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The UK falling back to the WTO

by Luis de Sousa Fri Jan 20th, 2017 at 11:16:36 AM EST

Frank Schnittger has been a proficient writer here at ET on the exit of the UK from the EU. One of the questions he has been raising is the assumption that the UK will automatically fall back to WTO rules if it leaves the EU and the European Economic Area (EEA). The UK is a member of the WTO by virtue of its membership of the EU, if it leaves the union how can it still be member of the WTO?

With the UK government indicating to the press that indeed it wishes to extract the country both from the political and economic unions, the WTO question becomes pivotal. Days ago I raised this issue in the Financial Times commentary box and got an elaborate reply from a reader that seems far more acquainted with the subject. It is rather worthy of reproduction in this forum.

An important and under reported issue: Frontpaged - Frank Schnittger

It [the UK] won't leave the WTO, but it will be the only WTO member without a schedule of commitments and rights. It will have to negotiate these with all 160 odd members of the WTO. Fairly straightforward for tariffs, provided the UK sets them no higher than the EU CET, but horrendously complicated for tariff rate quota and other rights it might try to reserve for itself. Not only will it have to negotiate TRQ carve outs with the EU, it will have to get them agreed by any member of the WTO that might be affected.

The rights that the UK currently has at the WTO could also prove problematic. It is likely that we will lose all rights that the EU has negotiated for us and will have to try to get the other members to agree if we attempt to reserve them outside of the EU.

One such right is a derogation from the WTO GATS free movement of persons providing services provisions. Basically, GATS commits signatories to open up their territory to citizens of another country who wish to travel to that member's territory in order to offer services. The UK currently has a derogation for most of these provisions - that is we have a right to say that the provisions don't apply to the UK. When we leave the EU, we lose that right and will have to ask for it back. China and India, to name but two countries, might not agree to give us it back.....

GATS stands for General Agreement on Trade in Services. Some relevant excerpts from the WTO page on GATS:

Presence of natural persons consists of persons of one Member entering the territory of another Member to supply a service (e.g. accountants, doctors or teachers). The Annex on Movement of Natural Persons specifies, however, that Members remain free to operate measures regarding citizenship, residence or access to the employment market on a permanent basis.

[...] The supply of many services is possible only through the simultaneous physical presence of both producer and consumer. There are thus many instances in which, in order to be commercially meaningful, trade commitments must extend to cross-border movements of the consumer, the establishment of a commercial presence within a market, or the temporary movement of the service provider himself.

[...] Under Article II of the GATS, Members are held to extend immediately and unconditionally to services or services suppliers of all other Members "treatment no less favourable than that accorded to like services and services suppliers of any other country". This amounts to a prohibition, in principle, of preferential arrangements among groups of Members in individual sectors or of reciprocity provisions which confine access benefits to trading partners granting similar treatment.

What is the practical result of all this? It seems to me that indeed the UK needs to negotiate a derogation of free movement of service providers under GATS in order to prevent European citizens to work in its territory. Moreover, under the WTO rules there is neither the possibility for the UK to differentiate between European citizens and other foreigners wishing to move into the UK under the WTO services framework.

I am left with the feeling that not even the WTO will be enough to fulfil all the promises put forth by the Exit campaign.

I thank you for the compliment, but I fear I have been more prolific than proficient!

Thanks for elucidating this topic somewhat further, which, as you say, has been all but ignored by the MSM, which appear to assume that WTO rules are a default setting that the UK can simply fall back on without any issues arising.

In any case Trump seems to be tearing up trade agreements for fun these days, so it is hard to see how the UK isn't Brexiting at a time when negotiating new trade deals to the satisfaction of Brexiteers is becoming all but impossible.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Jan 16th, 2017 at 11:12:22 AM EST
This is fascinating. Thanks!
by Metatone (metatone [a|t] gmail (dot) com) on Tue Jan 17th, 2017 at 06:59:21 PM EST
very interesting. I'm beginning to suspect that not even the Tories have taken that on board yet (one complication at a time)

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Wed Jan 18th, 2017 at 02:43:38 PM EST
Also, tories are typically not the quickest on the uptake, except when it comes to opportunities for personal enrichment.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Wed Jan 18th, 2017 at 04:33:18 PM EST
[ Parent ]
I think it is more that their attitude is that they started this whole Free Trade thing and the WTO in the first place, so people will simply be falling over themselves to give us what we want...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jan 18th, 2017 at 04:39:02 PM EST
[ Parent ]
Actually, Juncker's statement still has me worried that they might get most of what they want.

Of course, I can see why Luxemburg would not like competition in the tax have leaderboard - or any organised crackdown on tax havens from the EU. Would be tough to put up strong barriers as a result of the UK taking that route and not at least have a symbolic tap on the shoulder for Luxemburg...

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Wed Jan 18th, 2017 at 04:46:48 PM EST
[ Parent ]
The reason why tax havens work for Luxembourg, Holland and Ireland is they also provide access to the biggest market in the world. Low tax alone is no reason to locate in the UK unless that is also your primary market and a good base to export from.  The EU could justify tariffs on UK goods alone on the basis that devaluation creates unfair competition and the risk of dumping. However I can see why you would be worried about Juncker at the Commission: his whole mind set is in favour of low corporate taxes. Arguably, lower UK corporate taxes strengthens the case for lower taxes in the EU but the logical response is for the EU to increase the costs of doing EU business from the UK.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jan 18th, 2017 at 05:30:01 PM EST
[ Parent ]

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