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PRESERVING TRADE, PRESERVING JOBS? |
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ABSTRACT:
In the coming years, the UK could well
decide to remove itself from political union with the EU and instead have a
neighbourly relationship based on trade and selective cooperation. Maintaining
trade will be an issue, but with both the UK and the EU members of the World
Trade Organization, there are existing mechanisms to gain a win-win solution,
and avoid a trade war that will help no-one.
In the September
2013 Guildhall debate on UK survival outside the EU, arch-Europropagandist Sir
Martin Sorrell asked why we would “cut
off our trade”? He also raised the prospect of
having 10% duty on our motor exports to the EU if we left.1
The chances
are he’s wrong on both counts. For a start, the ‘EU27’ sell us far more
vehicles than we sell them, and would get hit worse by any punitive measures. The
difficulties experienced by continental economies would
make a trade war highly damaging to them.
Sorrell might also be the species of Europhile
that doesn’t read treaties. If he picked up the Treaty of Lisbon, he might note:
TEU
Article 21, para 2 states: “The Union shall define and pursue common
policies and actions, and shall work for a high degree of cooperation in all
fields of international relations, encourage the integration of all countries
into the world economy, including through the progressive abolition of
restrictions on international trade.”;
TFEU
Article 206 also lays down: “...the Union shall contribute …to the harmonious
development of world trade, the progressive abolition of restrictions on
international trade and on Foreign Direct Investment [FDI], and the lowering of
customs and other barriers.”
For neighbouring countries (i.e. us
after we’d left!), he would also find that the Treaty legally commits the EU to
the freest possible trade, free movement of capital and peaceful co-operation.2
THE
WIDER DIMENSION
All of the
‘EU28’ are members of the World Trade
Organization (WTO), where the EU has group representation. It is a
principle of the WTO that once trade is liberalised, it stays liberalised, or
compensation becomes payable.3
The EU has
already recognised that the goals of treaties are binding.4 This reflects
the position in International Law (cf. good faith obligations, ‘pacta sunt servanda’, in the Vienna Convention on the Law of
Treaties).
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The WTO
allows regional unions (such as the EU) as a means of easing trade between
members, but not to raise barriers to the trade. In
fact, they must avoid creating adverse effects to other WTO members (i.e. us),
and to do so could result in legal action.5
Under WTO GATT/GATS
principles, once goods/services are allowed into a market, discrimination on
grounds of nationality is banned. (Referred to as “national treatment”).6
The situation
is very different to 1975, as under the wing of the WTO (and previously GATT), world trade barriers have since been slashed, removing one
‘argument’ for being in the EEC/EU.
THE
EU AND FREE TRADE
To those who
fear that the EU would try to make it difficult for Britain to leave, the
evidence actually points to the opposite. The European Commission policy was expressed
in “Trade, Growth and World Affairs: Trade Policy as a Core Component of the
EU’s 2020 Strategy”, (COM(2010)612).
This confirms
the intention to dismantle barriers and promote balanced free trade as far as reasonably possible. It is committed
to work via the WTO, and is not against ‘bilateral’ agreements – so it would
not deter third countries or blocs from trading with us. 7
The
WTO noted in 2011 that, apart from the EFTA countries (Switzerland, Norway,
Iceland, Liechtenstein), the EU had extended free trade agreements to Albania,
Algeria, Bosnia and Herzegovina, CARIFORUM states, Chile, Croatia (now in the
EU), Egypt, Faroe Islands, Former Yugoslav Republic of Macedonia (FYROM),
Israel, Jordan, Lebanon, Mexico, Montenegro, Morocco, Palestinian Authority,
Serbia, South Africa, Tunisia, and certain overseas countries and territories.8
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This also
bodes well for extending trade with us in areas not yet covered by the somewhat
hyped ‘Single Market’. Although Norway,
Iceland and Liechtenstein
pay a subscription to join in the EU’s wider EEA arrangements, countries like
Mexico and Israel do not pay to freely trade with the EU. It could strongly be argued
that, having paid for 40 years to set up the ‘Single Market’, Britain should not
be charged for a free trade relationship, and it would be against WTO rules if
the EU tried.
There is also
nothing to stop us working with the EU (and others) in wider trade agreements if and when needs coincide. So any free
trade deals in the pipeline, such as possibly with the USA, need not be lost if
we left the EU in the near future.
The UK has
various trade deals cut on our behalf by the EU as a result of the common
commercial policy arising from various EU treaties, as well as its own
substantially-free trade with us.
Some query
whether these arrangements would end as a result of us terminating the Treaty
of Lisbon with the EU27. There are some pointers in international treaty law. Technically
terminating a treaty “releases the
parties from any obligation further to perform the treaty” however it does
not necessarily terminate a relationship, as it
“does not affect any right, obligation or
legal situation of the parties created through the execution of the treaty
prior to its termination”.
9
Seen in the
context of wider obligations within the WTO towards fostering free trade, this
indicates that any personal or national ‘right’ to enjoy trade terms negotiated
on our behalf might be matched by a responsibility on all sides to regularise working
arrangements. For the sake of certainty and enforceability, this would mean
formalising trade agreements. 10
A
WIN-WIN SITUATION - STABILISING TRADE
Achieving “the freest possible trade” with the EU
might best be achieved by a summary agreement not to introduce barriers to the
free movement of goods, services and capital, perhaps treating the UK as an
‘honorary member of the EU’ in terms of administrative arrangements.11
As a good neighbour, the UK could then co-operate with the EU in discussing
further trade liberalisation.
(Should the
EU create ‘adverse effects’, it would be liable to pay compensation for
financial losses, not just in Britain, but to others, such as continental
importers, who lost out. This would not be in the interest of its pressured
national economies, or potentially stock markets all over the world).
