Bilateral Trade Agreements Encouraged

Trade under WTO rules would involve import and export customs declarations and customs tariffs in most cases. The EU would apply its third country list of tariffs to the UK. The UK may ultimately apply the same tariffs to the EU but may offer concessionary tariffs for a period.

regulations and checks across the range of non-tariff requirements would apply to trade into the UK from the EU and into the EU from the UK. Most of these requirements are listed in the EU tariff and the new UK tariff of the goods concerned.

The WTO agreement positively encourages and allows for free trade agreements customs unions and single markets. Provided certain conditions are complied with. these agreements are allowed by way of exception to the general principle of most-favoured-nation and non-discrimination.

The principal conditions are that the agreements must apply and cover substantially all trade between the parties and the whole of the tariffs and other barriers to trade must not be higher or more restrictive than the average tariffs of the member parties before the agreement. For this reason, sectoral preferential agreements are not permitted.

Progress on further multilateral (all-party) reductions in tariffs and trade barriers between all members have stalled in the last two decades Progress in tariff reduction has come principally at the level of bilateral or regional trade agreements.

Customs Union or Trade Agreement

The WTO is often mentioned as providing a basic floor of rights for EU/UK trade in the event of an exit from the EU without a trade agreement. This is often referred to as a hard Brexit.

The WTO agreements contemplate either a free-trade agreement or a customs agreement by way of an exception to the non-discrimination obligation and general duty to accord all other members the most favoured nation status. Either is permitted.

There is a critical distinction between a customs union and a free-trade agreement. A customs union implies a common trade policy so that customs checks and controls and in particular certification of origin is not required on trade between members. In contrast, free-trade agreements may still involve some tariffs and will involve import and export customs declarations in almost all cases.

Even if there are zero tariffs, the agreements can only apply to goods that originate(broadly speaking are manufactured or made) in one of the two countries. Otherwise, the separate trade rules of the parties could be circumvented by goods moving freely between the countries.

Some Free Trade Areas and Customs Unions

Examples of free-trade areas include the Association of Southeast Asian Nations Free-Trade Agreement (ASEAN FTA) European Free Trade Association (EFTA) the North American Free Trade Agreement (NAFTA) the Southern Cone Common Market (MERCOSUR).

Examples of customs union include the Andean Common Market established in 1993 (ANCOM) the central American common market (CACM) re-established in 1997  the Common Market for Eastern and Southern Africa (COMESA)  established in 198, the Economic Community of Central African States (ECCAS) established in 1981 and the Economic Community of West African States (ECOWAS)

Attempts have been made to advance multilateral agreements in the area of services between willing members states of the WTO. The EU is involved in negotiations in trade in services agreement with over 20 other countries. It is likely that the UK would wish to participate further in this agreement.Modern trade agreements focus on domestic regulations so-called restrictions behind the border.

There are a number of plurilateral lateral agreements where particular groups of advanced economies country or regional groups have sought to enter agreements between themselves, in view of the difficulty of securing widespread the lateral agreements.

Some Practical Considerations

Third countries are likely to want to know the UK’s trade relationship with the EU in the context of negotiating free-trade agreements with the UK. They would not otherwise be able to assess the balance of commitments and benefits undertaken without knowing at least basic terms of this relationship.

States negotiate trade agreements with reference to their own interests. There may be difficult trade-offs in the process. All of this may take considerable time.

The UK’s relative strength in negotiating with the EU is questionable as the EU has a surplus of goods trade into the UK while the UK has a surplus of trade in services with the EU. A default to a no deal would be much more burdensome in the area of services than in goods. There is no guarantee of market access and services at all beyond those the EU’s WTO specific commitments.

The position is not assisted by the fact that there is a deadline of the end of 2020 for the conclusion of an agreement and avoidance of a no-deal exit which would be damaging to both the EU and the UK.

Conditions for Bilateral Agreements

The WTO agreement requires that a trade agreement must meet certain conditions. The must be tariff reductions below the existing rates or down to zero. The duties and other restrictive regulations of commerce (with some exceptions) must be limited eliminated on substantially all the trade between the states who are party to the free-trade agreement. Elimination may take place over a period of no longer than 10 years.

In relation to services, GATS has equivalent provisions. There should be substantial coverage in terms of the number of sectors volume of trade affected and modes of supply. There should be the absence or termination of substantially all discrimination in the sectors covered. Parties may decide the modes of supply which are liberalised for each sector. There is usually a positive list or a negative list. The positive list covers all the sectors covered. The negative list approach names the sectors that are not covered so that all other sectors are covered.

Additional Measures

As with other trade agreements worldwide, the WTO principles templates and mechanisms are likely to be a central part of the EU UK future relationship agreement. In common with most free-trade agreements, it is likely to build on the terms of existing WTO agreements.

