UK Trade after Brexit: Is the WTO a suitable alternative?

By Dr Clair Gammage, Lecturer in Law (University of Bristol Law School).

wto1-color_lAs a regional integration lawyer, I have become increasingly concerned about the arguments put forward by both camps in the Brexit debate which, in my opinion, overlook the complexity of international trade. As the world has become increasingly multilateralised, the power base has shifted from the traditional “sovereign State” toward international institutions and regional organisations. States are no longer the only governing organisations in the international order.

We are witnessing the proliferation of regional trading arrangements and the EU has been a leader in the regional project. Regionalism is the coming together of a group of countries that may or may not be geographically proximate for a common purpose – usually, trade. While the Southern African Customs Union (SACU) is the oldest regional arrangement, the EU is perhaps the best known because of its relative success at economic, political and social integration. The EU remains the biggest global economy and a world leader in the liberalisation of commercial services and investment. Alongside the US, the EU is the largest trade partner for almost every other country in the multilateral trading system. It is a highly diverse and competitive market, and one which is very attractive as a region to other countries.

If the UK votes to leave the EU on 23 June, what will happen to our existing trade deals? The first issue to be addressed is leaving the EU, which is a type of preferential trade agreement in itself: a customs union. Article 50 of the Lisbon Treaty provides the legal basis for exiting the customs union. However, what is not accounted for is the impact that leaving the customs union will have on the concessions the UK currently enjoys by being part of the EU. When the World Trade Organisation (WTO) was created in 1995, the UK had been a part of the negotiations in the preceding Uruguay Round, albeit as part of the EU. In this regard, it is difficult to assess what concessions might be agreed for individual UK membership if Brexit becomes a reality. Negotiations for new concessions and market access might need to be approved by other WTO Members, and their agreement to such a schedule of concessions might not be forthcoming.

In addition to its membership of this customs union, the UK is party to preferential trade agreements with 50 partner countries negotiated as part of the EU, and there are some notable agreements still in the negotiation phase, such as the controversial TTIP Agreement. These have been negotiated by the EU as a group, rather than by EU Member States individually. Without doubt, the implications of Brexit could be far reaching for the UK in trade terms and this begs the question of whether the UK can legally remain party to the existing preferential trade agreements to which it is attached through EU Membership. At the least, the parties will need to agree to textual changes to the Agreements which recognise the UK is now an individual party rather than part of the collective EU. Legally, this will require all parties to ratify the changes. It will require the remaining EU Member States to agree to the portion of revenue generated under certain provisions that the UK should receive under the trade agreements.

However, the situation is likely to be far more complex, particularly in the context of agricultural trade in both preferential agreements and in terms of the EU’s Common Agricultural Policy. In light of this, and as an alternative, the UK might seek to exit these agreements in full and renegotiate them on their own terms in the hope of securing a better deal. Optimistic commentators for the ‘Leave’ campaign propose the re-negotiation of existing trade relationships alongside new trade deals with the EU, China and the USA in order to protect the UK’s future trade interests. However, getting a “good” deal is based on the assumption that the UK will retain a strong negotiating position in the global order – an issue that is strongly contested on both sides of the debate.

Leaving the EU raises a number of questions regarding not only our legal status vis-à-vis existing preferential trade agreements, but also regarding our relationship with the WTO. While the UK has negotiated its preferential trade agreements as part of the EU, it nevertheless has individual WTO membership. So, if the UK does leave the EU, it will still remain a Member of the WTO. If the UK were to seek renegotiation of its trade agreements, it will need to do so in accordance with WTO rules. Eurosceptics have claimed that the WTO is preferable to the EU and among the more radical of the proposals on the table, is what some economists have called the “WTO Option”, in which the UK will adopt a free trade approach. This approach involves the reduction of tariffs to zero meaning that the UK would become a “real free trader”, similar to the models adopted by Hong Kong and Macau.

However, the UK’s economy is far more complex than these two South East Asian economies, and to adopt a free trade model is, in my opinion, highly unfeasible. Indeed, the WTO’s Director-General Roberto Azevedo has warned that the UK should not see the “WTO Option” as a foregone conclusion. The economic modelling used to develop the WTO Option overshadows the political complexity of the EU as a region, and of the global trading system. The best case scenario, in which the UK liberalises trade and forms new deals with the EU and other trade partners could see a rise in GDP of 1.6% by 2030. However, a more realistic forecast tells a more worrisome tale with a loss of 2.2% GDP in that time frame if the UK slips back into protectionism.

To say that a great deal of uncertainty surrounds the possibility of Brexit is a gross understatement. For example, will Germany simply let the UK renegotiate a deal with the EU along the same lines as Norway? Will the WTO accept the UK’s free trade option? Is the WTO a suitable alternative to the EU? It is widely accepted that the EU maintains its strength in trade negotiations because it is a club of 28. If the Member States were to adopt individual trade strategies this would inevitably weaken the negotiating force of the EU. In short, we are not stronger as an island nation than we are as a member of the EU. In my opinion, the UK economy is simply not competitive enough to stand alone in the modern global economy. As the saying goes, “with great power comes great responsibility”. While the EU is not a perfect model of governance, in terms of its internal trade or its external relations with third countries, leaving the EU will require countless legal processes, ratifications and re-negotiations. Surely, it is better to be part of reforming the system rather than exiting it altogether?

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