normally be up to 10 years although an extension is possible as an exception, according to a modification signed in Marrakesh in 1994 as part of the package of agreements that set up the WTO:
3. The “reasonable length of time” referred to in paragraph 5(c) of Article XXIV should exceed 10 years only in exceptional cases. In cases where Members parties to an interim agreement believe that 10 years would be insufficient they shall provide a full explanation to the Council for Trade in Goods of the need for a longer period.
In other words, if the UK and EU intend to have an interim agreement (on all issues), then they must notify the WTO for the part dealing with free trade in goods.
Doing so would allow the UK and EU to implement their own interim arrangements and to be free to negotiate their final deal for a period of at least 10 years. Whether they conclude that deal in less than 10 years is up to them. Specifying 10 years is a cushion, not a timetable.
In that sense it is not Plan B, unless you believe concluding a free trade agreement between the UK and EU in two years is a feasible Plan A.
This requires “economic integration” in services to have “substantial sectoral coverage”, and also allows a delay in implementing the integration deal.
It says the provisions should take effect “either at the entry into force of that agreement or on the basis of a reasonable time-frame” (with some exceptions).
In other words, if the UK and EU intend to end up with some kind of free trade deal (or “economic integration”) in services, then this too would have to be notified to the WTO, although no time limit for the interim period appears to be set.
Again, notifying this interim period to the WTO would allow negotiations to continue during that period although some indication of the final destination might be needed at the outset.
And since these provisions only apply to free trade (or something similar) in goods and services, they say nothing about many other subjects that could end up in a UK-EU deal: mutual recognition of standards and regulations for goods and services, issues such as rules of origin, participation in institutions such as Euratom or the Erasmus programme, and a host of other subjects such as security cooperation.
Both for goods and services, this is an unusual situation, just as the whole of Brexit is. Normally countries negotiate a free trade agreement and notify it to the WTO when the deal is done. They can then say what they are going to implement immediately and which parts of the final destination are being delayed.
With Brexit the reverse is happening. The UK and EU have a single market arrangement and are withdrawing some or all of its features. Here the notification will be needed almost at the start of the negotiations, not at the end. Knowing the final destination so early in the process might not be so easy.
Finally, since I am not a lawyer, I may have missed something in reading GATT Article 24 and its modification, and GATS Article 5. So comments welcome via the feedback form or by tweeting @CoppetainPU
Lorand Bartels wrote a revealing article in 2009 (pdf) about the difference between a full (or final) free trade agreement and an interim agreement as notified to the WTO. Among the points he raised: the fact that no interim agreement had been notified since 1995; that an interim agreement would normally be expected to state what the “fully-fledged” final agreement would contain; and the increased chance that objecting members could resort to litigation under the WTO’s dispute settlement system.
Since I posted this article, a number of people, including Sir Tim Barrow, the UK’s new ambassador to the EU, have stated that the UK and EU can conclude a free trade agreement within the 2-year Article 50 period. That would certainly make an interim agreement Plan B. However, few outside the UK government share that view — see for example the repeated statements by Pascal Lamy, former EU trade commissioner and ex-WTO director-general. For many, having an interim agreement would be Plan A (and as discussed above that would oblige the UK and EU to notify the WTO). Plan B would be dealing with the “cliff edge” of no UK-EU deal, which could well also mean no agreement on their WTO schedules and therefore no “WTO terms” to fall back on either.
Updates: March 23, 2017 — “P.S.” added, plus some editing to try to make the text clearer Photocredits: Pixabay via Pexels, CC0
CLEMENS BOONEKAMP proposes a surprising alternative on Brexit’s trade front. Don’t negotiate. Announce.
Guest column by Clemens Boonekamp Partner at IDEAS Centre, former director of Agriculture and Trade Policy Reviews, WTO Secretariat POSTED FEBRUARY 12, 2017 | UPDATED FEBRUARY 12, 2017
The UK Prime Minister has opted for a hard Brexit. She is correct. A soft Brexit would have been unlikely. The UK has been a balancing force in Europe for centuries. This role is in question with Brexit, causing disquiet and some anger on the continent. A number of continental EU members also have their own “leave” constituencies with mainstream leaders ready to show that parting is not without cost.