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However, the
EU is on record as supporting the work of the WTO on trade liberalisation and preferring
to resolve trade disputes through the WTO mechanism, with a preference towards
first resolving them through negotiation.12
Logically,
achieving stability in wider world trade as well as with the UK as a major trading
partner could initially be managed by obtaining a summary (‘multilateral’ or
‘plurilateral’) agreement at WTO level that the UK could inherit existing trade
arrangements (e.g. Preferential/Free Trade Agreements and their schedules) that
were made in the name of the EU. This would also preserve for the many third
countries the benefits of wider free trade.
Just as the
IMF acts to preserve the stability of the world financial system, the WTO seeks
to ensure the stability and predictability of the world trading system, and
would be well-placed to act as mediator in trying to ensure a smooth transition.
This article is
an update of an earlier
one, both designed to promote discussion on this advanced and complex topic.
Needless to say it does not constitute legal advice of any sort!
References
1
High import duties need not be a fact of life. South Korea
is becoming an increasingly important producer of motor vehicles. Interesting to note that in spite of
this, in 2011, the EU agreed a free
trade agreement with it, phasing out import duties with their competitor by
2016, duties on larger cars ending in 2014. For more details, see EU trade document 148303.
2
Lisbon Treaty TFEU Art.206; TFEU Art 63, TEU Art 8
3 “Understanding
on the Interpretation of Article XXIV of the General Agreement on Tariffs and
Trade 1994”, p33/p34. Also The General Agreement on Trade in
Services (GATS), part IV; “Introduction to The General Agreement on Trade in
Services, WTO, 31 January 2013”.
A
dispute settlement procedure concentrates on compliance, but can make the
parties discuss and agree compensation; if that fails, the injured party can
request permission to invoke trade sanctions.
NB
The WTO is merely concerned with trade, but wider international law applies,
and for an account of the principles of reparation (restitution, compensation,
satisfaction) see a paper: "Restitution and Compensation, Reconstructing
the Relationship in Investment Treaty Law“
http://www.whi-berlin.eu/tl_files/documents/whi-paper0211.pdf
4 See European Court of
Justice, Cases 11/00,
15/00,
on its own goals applying within the EU.
5 Reaffirmation
on p33, “Understanding on the Interpretation of Article XXIV of the General
Agreement on Tariffs and Trade 1994”.
6 This
update corrects an earlier typo in which national treatment‘ was referred to as
"most favoured nation" or
MFN.
See https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm
for WTO definitions.
MFN rules
cover other non-discrimination (e.g. on tariffs) but there are permitted
exceptions, such preferential/free trade agreements. This is a working
generalisation and there is some small print (for instance, it is legal to
temporarily ban imports on public health grounds). MFN rules may sometimes
allow temporary exemptions, but the WTO is vigilant over possible abuse.
Whereas some
groups and individuals may have stated that a post-Brexit UK should trade with
the EU under WTO rules without a formal trade agreement, this has not been our
position. In a newsletter in March 2013 and since (2014) we have called for a
formal free trade agreement so that the position is regularised, as suggested
by the Vienna Convention on international treaties. Our main point in this
article is that mutual UK-EU commitment to free trade means that we would in
practice continue it.
For
information on MFN, see also http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm6_e.htm.,http://www.wto.org/english/tratop_e/serv_e/serv_e.htm,
Some permitted/temporary
exceptions - The General Agreement on Tariffs and Trade, 1947, various Arts XII-XXI
7 Trade Policy As
a Core Component of the EU’s 2020 Strategy, 2010 (COM(2010)612). NB This backs
Lisbon TFEU Art206, which commits the EU to work for the progressive abolition
of restrictions on international trade and on foreign direct investment, and
lowering of customs and other trade barriers
8 WTO document WT/TPR/S/284,
TRADE
POLICY REVIEW, Report by the Secretariat, EUROPEAN UNION 28.5.2013, lists
33 EU Preferential Trade Agreements as at December 2012
((26 countries/groups had previously been listed in
document WT/TPR/S/248/Rev.1,
Page 13, “TRADE POLICY REVIEW, Report by the Secretariat, EUROPEAN UNION,
Revision”, dated 1.8.11 (S248R1-03.pdf, www.wto.org,
seen 23.5.13)).
9 The Vienna
Convention on the Law of Treaties, 1969, Art 70. For more specialist
information on its interpretation, see 'Vienna Convention on the Law of
Treaties: a Commentary', edited by Professor Oliver Dörr
and Professor Kirsten Schmalenbach (publ: Springer, Heidelberg, 2012).
10 See WTO explanatory
publication,
“WTO ANALYTICAL INDEX: MARRAKESH AGREEMENT Marrakesh Agreement Establishing the
World Trade Organization”, particularly notes 11 on EC – Bananas III, and 13/14 on Turkey - Textiles for some practical interpretations of
obligations.
The
WTO consistently seeks “reciprocal and mutually
advantageous arrangements“.
11 There
is evidence that the UK is a named signatory to the EEA Agreement, so full access
to the ‘single market’ might not necessarily terminate if the UK left the EU. See
the IEA Brexit finalist essay
by Ben Clements.
12 See the EU’s
Directorate-General for Trade webpage, which
explicitly confirms: “the EU supports the work of the WTO on... trade
liberalisation”. (seen 23.4.14)
See also the EU webpage on
resolving trade
disputes. (seen 23.4.14)
Some also refer
to the EU’s dissatisfaction with its particular bilateral arrangement with
Switzerland, but that does not in itself make the EU anti-bilateral; indeed it
has been working towards a comprehensive bilateral free trade agreement with
the USA, for instance.
For more
information,
visit the website www.wto.org,
especially “Understanding
the WTO”.
This page compiled: 25 May 2014, links updated: 1 January 2018