Understanding the UK’s position in the WTO after Brexit: Part II

Part I of this article, written by Lorand Bartels, associate of TKE partner ICTSD, argued that the UK currently has independent WTO obligations to comply with concessions and commitments set out in schedules that were annexed to the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS) “for” the UK either by the EU or by itself. It further argued that these obligations, and these schedules, will continue after Brexit.

In this follow-up post, Lorand considers what these commitments actually are and then how to give legal effect to these commitments in a new schedule. He also looks at the UK’s post-Brexit position in relation to the Government Procurement Agreement (GPA).

26 September 2016

Identifying the UK’s WTO commitments

It is useful to recall that the UK has all generic rights and obligations set out in the multilateral WTO agreements. Nobody argues that the Agreement on Technical Barriers to Trade (TBT) or Trade-Related aspects of Intellectual Property Rights (TRIPS) or the Dispute Settlement Understanding (DSU), or the most-favoured-nation obligation in Article I of the GATT, for example, would not apply to the UK now or after Brexit. Where there is a certain degree of debate concerns the UK’s schedules of concessions and commitments under the GATT 1994 and the GATS.

Here, one can distinguish between unquantified and quantified concessions and commitments. It is not difficult to identify an obligation requiring the UK to impose a duty of no more than X percent on imports of a given product, or to allow commercial presence in a given services sector, as set out in its current (shared) EU schedule. Problems arise when the UK’s commitments represent a share of a fixed EU-wide quantity.

The main problem concerns EU-wide tariff rate quotas, because there is no express WTO rule for dividing shared quotas. One might be tempted to say that the question should be resolved by agreement. Certainly, this would be desirable, but it is legally unnecessary. The UK has a commitment concerning tariff rate quotas, and it is fundamentally a question of interpretation what this commitment means. Even if there is no express WTO rule, as a matter of legal theory there must be a rule (or else there would be a prohibited non liquet).

Typically, in such situations, rules are derived from general principles. In the present case, a relevant principle might be that set out in Article XIII:2 GATT 1994, which aims for quotas to mimic the respective comparative advantages of WTO members that would be manifest in the counterfactual absence of those quotas. Based on this principle, one proposition might be that the UK’s tariff rate quota commitment depends on total imports from all sources over a representative period of, usually, three years. Such a quota would include the EU, which would in any case have a right under Article XIII GATT 1994 to access any UK quota for products that it has a substantial interest in exporting to the UK.

This approach is also supported by the possibility of a claim for compensation (under Article XXIII:1(b) GATT 1994 and Article 26 DSU) for measures that nullify or impair benefits that could not reasonably have been expected at the time those benefits were agreed. Arguably, third countries could not reasonably have expected that tariff rate quotas negotiated would be allocated to any countries that were EU member states at the time. Offering tariff rate quotas based on total imports would, arguably, be sufficient to satisfy those expectations. But for good measure, the UK could add 10 percent, drawing inspiration from the Understanding on Article XXVIII concerning compensation for withdrawn concessions.

Dividing up the EU’s subsidy commitments (and rights) is less difficult, both practically and legally. A plausible key would be the UK:EU ratio of subsidy payments over a representative period multiplied by the total allowable EU subsidy amount. But in any case, the EU only uses around seven percent of its permitted subsidy amounts, so there is ample water between the UK’s applied and bound commitments that can be negotiated away.

The proper procedure for certifying the UK’s new schedule

Even if the UK has existing scheduled commitments, it will need to formalise these commitments in a schedule in its own name. This is, however, nothing new to WTO law. It arose every time a new GATT 1947 contracting party declared independence, and therefore acquired autonomy in matters covered by the GATT. Such countries were able to succeed to the GATT 1947 under Article XXVI:5(c) GATT 1947 provided that they submitted new schedules that replicated the schedules that already applied to their territory. Importantly, these new schedules were deemed to be “rectifications” of the existing schedule by paragraph 5 of the 1980 Decision on modifications and rectifications to GATT schedules.

It is therefore not only possible that a WTO member should be able to extract commitments from a common schedule; there is even a procedure for doing this. Of course, strictly speaking the UK does not fall under Article XXVI:5(c), but this is not because it does not meet that provision’s description of a “customs territory [that] acquires full autonomy in the conduct of its external commercial relations and of the other matters provided for in this Agreement.” That is actually a perfect description of the UK post-Brexit. The reason that Article XXVI:5(c) does not apply, and that paragraph 5 of the 1980 Decision does not apply, is simply because the UK is a WTO member already, even though it lacked autonomy under the WTO at the time. If the UK were able to submit a new schedule as a rectification, this would also mean, in theory, that other WTO members’ objections to certification would be limited to stating that a concession (or commitment) has been reduced in value or that the proposed change does not accurately reflect the UK’s actual commitments.