These factors alone would have made it naive to think that the “single market” would be available for anything less than the “four freedoms”, substantial payments and no seat at the table — a situation considerably inferior to the EU-membership that the voters rejected!
Making it an issue in the Brexit negotiations could have led to an embarrassing rebuff, with the economy then in an increased state of uncertainty, with its attendant costs. A customs union might be possible but then the UK would forego its independence to negotiate bilateral trade deals.
There is a radical alternative on the trade front. Don’t negotiate. Announce, after invoking Article 50, that:
The UK will “cut and paste” the EU schedules of commitments in the WTO — which are the UK’s schedules as a member of the WTO in its own right
But in agriculture the UK will not have an AMS (the right to use trade-distorting domestic support beyond the “de minimis” 5% of the value of production; AMS is a measure of this, the aggregate measurement of support)
The UK will scrap all tariff quotas, applying the in-quota rates to unlimited quantities of imports on those lines (or products) where the EU has tariff quotas
The UK will trade on an “MFN basis” with the EU — trade between the UK and EU will have the same tariffs as trade between the UK and the rest of the world
The UK could also use this opportunity to simplify some extremely complicated tariffs it inherits from the EU, such as on processed agricultural products, where the rates depend on how much milk, sugar and other ingredients they contain. It could apply the lowest rates on all products where the EU has multiple rates
This has advantages: it is quick and clean, gets the job done, reduces uncertainty, avoids potential rebuffs and frees the UK to pursue trade relations with third parties.
It can take control by following a strategy that is bold and independent, simply not negotiating on trade and being generous on all other matters, to the benefit of all
In addition, it may reduce calls for compensation from those who will argue, correctly, that an x% percent tariff into the UK market is not worth as much as the same tariff into the previous EU–28 or, for that matter, the “new” EU–27 market — “nullification and impairment” of expected WTO rights is a likely issue.
Also, there will be a sense of schadenfreude in that there will be WTO members who will want to see the post-Brexit EU AMS reduced and the in-quota amounts of its TRQs (tariff-rate quotas) maintained, while some EU members will argue for the opposite — i.e. the EU will have a problem.
The UK can then move forward on its own choices for its trade relations, buttressed by its WTO membership. Proceed, perhaps, as follows:
maintain the generalised system of preferences for developing countries (GSP) provisions of the EU, as well its “everything but arms” duty free/ quota free access for least developed countries (LDCs)
propose a free trade agreement (FTA) to the US, offering essentially free access for goods and services, albeit with carefully circumscribed labour mobility
On the latter, knowing that the gains from liberalisation accrue mainly to those that undertake it and that FTAs need not be symmetric, accept any reasonable offer from the US — the point being to get it done quickly, reducing uncertainty and laying the basis for an independent trade framework.
Propose the same to the Commonwealth and China. When done, and acting with alacrity and generosity it might well happen in reasonably short order, re-approach the EU, suggesting similar terms but with some emphasis on mutual recognition and the financial “passport”. If successful, the UK would establish itself as a free-trade haven in Europe, with the economy to reap the benefits.
There are, of course, difficulties. It is probably impossible to know the “cost” of Brexit for the UK economy, but whatever it is there is likely to be a perceived need to safeguard some sensitive sectors. Agriculture, politically important, is an example.
Following Brexit the UK will “lose” EU support to its agricultural sector, amounting to upwards of €4 billion a year, equivalent to some 14% of its agricultural output.
In addition, around 60% of the UK’s agricultural exports go to the EU and would face an average tariff of almost 11%; assuming a unitary price-responsiveness, this could result in an annual income loss for the sector of up to €1.5 billion (and though the “responsiveness” may seem high it serves also as a proxy for areas such as lamb, where the EU has tariff quotas and where the UK loss of market share is almost certain to be substantial).
Making good, WTO-legally
There would then be pressure for the government to make good these revenue shortfalls — which, incidentally, probably could be done comfortably in a WTO-legal manner by use of the “de-minimis” (permitted trade-distorting support of up to 5% of the value of production) and Green Box (non-trade distorting support) provisions of the WTO’s Agriculture Agreement.
