Brexit and the World Trade Organization

As the debates regarding the UK’s referendum on membership of the European Union heat up, attention has turned to the possible consequences of Brexit. There are even consequences from a World Trade Organization (WTO) perspective, flagging up implications for UK sovereignty. The point made here is simple: contrary to the prevailing view, remaining in the WTO post-Brexit could entail a greater threat to UK sovereignty than is currently the case.

The ideological driver behind Brexit is a particular understanding of sovereignty, viewed in terms of ‘self-rule’ (implicitly or explicitly through Parliament). In the UK we are accustomed to thinking of sovereignty debates as relating to the EU or the ECHR. Were Brexit to go ahead, we may well end up replacing one of these concerns (the EU) with another, the WTO.

In the case of Brexit, until a new deal with the EU were negotiated, UK access to the single market would depend on membership of the WTO (though there is uncertainty on the detail) as both the EU and the UK are members in their own right.

What then does the WTO offer? At its heart, the WTO seeks to encourage non-discriminatory trade amongst its 162 members by regulating a panoply of potentially trade-restrictive practices. While these obligations are less onerous than those under EU law, it is important not to underestimate their effect. The WTO has found against support for the development of new large civil aircraft, ruled against measures seeking to protect sea turtles and restrictions on hormone-treated beef and genetically-modified organisms. Even a cursory glance at the history of WTO disputes demonstrates its wide reach. Indeed, the government’s proposed new sugar tax raises questions of WTO law as it may indirectly advantage domestic producers of sugary products.

If the UK were to conclude a new trade deal with the EU, or replace those the EU has already concluded across the globe (and to which the UK would no longer have access), WTO law also has a say. The sorts of trade deals that might be concluded must comply with WTO law, requiring liberalisation of ‘substantially all the trade’ between the participants (ie not only in those areas of interest to the UK). If the UK is to negotiate new agreements (and as quickly and widely as has been suggested) the concessions given would have to be considerable to make them appealing to trade partners as well as to ensure compliance with WTO law.

The scope of WTO law may be wide but its intrusion into the UK legal system is certainly less than that of EU law. Unlike EU law, WTO law is not automatically incorporated into UK law, does not grant individuals rights, and does not ‘trump’ UK law. This has its advantages: Parliament’s sovereign will cannot be overridden by the decision of a ‘foreign’ court or legislature. Should Parliament choose to, the UK could face down a decision of the WTO (as was suggested during the prisoner voting fiasco vis-à-vis the ECHR).

If we set aside the desirability of the UK being seen to violate international law, there is a more practical challenge. Where a member is found to have violated WTO rules, if they do not comply, they can be targeted with trade sanctions. These customarily take the form of increased tariffs which can have a serious impact on local businesses and industry exporting to that market.

There are instances where WTO members have taken exactly the decision mooted here – yet large WTO members like the EU can weather sanctions from, say, the United States exactly because the impact of the sanctions can be buffered by virtue of their size. The question we have to ask is – would the UK be in a position to tolerate sanctions from our much larger trading partners, such as the EU, China, or the United States? Within the EU we can take the hit, outside of it, the cost-benefit analysis may swing the other way.

It is telling that a parallel of our own EU sovereignty debate is commonplace in the United States. Each time the United States loses a case or does not offer protection to domestic industry, the WTO is identified as the source of this erosion of sovereignty. Even now, it is a hot topic in the current US elections. Nor are sovereignty debates limited to the WTO; NAFTA, the future EU-US Transatlantic Trade and Investment Partnership, and the larger Trans Pacific Partnership, all spark similar concerns. Note that such agreements are comparable to the type of trade deal we would expect the UK to conclude with the EU.

Trade agreements necessarily imply a restriction on the regulatory autonomy of the State. States agree to limit their freedom to act so as to benefit from the advantages that non-discriminatory trade gives. The EU implies a great imposition on the regulatory freedom of the UK, yet it is within a framework that permits the amplification of UK interests globally. All trade agreements, whether bilateral, regional, or multilateral will entail a ‘loss of sovereignty’ in crude terms, though extremely few permit unified representation on the global stage or engagement with the rule-making. Taking into account the WTO framework which is ultimately the bedrock of world trade relations, and the implication it has for both sanctions and the possibility of concluding new trade deals, we might seriously question whether the ability to project our influence globally is not preferable to the sort of sovereignty enjoyed by pariah States that are incapable of engaging meaningfully in global affairs.

Featured image: Houses of Parliament by Petr Kratochvil. CCO 1.0 Universal via Public Domain Pictures.