Richard North, 31/10/2017  

Confronted with the "no deal" advocates who airily assure us that, without a specific exit deal we can happily fall back on "WTO rules", I have for a long time been concerned as to whether these so-called "rules" are quite the panacea that they are apparently held to be.

In fact, it seems to be the case that the "WTO rules" per se are not rules in any ordinary sense, in that they can be directly actioned or implemented in such a way as to bind the parties to any specific courses of action.

The key to this was expressed last Sunday by Booker in his column, where he stated that "WTO rules" were "not 'rules' at all but merely principles that must govern any trade agreement".

This profound statement may well owe something to earlier discussions between Booker and myself, but it was interesting that – as far as I can see – that it was not challenged by any of those who commented online about the piece. Yet, if Booker's assertion is right, falling back on "WTO rules" in the event of a "no deal" is not actually an option. Without a deal, as Sir Ivan Rogers avers, we would simply drop into "a legal void".

In fact, Rogers very much endorses the idea of a "framework", stating in his select committee evidence that there are multiple sectors of the UK economy that are extremely economically important where "WTO rules" is essentially a meaningless concept.

"The WTO", he says, "is not a place where rules are established; you make commitments into the WTO and they are a basis and a framework on which you can then build either bilateral or regional further commitments, but those have to be negotiated".

Whether this is applicable across the board is difficult to ascertain, given the scope and extent of the various WTO agreements, but if we narrow the field and look at just one area – the Agreement on Sanitary and Phytosanitary Measures (SPS Agreement) – the assertion seems to carry some weight.

The text of this agreement is such that many of the provisions could not have direct effect - even if the constitution arrangements of Members permitted that.

However, if we take Article 4 on "equivalence", this is not immediately apparent. This requires that Members "shall accept the sanitary or phytosanitary measures of other Members as equivalent, even if these measures differ from their own or from those used by other Members trading in the same product".

At first sight, this would appear to be an unequivocal requirement, amounting, in effect, to a requirement for mutual recognition of standards between trading partners. And I have certainly seen some argue that this would be the case.

However, there is a caveat to this "requirement" which fundamentally alters its tone. Before equivalence has to be recognised, the exporting Member must "objectively demonstrate" to the importing Member that its measures achieve the importing Member's appropriate level of sanitary or phytosanitary protection.

But it is in paragraph 2 that it gets really interesting. This requires Members "upon request", to "enter into consultations with the aim of achieving bilateral and multilateral agreements on recognition of the equivalence of specified sanitary or phytosanitary measures".

In other words, the situation is exactly as Booker made it out to be. The "WTO rules" are but a framework which encourage WTO Members to get together to create their own trade agreements which enable them to recognise (in whole or part) each other's standards.

This concept is further elaborated by the WTO's own Appellate Body (its highest "court"), which has ruled that, rather than a specific set of actionable rules, the SPS measure is the "instrument" chosen by the WTO Member to implement its sanitary or phytosanitary objective.

Thus, where in Article 5, Members are required to determine the "appropriate level of sanitary or phytosanitary protection" to be imposed on imported products, this is not a reference to a specific standard but is "an element in the decision-making process which logically precedes and is separate from the establishment or maintenance of the SPS measure".

In other words, the Appellate Body says, "the appropriate level of protection determines the SPS measure to be introduced or maintained, rather than the appropriate level of protection being determined by the SPS measure".

The Appellate Body has also found that "the SPS Agreement contains an implicit obligation to determine the appropriate level of protection". Furthermore, although it need not be determined in quantitative terms, the level of protection cannot be determined "with such vagueness or equivocation that the application of the relevant provisions of the SPS Agreement … becomes impossible".

On that basis, it is essential that, in order to give practical effect to the WTO agreement, a bilateral or multilateral is required. The "WTO rules" do not replace trade deals or provide an alternative. They are the precursor to detailed trade agreements between WTO Members.

This is certainly the case with the EU which has multiple sanitary and phytosanitary agreements with trading partners, as stand-alone treaties, and many more embedded within free trade agreements of wider scope.

The first of such agreements was with New Zealand – one of the many countries which does not have a comprehensive free trade agreement with the EU but which, nonetheless, has a detailed technical agreement covering trade in live animals and animal products – its main area of economic interest.

And here we see in Council Decision 97/132/EC of 17 December 1996, a statement that the agreement "provides an adequate means for putting into practice the provisions of the WTO Agreement on the Application of Sanitary and Phytosanitary Measures as regards animal health measures".

In the press release announcing the agreement, we saw the Commission stating that this was "the first broad bilateral agreement to put into practical effect the SPS Agreement regarding trade in live animals and animal products". It would, the Commission added: "set a precedent for other agreements of this kind".

The interesting thing about the SPS Agreement is that it also required Members to carry out risk assessments in order to determine the "appropriate level of protection", but there is nothing to stop Members coming to entirely different conclusions.

This was evidently the case with the 1998 US-EU Agreement which, in a monster 61 pages contains so many caveats that it cements in multiple barriers to trade which effectively ensure that there is very little trade in animals and animal products between the two blocs – despite the agreement being SPS compliant.

Nevertheless, in Council Decision 98/258/EC, we saw again the same legend as applied to the New Zealand agreement:
Whereas the Agreement between the European Community and the United States of America on sanitary measures to protect public and animal health in trade in live animals and animal products provides an adequate means for putting into practice the provisions of the WTO Agreement on the application of sanitary and phytosanitary measures as regards public and animal health measures.
Elsewhere, we see similar provisions, as here, embedded in the proposed EU-Indonesia FTA. Their primary purpose is "to enhance the practical implementation of the principles and disciplines contained within the WTO Agreement on the Application of Sanitary and Phytosanitary Measures". And, in like manner, Chapter five of the EU-Republic of Korea free trade agreement is devoted to "sanitary and phytosanitary measures", implementing the SPS Agreement.

On this basis, therefore, the "WTO option" is not a free pass to a trading nirvana. It does not release the UK from the obligation to negotiate a trade deal with the EU and, in the absence of such a deal, the EU is under no obligation to grant "equivalence" to UK standards.

Essentially, those who advocate resort to "WTO rules" demonstrate a lack of understanding of the role of the WTO and how it fits into to global trading system. Come what may, the "no deal – WTO option" is not an option. We still need to make deals with the EU.

comments powered by Disqus

Brexit - the first year - New e-book by Richard North
Brexit - the first year - New e-book by Richard North
Buy Now

Log in

Sign THA
Think Defence

The Many, Not the Few