Other sensitive sectors could also face significant revenue “losses”, including motor vehicles, which would face an average tariff of around 10% into the EU for a possible loss also of some €1.5 billion a year. The government could consider compensating such sensitive sectors with performance contingent, time-bound, industrial policy measures.
It is not inconceivable that Brexit-related support to sensitive sectors could add well over 1% to government expenditures. This is doable, particularly given the presently low borrowing costs. But it is not a long-term solution; that requires market access, among a range of factors, and growth. The above may be a quick step in that direction.
Other issues will need to be settled with the EU for Brexit, including compensation and pensions. On the former, scrupulously pay the “rent, water and light” until you “close the door behind you”. On the latter, it may be an EU obligation but it does involve UK citizens; accommodation and generosity could well be good domestic and foreign policy.
The UK is in a box. Its future trade relations, and hence its economic actors, are uncertain. It can take control by following a strategy that is bold and independent, simply not negotiating on trade and being generous on all other matters, to the benefit of all.
Like this blog as a whole, guest contributions are intended to contribute to the debate. I don’t necessarily agree with them.
Updates: None so far Photo credit: pexels.com Creative Commons CC0
Can the UK unilaterally construct its own WTO Schedule of Commitments in agricultural products after Brexit? If the UK does construct its own Schedule, will this be legally binding on other WTO members, including the EU?
No, to both questions. First, the UK can and should draft its own schedules of commitments in agricultural products (and all other sectors). But they will not be legally secure until they have been certified by all WTO members — meaning until there are no WTO members with any objection. Once certified, they will be legally binding.
Second, a country’s schedules are not binding on other WTO members. They are commitments that the country has made to the rest of the membership. Other countries have their own schedules.
It is possible to trade without certified schedules. The EU continues to trade even though its goods schedule for the May 1, 2004 enlargement from 15 to 25 members was only certified 12 years later on 1 December 2016. The schedule for further enlargement to 27 and 28 members has not been certified.
The EU appears to operating with de facto schedules, for example revised tariff quotas appear in EU regulations. And it can trade without disruption, apparently because it has talked to key trading partners and adjusted its tariff quotas accordingly. The latest regulation for the lamb and mutton tariff quota states that the quota has been expanded for New Zealand, to accommodate Bulgaria and Romania becoming new EU members (but not yet for Croatia).
In other words, unilaterally creating the UK’s draft schedules without taking on board what other countries say could cause problems. Some negotiation will be needed so that the drafts are made reasonably acceptable to the UK’s trading partners, including the EU. But until the schedules are certified, the UK will be on legally uncertain ground, at best requiring complex legal arguments to defend the schedules’ contents. We don’t know how other countries would react.
To what extent is it possible to determine the EU-28’s current commitments in agricultural products in the WTO for (a) Tariffs (b) Tariff rate quotas (c) domestic support and (d) export subsidies for agricultural products? What impact might this have on (a) the UK’s negotiations with the EU and (b) the UK’s negotiations with other WTO members?
Strictly speaking, the EU’s legally binding WTO commitments are only its certified schedules, the latest for goods being for the EU-25 (WTO document WT/LET/1220 and attachments available by going to https://docs.wto.org and searching for WT/LET/1220).
This was only certified two months ago (effective from December 1, 2016 but circulated on December 14, 2016). Because it covers 10 new member states, it should be much closer to the schedule for the EU–28 than the one in force until the end of November (for the EU–15).
The 7th column lists a number of documents used in negotiations for the EU’s enlargement to 27 members, the latest being G/SECRET/32, “currently underway” — presumably referring to the status of negotiations on that draft. Documents in the series G/SECRET/… are so restricted that even WTO Secretariat staff cannot access them, except for a few key people.
There is no mention of any negotiation over the enlargement to 28 members when Croatia joined, which could be a problem when discussing the post-Brexit schedules of the UK and EU with other WTO members.
