PRESERVING TRADE, PRESERVING JOBS?
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).
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
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).
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!
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“
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.
This page compiled: 25 May 2014, links updated: 1 January 2018