‘Trading Matters!’

David Collins

Friday 21st July: This week as David Davis met the EU’s chief negotiator, much of the initial exchange will seem to be a side show – with the politics of holding the EU together dominating the EU approach, while Britain should focus on its future trade arrangements. Here, David Collins* considers the legal issues involved with the UK’s post-Brexit trade opportunities, focusing on a UK-EU Free Trade Agreement (FTA) and the UK’s status within the World Trade Organization (WTO).Given limited legal obstacles there is every likelihood that an FTA with Europe will be achieved within the next few years. Even without one, the UK should do very well as an independent member of the WTO. It will also be able to form mutually advantageous trading agreements with other countries, maximizing the gains from trade. The publication presents a checklist for strategies for the UK government to pursue in the coming months with a view to achieving the smoothest and most beneficial Brexit possible.

It now seems that FTA negotiations will not proceed in tandem with the Brexit negotiations. Still, a comprehensive FTA with Europe covering goods, services, and investment should be reached within a few years. The average length for concluding an FTA is just over two years, although progress will be somewhat slower dealing with the EU because of the bloc’s requirement to have various facets of FTAs ratified by its Member states. We should expect that the process won’t take as long with the UK because there is already broad regulatory convergence between the two parties. Further, a UK-EU FTA need not contain either free movement of people or the jurisdiction of the ECJ. Neither of these is in the CETA agreement with Canada. If an FTA with Europe cannot be concluded within a few years it will be because of political reasons. Even if this were the case, there is a good chance that some kind of an interim agreement can be negotiated, which may preserve aspects of EU membership for a time while businesses adjust to the new environment. Such arrangements are fully compatible with WTO law.

Far from the grim “cliff edge” scenario presented by many, the UK will enjoy Most Favoured Nation trading status with the EU as a member of the WTO, re-joining the WTO as an independent member. This will involve duplicating its existing schedule of commitments under the General Agreement on Tariffs and Trade (GATT) and extracting its commitments for services under General Agreement on Trade in Services (GATS). There are some additional issues relating to the UK’s share of tariff rate quotas which should not be problematic. The UK should seek to accede to the WTO’s Government Procurement Agreement, concluded among a number of developed country WTO members, which can be achieved through simple declaration. Provided that the UK preserves the rights of other WTO members vis a vis market access and does not restrict them, then then there should be no objections from any other members during the certification process, which is essentially a formality. Going forward the UK will most likely lower its trade barriers towards other WTO members. This should result in economic gains across a number of sectors, including several which had been protected on behalf of suppliers in other EU member states.

While tariffs will be higher on some British goods entering the EU, these are already reasonably low under the WTO, which has been massively successful in lowering tariffs over the past 50 years. Economists have further suggested that currency depreciation will be enough to negate any residual disadvantages, such as higher tariffs on automobiles. Contrary to the hellish image of backed up lorries at Dover emphasized by many in the media, there should be no difficulties with conformity assessment procedures for UK goods entering the EU. Since we already have regulatory convergence (and will keep it because of the Great Repeal Bill) the EU will not be able to discriminate against UK goods entering the EU on these grounds, as this would violate the Technical Barriers to Trade Agreement of the WTO. Customs procedures can be readily tackled through the use of enhanced technologies at our borders. Trade in services with the EU under WTO terms will be somewhat more difficult given that the EU has made very few commitments for market access under the WTO’s GATS. Mutual Recognition Agreements should help enhance existing market access, particularly in financial services. There is every reason to believe that these can be achieved efficiently, much as Switzerland and the US have done with the EU in the past.

The greatest benefit to the UK after its departure from the EU customs union will be that it will be free to conclude its own FTAs with third countries. Although FTAs with third countries cannot be signed while the UK is still a member of the EU, there is no reason that the UK cannot engage in informal discussions, and many of these will be commencing soon. The US and several Commonwealth countries are eager to proceed with FTAs with the UK and this is no surprise, given the size of the UK’s economy and the opportunities it presents to foreign suppliers. The UK should pursue all of these diligently in order to reap the economic gains from free trade. The Trade in Services Agreement (TiSA) is another avenue that the UK should pursue. This agreement, currently being negotiated by 23 WTO Members, should help achieve greater market access for services in the EU and other leading developed nations. Finally, it is hoped that the UK will take on a leadership role at the WTO as a global champion of free trade.

*David Collins is Professor of International Economic Law at City, University of London and the author of Politeia’s Negotiating Brexit: The Legal Basis for EU & Global Trade. He previously practised commercial litigation in Toronto and was a prosecutor for the Attorney General in Ontario. His previous publications include An Introduction to International Investment Law (Cambridge, 2016) and The World Trade Organization Beginner’s Guide (London, 2015).

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