Before that, the WTO Secretariat’s report for the Trade Policy Review of the EU (the latest review, in document WT/TPR/S/317/Rev.1 of 21 October 2015) said:
“The current certified tariff schedule is the EU-15, effective 27 October 2012. The EU’s tariff concessions and agricultural commitments regarding agricultural market access, domestic support, and export subsidies to reflect the enlargement from 15 to 28 member States have not yet been formally agreed in the WTO. The EU submitted its EU-25 schedule for certification on 25 April 2014 and has initiated the procedures for the EU-28 schedule (section 184.108.40.206). With regard to the certified EU-25 services schedule, 18 EU member States have ratified the schedule. ”
As an EU member, the UK government ought to have access to the uncertified de facto schedules for the EU-28 both from Brussels (if not London) and any drafts at the WTO (although none appear to be with the WTO at the time of writing). This can be confirmed with government officials who ought to be able to provide better answers than I can on these points.
The public can detect the contents of the de facto schedules, but not always easily. There are two possible sources, both requiring work to compile the contents into one document: the EU’s own regulations, and its notifications to the WTO (under “The Agriculture Committee and official documents”, in the agriculture section of the WTO website, http://www.wto.org/agriculture#work).
Tariffs: these should be available from customs authorities, EU Trade or the UK Department of International Trade (bearing in mind applied tariffs can be lower than the legally bound rates). Most of them are unlikely to be very different from the tariffs in the schedule for the EU-15.
Tariff rate quotas: each of these should be available in separate EU regulations. They are also available in EU notifications on agricultural tariff quotas, but without the details from the schedules of how the quotas are divided among individual supplying countries.
Domestic support: the commitment is only one figure, for total aggregate measurement of support (AMS). The EU reports this in its domestic support notification along with an explanation of how much it has added for each expansion up to 28 members.
Export subsidies, also in the EU’s notifications. The latest for marketing year 2014/15 says the commitment is for the EU-25 while the actual reported subsidies are for the EU-28. Since the actual subsidies are considerably less than the limit, this difference is unimportant.
I would assume the UK’s negotiations over its schedules, both with the EU and other countries, ought to be based on the de facto schedules currently in use, because both the EU and the UK should have access to them.
We don’t know yet whether other countries would be willing to negotiate from the de facto pre-Brexit EU-27 schedules (with apparently nothing existing yet for the EU-28), but at this stage there seems to be no indication that they would object. Any that are holding back on certifying the schedules might have some reservations, but we don’t know what their objections are.
What, if any, are the legal and political challenges of splitting the EU-28’s WTO Schedule of Commitments on agriculture between the UK and the EU? To what extent can this issue be settled (a) by applying WTO law in dispute settlement proceedings before the WTO panels and/or Appellate Body and (b) by political negotiations between the UK and the EU and between the UK/EU and the other WTO members? Could the “Czechoslovakia” example act as a precedent?
The only areas where the UK and EU would split their commitments are tariff quotas (or tariff-rate quotas, TRQs) and agricultural subsidies. Most of the rest of schedules can remain unchanged. For example the UK can simply continue with the thousands of tariff commitments it currently has as an EU member. So my reply focuses on the quotas and subsidies.
I’m not a lawyer and cannot respond definitively to the legal points of (a). I do know that opinion is split. Some lawyers believe the UK can construct its schedules using legal principles and that if other countries object, the UK would probably prevail in any legal dispute. Some other lawyers disagree. The argument seems to be based on the idea that the entire UK schedule is obtained by using criteria based on WTO case law, leading to “rectification” (a more or less technical correction of the UK’s schedule implied in the EU’s schedule).
Many who have first-hand experience of how the WTO works, beyond the jurisprudence of dispute settlement cases, doubt whether other WTO members would accept the UK’s legal arguments, and whether the legalistic approach would be enough. I share that view.
For example, to account for current UK-EU trade in sheep and goat meat, almost 100,000 tonnes would be added to the combined UK and EU-27 tariff quota, around 33% more than its present size. That seems to stretch the idea of “rectification” (a technical correction) too far. It’s an adjustment arising from terminating a free trade deal (along with withdrawal from the rest of the single market), and introduced in order to take into account the volume of that duty-free trade between the UK and the EU.
Judging by recent experience in WTO negotiations, there may even be bargaining over which representative period to use as a basis for calculations. Possible options include averages over the last three or five years, including or excluding the highest and lowest numbers (an “Olympic average” excludes extreme points), and so on. I look at all of these points in detail here: https://tradebetablog.wordpress.com/2017/01/06/limits-of-possibility/
Generally, therefore, the UK and EU quotas should be settled by negotiation, where both political and commercial interests would play a part. Legal precedent would be a useful starting point, but probably not the conclusion. This would minimise any resentment and any trade disruption that might result from it.