In recent years free-trade agreements have sought to go further and reduce barriers to trade in goods arising from regulations such as goods standards food safety rules labelling et cetera. In some cases, there are provisions for mutual recognition of standards. More commonly there is mutual recognition of conformity assessment in particular sectors. There may be regulatory cooperation with ongoing interaction and negotiation with a view to extending mutual recognition.

Modern comprehensive trade agreements may cover areas of domestic regulation that affect trade including in particular rules on competition and state aid. Sometimes there are specific commitments on competition. More commonly there is provision for cooperation and information sharing between agencies

There is a special WTO agreement on public procurement to which the EU and 20 other countries are a party. It contains rules similar to the EU public procurement rules, but they are less extensive. There is provision for direct recourse to court or arbitration for individuals concerned contrary to the general position with free-trade agreements.

The Trade agreement may include commitments on environmental and labour standards. Commonly International labour organisation, and other international standards are referenced. In the case of labour standards, international standards are relatively low. Their inclusion is sometimes linked to human rights and nontrade issues as well as supporting international conventions.

Standards and Regulation

States may enter agreements on mutual recognition of standards and conformity assessment procedures either in stand-alone agreements or as part of free-trade agreements. Although for example, the EU does not have a trade agreement with the USA it has an agreement on the recognition of standards.

Most standards are now made by international industry-based bodies. There are international norms on regulatory cooperation. Most agreements involve states accepting attestations of conformity including test reports, certificates authorisation and marks of conformity issued by approved bodies in the other state. This is not the same as recognition of the standards themselves. They facilitate trade by allowing the domestic standards body to certify and assess the standards of the other states’ market. The agreement usually contains a general principle as well as more detailed procedures for particular sectors. The conformity charges usually involve governmental and industry representatives

The context of Brexit as standards will be initially aligned that it might be expected that the EU and UK will recognise each other’s conformity assessment bodies. The UK has indicated it would recognise EU conformity standards and regulatory standards as conforming at least in a hard bread scenario for a time-limited period.

EU rules in relation to many areas of import and export control are harmonised. Other rules remain national. Some of the controls derive from international conventions and are broadly similar worldwide.

WTO Institutions

The WTO agreement incorporates institutions in which its members participate. These are somewhat analogous to the EU, but they act on the basis of consent. Therefore, only states which accede to or accept a particular agreement are bound by it. States agree to abide by the dispute settlement mechanisms so that individual decisions may be made interpreting and applying WTO agreements which bind the state concerned notwithstanding that it might disagree with the interpretation.

The WTO institutions apply to each of the agreements to which the state concerned is a party. There is a system of committees and working groups that work in particular areas. They provide mechanisms for discussing issues and formulation of rules.

The WTO has a permanent Secretariat. All its members sit on committees that deal with specific issues generally or with specific sectors. Committees undertake different functions,  ranging from reviewing developments to decision-making under the decision-making procedure. The WTO recognises international organisations which formulate rules in certain key areas including those in relation to health and agriculture.

WTO Complaint and Enforcement

The enforcement under the WTO agreements is undertaken at government to government level. The WTO Agreement creates mechanisms by which complaints may be made by one state against another state on behalf of its traders. However, the traders are not a party and cannot recover compensation or damages for breach of obligations.

The complaint procedure was improved dramatically in the 1990s but is still protracted and involves rulings by independent panels of trade experts. Challenges can be made by or against members. There is an initial period of negotiation moving to the hearing of the dispute before a panel producing a report usually within six months of hearing the matter. An appeal is possible on a point of law to a permanent appeal body.

There is an appeal from the decision of the panel to an appellate body. The procedure commonly takes a year and a half or more. Ultimately a decision may be made which is binding in the sense that if the state affected does not modify or withdraw the policy or practice found to breach the agreement, the WTO Council may permit countermeasures of equivalent value or the suspension of trade concessions. This may involve an increase in a tariff. The value is limited to the damage suffered by the complainant member.

The suspension of concessions is primarily to affect the sector involved in the dispute. Outside of this member can seek suspension of concessions in other sectors or if this is not practicable may seek to withdraw or suspend obligations under another WTO agreement. The dispute mechanism is frequently replicated in agreements between states in relation to trade and is widely seen a successful.

Although there are precedents decisions by way of interpretation of the WTO principles there is nothing like detailed evolved principles that apply under EU law. The principles themselves are much more general and qualified.

Although the WTO rules are real and enforceable, they are both significantly less exacting and their enforcement is significantly blunter than the equivalent EU rules.

Trade Agreements Management and Enforcement

Trade agreements include management and dispute settlement arrangements. There is usually a joint committee of both parties to deal with issues that arise,  implementation and complaints. There is usually a provision for arbitration of disputes that cannot be resolved. They are usually based on the WTO procedure. As with the WTO procedure, private individuals do not usually have rights to enforce the agreement


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