Still, such a claim is unlikely to succeed. First, as a matter practice, there are almost always objections to draft certifications. Second, the Appellate Body has said that any non-formal change to a schedule, even an improvement, is a “modification” rather than a rectification. This ruling is arguably wrong, as it misunderstands the reason for renegotiations (and risks corrupting the provisions on renegotiations). It also nullifies the references to “other changes” in the 1980 GATT Decision and, for that matter, the 2000 GATS Decision. Nonetheless, it does represent the law, as it currently stands.

On the other hand, this makes very little difference, because certification is far less important than is sometimes thought. WTO members have an “absolute” right to amend or withdraw concessions, provided that they follow proper procedures in relation to compensation, and so it is likely that certification has little more than evidentiary value. As such, if the UK’s request for certification is rejected, all that can happen is that a disaffected WTO member could commence dispute settlement proceedings. If the UK has incorporated all generic commitments, and if it has been sufficiently generous in determining its share of the EU-wide quantified commitments, such complaints will be little more than a nuisance.

Questions of state succession: the GATS and GPA

Two other issues involve the law of state succession.[1]

The first concerns a clause in the EU and EU member state joint GATS schedule stating that “[t]he specific commitments in this schedule apply only to the territories in which the Treaties establishing the European Communities are applied …”. Read strictly, this would mean that, post-Brexit, the UK’s commitments would continue to exist but only in respect of territory over which it has no jurisdiction. This would be an unbalanced result where the UK would have all GATS rights but, in reality, almost no GATS obligations.

But this result is unlikely. More likely, this clause simply ceases to be relevant to a post-Brexit UK, and it should accordingly be deleted from the UK’s new schedule. The clause is obviously predicated upon shared UK-EU autonomy in respect of matters covered by the GATS, and once the UK acquires full autonomy in this area, in accordance with the “moving frontiers” rule of customary international law, the EU treaties will cease to have any relevance to UK territory. The same should arguably be true of a territorial application clause based on the EU treaties.

The law of state succession is also relevant to the UK’s position in relation to the Government Procurement Agreement, to which the EU (but not the UK) is a party. It is suggested that the UK has a right to succeed to that agreement in respect of itself and its territory, and in particular its covered entities, which are listed in an annex to the agreement. If the EU were a state, this would be uncontroversial. Article 34 of the 1978 Convention provides that states succeed to treaties concluded by the predecessor state that apply to them or, where relevant, their territory. But there are also more closely related several precedents for the succession of states to treaties binding on predecessors that are unions or federations with legal personality. There are even precedents in the practice of the GATT 1947.

Specifically, in 1953 the Federation of Rhodesia and Nyasaland was formed, and succeeded to the rights and obligations (and contracting party status) of Southern Rhodesia. In 1963 the Federation dissolved, and Southern Rhodesia succeeded to the rights and obligations of that Federation (and the resumption of its contracting party status). Both times, GATT contracting parties accepted the claim to succession (and to contracting party status) by the formerly autonomous entity. It is suggested, therefore, that based on the principle of customary international law reflected in Article 34 of the 1978 Convention, and on this practice under the GATT 1947, the UK has a right to succeed to the Government Procurement Agreement in its own name.[2]

Moreover, the GPA Committee has “[r]ecogniz[ed] that … these ten countries [EU Member States] will, as Member States of the European Communities, form part of the European Communities for the purposes of the Agreement and be bound by the Agreement.”  Accordingly, it may be suggested, the other WTO members on the GPA Committee have expressly recognised that, at least in part, the EU acts on behalf of its member states in respect of their territory. This may be sufficient to estop those other GPA parties from denying that the UK has a right to succeed to the GPA in its own name.

Taking the initiative

The analysis set out in part I and II of this blog post can be summarised as follows. The UK has independent rights and obligations as a WTO member, including those relating to the GATT 1994 and GATS concessions and commitments set out in the schedules that it shares with the EU and the other EU member states. It is difficult to identify the UK’s obligations in relation to EU-wide commitments that are expressed in quantified form. But ultimately this is an interpretive question which could end up in dispute settlement proceedings. It is therefore suggested that the UK take the initiative, and design new schedules that are clearly liberalising on these points. It is also suggested that the UK submit these schedules as a rectification or, to avoid unnecessary dispute, as a combination of rectification and modification, for certification by the WTO Director-General.

This is of course highly likely to involve negotiations with other WTO members. That is the nature of the WTO, and it is also desirable to reach agreement on points on which the law is unclear. But in any such negotiations the UK should have a strong hand, provided it does not propose to increase protection, not the weak hand that others seem to think it has. Certainly one can discard, as legally incorrect, the notion that the UK is somehow a WTO member without scheduled commitments, and that its position in the WTO somehow depends on the good graces of other WTO members.

Lorand Bartels is Reader in International Law in the Faculty of Law and Fellow of Trinity Hall at the University of Cambridge.