Experts with inside experience of these processes have told me the Czech-Slovak split is not a suitable model. The split was under the General Agreement on Tariffs and Trade (GATT, the WTO’s predecessor), and before the agriculture and services agreements were added to the multilateral trading system. The two countries swiftly set up a customs union, meaning little changed in goods trade between the two and between them and the rest of the world. As a result, the rest of the GATT membership had few problems with this, at a time when they also wanted to ease former Soviet bloc countries into the multilateral trading system. The two then became EU members. The sizes of the UK and EU and the scale of the tasks they face are quite different.
To what extent can the UK restrict the import of agricultural products because they do not meet the same quality and safety standards as those produced in the UK? If the UK adopted a precautionary approach to the import of agricultural products into the UK, to what extent would such an approach be compatible with WTO rules?
No WTO member can restrict imports purely on quality grounds. The WTO has criteria for requiring imports to meet certain safety, health and other standards. They are set out in the WTO agreements on Sanitary and Phytosanitary measures (SPS, dealing with food safety and animal and plant health), and Technical Barriers to Trade (TBT, other standards, regulations, labelling, etc).
Broadly, the criteria include having to provide scientific evidence or a risk assessment that the standard or measure is necessary for health or safety, or adopting an internationally-recognised standard. (WTO members have also agreed non-binding codes of good regulatory practice.) So long as the standards meet the legally binding criteria the UK can (and does, through the EU) require imports to meet the same standards as its own products. It cannot set stricter standards on imports than on domestically-produced products. This is known as applying “national treatment”.
WTO agreements don’t mention a “precautionary principle” specifically. However, some experts see article 5.7 of the SPS Agreement as a means of adopting the principle at least temporarily until the government obtains “additional information necessary for a more objective assessment of risk” and reviews the measure “within a reasonable period of time”.
Why do free trade agreements rarely include agricultural products? What are the main challenges the UK would face when negotiating new free trade agreements covering agriculture with (a) the EU, (b) the USA, (c) Australia, (d) New Zealand and (e) other WTO members? What are the key lessons learnt by the EU or other WTO members negotiating such FTAs?
Many if not all free trade agreements actually include agricultural products on way or another, but they may have exemptions or delays on scrapping import duty on these products.
Agriculture is a particularly sensitive sector for various reasons: politics, culture, concerns about rural society, food security, and so on. It is often one of the last areas to be liberalised whether multilaterally or through free trade agreements. The most sensitive products have ended up with tariff quotas using prohibitively high out-of-quota tariffs. Some free trade agreements also have tariff quotas.
In general, the challenge the UK will face with all of those countries is to strike a balance between:
the demand for support and protection from the UK’s own farmers
the demand from UK consumers and processors for cheaper food and raw materials
the demand from exporters in the other countries for access to the UK market
the trade-off with UK producers in other sectors (such as services) wanting access to the other countries’ markets, which might entail opening up UK agriculture
For example, the UK might be willing to give Australia a larger quota for meat or dairy products in return for Australia allowing better access for British financial services or protecting British geographical indications such as Melton Mowbray pies or Scotch whisky. Some geographical indications are covered by bilateral agreements between the EU and the US, Australia and others. They mainly deal with wines and spirits since “new world” producers resist tightening protection for food and other products. It’s unclear whether those agreements will automatically apply to the UK. The full list is here: https://ec.europa.eu/agriculture/gi-international_en. Some of the EU’s free trade agreements also include chapters on geographical indications, for example the one with South Korea.
The range of sensitive agricultural products is extensive: dairy, meat, fruit and vegetables, various cereals, sugar, and so on. Canada (not listed in the question) also has interests and sensitivities in the dairy sector.
