WTO membership underpins our trade not just with the EU, but with all 161 WTO members - the vast bulk of our trading partners. The UK joined the WTO as part of the EU, meaning its existing WTO membership is based on its use of EU rules, which will no longer apply, creating the need to renegotiate the UK’s membership agreement. This is not a situation the WTO has had to tackle before, so the exact procedures are unclear.
However, what is clear is that the list of issues that will need to be addressed will be significant, as WTO agreements cover all aspects of policy that might create barriers to trade - not just tariffs. Having torn up the old rule book, the UK will need to propose a new one. And the UK cannot simply impose new rules, as changes have to be agreed with other WTO members. This process will be complicated by the fact that changes to WTO membership terms that are detrimental to existing partners can lead to demands for compensation.
The WTO’s role in trade deals
The terms of the UK’s WTO membership will also be of interest to any country wanting to agree a bilateral trade deal with the UK, as they will form the starting point for negotiations.
WTO members agree to offer all other members the same terms for market access, which are known as the most favoured nation (MFN) rules. While it is up to the country what these terms are, countries are not allowed to discriminate between different WTO members. Therefore, WTO membership terms form the baseline for assessing new deals, making it hard for other countries to do this in the absence of agreed terms.
Furthermore, the WTO’s non-discrimination rules mean bilateral or regional trade agreements are only allowed under certain circumstances and are subject to WTO scrutiny to ensure they abide by the rules. This is something that could hold up any new UK trade deals, if there is no agreed baseline for the deals to be judged against.
The scope of the (re-)application process
Roberto Azevêdo characterized the UK’s situation post leaving the EU as being akin to the normal WTO application process in terms of scope and complexity and this process is neither easy nor quick. It covers not just tariffs, but also all the relevant laws and regulations that might affect trade in thousands of different goods and services. A full description of what is covered by the WTO application process can be found here, but the long list of issues includes:
- the structure of the agencies responsible for overseeing trade;
- tariffs and import quotas;
- the legal framework for non-tariff regulation;
- intellectual property rules;
- technical standards;
- licencing rules;
- transit rules;
- rule of origin rules;
- subsidies and tax incentives;
- agricultural policy;
- public procurement rules;
- foreign direct investment rules; and
- the rules that affect trade in services.
UK trade has been covered by the EU’s rules for almost all these things. The easiest option might therefore be to adopt all the relevant EU rules and, where necessary, to create new agencies to replicate the work of EU bodies. This might make the WTO renegotiations easier, as our trading partners would experience more limited change. It could also make it simpler to negotiate a new trading arrangement with the EU, as some of the options being considered depend on following EU regulations.
But if we are leaving the EU in order to take back control of our regulatory environment, is this the right choice? Or should we look at each rule with fresh eyes, to see if the UK would benefit from a different solution? And in any cost-benefit analysis, how should we weigh the competing attractions of the greater speed and regulatory continuity that the wholesale adoption of EU rules would bring, versus the potential, but uncertain, benefits that might be available if we took the time to explore a UK tailored solution?
It is not a given that the other 161 WTO members will allow us to renegotiate significant changes to our membership rules, but if that is what we want, now is the time to try. Apart from anything else, as these rules will underpin our trading regime, potential partners will want to know what they will be before agreeing any bilateral trade deals.
It is time to articulate a vision for what we want our trade and regulatory environment to look like. The need to negotiate WTO membership raises a long and complex list of questions, and we have the option of redefining the rules. Existing EU solutions may well be the right ones, but we owe it to ourselves to at least assess the options fully, in order to give BREXIT the best chance of success.