Large books have been written about the lessons learnt. Some of the issues most frequently mentioned in current conversations include:
Agreement can be held up by complex ratification processes in federal systems (the Walloon parliament on the Canada-EU agreement, for example) or where parliaments are strong (the Trans Pacific Partnership was under threat in the US Congress even before President Trump pulled the plug)
Many agreements include investor-state dispute settlement (ISDS) provisions, which are deeply unpopular because, rightly or wrongly, they are seen to give large companies power over governments. Some experts think the mega-regionals (TPP and TTIP) would be easier to conclude without ISDS. The EU is proposing an alternative multilateral arbitration system, but it’s unclear whether this will be more acceptable
When negotiations are secret, they are an easy target. To gain public support, they should be more transparent, while allowing new ideas to be floated in confidence until they become more established.
(To declare an interest: I worked on information at the WTO Secretariat, where I think we were reasonably successful in striking a balance in the Doha Round negotiations. For example all the chairs’ drafts and other texts have been published as they have evolved, and the WTO website contains broad-brush accounts of the negotiating sessions, along with many of the members’ proposals. After the protests in Seattle in 1999, the WTO was rarely accused of secrecy, unlike with the negotiations under its predecessor, GATT.)
Which of the EU’s FTAs with other countries include agriculture? Will the UK be able to negotiate continued access to these agreements after Brexit?
The answer is more complex than the question suggests. Most if not all EU FTAs include agriculture in one way or another, including exemptions for specific products or lengthy phase-in periods, and various provisions on rules as well as tariffs. Experts who have studied the many agreements in detail may be able to answer better than I can.
The EU-South Korea FTA lists all agricultural products, with tariffs generally at zero immediately or gradually over periods of up to 21 years, depending on the product and whether it is imported into the EU or South Korea. In addition, some products escape tariff reductions completely, such as rice in both markets.
The customs union with Turkey includes a section on agriculture with the “common objective to move towards the free movement of agricultural products” and even to have a common agricultural policy, under a 22-year timetable in an “additional protocol” originally signed in 1970 but still not yet achieved.
As far as I can see, there is nothing to stop the UK negotiating continued access to these agreements provided the FTA partners also agree. Whether those negotiations lead to identical terms, or something different, depends on the negotiations. For some, the criteria will clearly be different. It’s hard to see the present EU agreements with Iceland and Norway being replicated with the UK, not least since they include the four freedoms of movement and contributions to the EU budget.
I have not seen any legal argument suggesting transferring the agreements to the UK will be automatic or a legal right.
Perhaps the most important question is what happens to the UK’s trade under the EU’s FTAs while the UK’s new FTA negotiations have not been concluded.
For all of these points, take for example an FTA between the UK and South Korea. This could be based on the EU-South Korea FTA, a 1,432-page document which includes the following:
around 70 pages of detailed terms, conditions and regulations for trade in goods and services, and intellectual property rights
well over 1,000 pages of commitments by the two sides on goods, including a number of tariff quotas
annexes on regulatory convergence and conformity on electronics, motor vehicles and parts, and pharmaceutical products and medical devices
an annex on agricultural safeguards. These are temporary tariff increases to deal with import surges — the present trigger levels are for imports from the EU, which would have to be adapted if separate figures are to be established for the UK and EU27
around 250 pages of commitments on services
a couple of pages on public procurement and build-operate-transfer contracts
about 25 pages on geographical indications for food (none of it British) as well as wines and spirits
institutional arrangements, including arbitration
other annexes containing, for example, definitions or criteria
Creating a UK version of this agreement has many similarities with creating the UK’s WTO schedules out of the EU’s plus any changes the UK and South Korea might want to make to the regulations.
That is just one of 44 agreements, but perhaps one of the most detailed. To ensure continuity, the UK should reach agreement with all of the EU’s 44 FTA partners by the time it leaves the EU. That sounds like extremely hard work, since during the same 2-year period the UK will already be negotiating with the EU, potential new FTA partners such as the US, Australia, New Zealand, India and others, and with all WTO members over its schedules.
If we want to understand the UK’s trade relations with the EU after Brexit we cannot say that without a UK-EU deal they will “fall back on WTO rules”
By Peter Ungphakorn POSTED FEBRUARY 8, 2017 | UPDATED FEBRUARY 15, 2017
Now that the UK is about to start negotiating its departure from the European Union, it’s important to understand the meaning of World Trade Organization (WTO) “rules”.
Why? Because people are talking about WTO rules as if they only kick in if the UK and EU fail to reach agreement on their future trade relationship — that only then would the UK and EU “fall back on WTO rules”. They are wrong.
The truth is: WTO rules already apply to the UK’s present trade relationship with the EU.
They will also apply to any future trade relationship between the two, whether there is a deal of some kind, or no deal at all — so long as the UK and the EU and its member states are members of the WTO.
Falling back on WTO “terms”
So what will the UK and EU fall back on if they cannot agree and the UK still leaves the EU?
They will fall back on commitments they have agreed in the WTO for trade with all other WTO members — except for those with whom they have a special (or “preferential”) trade arrangement, such as a free trade agreement.
This is sometimes called “WTO terms”, a better shorthand description than “WTO rules”. Some speak of “WTO tariffs”, which is more precise but doesn’t include services and agricultural subsidies.
Without a special deal between the UK and EU, trade between them will face import duties according to their WTO commitments for normal trade (without any free trade agreement).
The import duties (or “tariffs”) they charge on each other’s products will have to be the same as they charge on products from all WTO members except partners in free trade agreements. WTO non-discrimination rules would apply.
Limited amounts of some products — mainly agricultural — will be traded at low tariffs, with volumes outside those quantities facing much higher tariffs, so high that it might be impossible to import them. These are called tariff quotas.
British and European service industries are now relatively free to trade across the EU or to set up in other EU countries. Without a special deal, services trade between the UK and EU will revert to the much less liberal commitments they have made in the WTO on opening their markets to foreign services.
The commitments are explained in more detail here.
UK-EU relations and WTO “rules”, now and in the future
Even now, while the UK is a member of the EU and its single market, it is governed by WTO rules. These mainly deal with how the EU and its member states relate to the rest of the world. They also discipline how the single market and customs union themselves are set up.
The WTO rules affecting the UK and EU cover a large number of issues. They include:
WTO rules are actually negotiated agreements. The full package is here.
The EU’s member states have agreed to go beyond those WTO rules for much of their trade relations. Therefore when disputes arise between the member states, they are handled within the EU, for example if the UK objects to French restrictions over foot and mouth disease.
After Brexit, the UK and EU aim to have some kind of free trade agreement. This will have to come under WTO rules including one that says a free trade agreement in goods or a customs union must cover substantially all trade.
Another says an agreement in services has to have substantial sectoral coverage.
Even though they are both members of the North American Free Trade Agreement, the US and Canada have taken some disputes to both the WTO and NAFTA
In other words, WTO rules will prevent the UK and EU from having a free trade agreement only for the auto industry, aerospace and banking.
That long list of all the areas covered by WTO rules will also govern UK-EU relationships even if they have a comprehensive agreement.
Depending on the type of arbitration set out in their agreement, they could also find themselves facing each other at the WTO dispute settlement court.
The US and Canada have taken each other to WTO dispute settlement even though they have an arbitration mechanism within their North America Free Trade Agreement (NAFTA). Some cases have been taken to both the WTO and NAFTA.
Failure to understand this would mean a failure to understand the future UK-EU trade relationship.
Finally, WTO rights and obligations
To complete the picture, the WTO is a system of negotiated multilateral trade agreements. The whole package must now run close to 30,000 pages. It consists of two parts.
First is a rule book of about 500 pages. Among the key principles running through its wide-ranging coverage is non-discrimination in trade — between a country’s trading partners, and between foreign companies, products and people and its own.
The remaining 20 to 30,000 pages are the lists of commitments made by each of the WTO’s 164 members, the limits they have agreed on tariffs on tens of thousands of products and on agricultural subsidies, and the minimum market opening they have promised for various services.
Under those agreements, WTO members have rights (for example not to face discrimination, and to have access to other countries’ markets) and obligations (for example not to discriminate, or to keep markets open at least as much as they have committed).
The agreements come from negotiations. The WTO dispute settlement system is about whether those agreements are being implemented as promised or how they should be interpreted. All decisions are taken by the membership, almost always by consensus (meaning no one objects).
The clichés are: the WTO operates a rules-based trading system; and it is member-driven.
Updates: Februay 15, 2017 — adding link to WTO legal texts Photo credits: WTO via Flickr; Marrakesh signing by Peter Ungphakorn