The Transition Period, which ensured continuity between UK-EU trade whilst negotiations were ongoing, will expire on 31 December 2020. If a free trade agreement (FTA) with the EU is not agreed before then, trade between the UK and the EU will be conducted on World Trade Organisation (WTO) terms. A recent Trade Truths article examined what trading on WTO terms would actually mean for businesses.
But we should not just focus on UK-EU trade. Where the UK does not have an FTA with another, non-EU country, the baseline for the UK’s trading relationship with that country will also be on WTO terms. As a result, irrespective of whether the UK leaves the EU with a deal or not, there will be a significant change to the UK’s trading relationship with many countries and its interaction with multilateral organisations.
This edition of Trade Truths looks at how Brexit will change the UK’s relationship with the WTO and sheds light on the election of the new WTO Director-General, and what this means for the UK’s post-Brexit future.
The UK’s relationship with the WTO
The WTO is a multilateral, international organisation that sets out the rules of international trade and provides a forum through which to negotiate trade agreements and settle trade disputes.
Whilst the UK has been a member of the WTO since its establishment, its membership of the EU meant that the UK did not formally participate in WTO institutions or in WTO dispute settlement in the same way as other, non-EU WTO members. This is because the trade-related issues that the WTO deals with would fall within the EU’s exclusive competence. Accordingly:
- The European Commission, the executive arm of the EU, would represent all EU member states (including the UK) in almost all WTO meetings.
- Any individual commitments made by the UK in its schedule of concessions to the WTO were contained within the schedule of concessions and commitments for goods and services of the European Union. These schedules set out specific tariff and trade concessions in respect of goods e.g. maximum tariff levels; as well as market access commitments (i.e. how much access will be granted to foreign entities to establish and operate in the domestic market).
- The UK did not formally participate in WTO disputes. The EU conducts WTO disputes on behalf of itself and its member states and generally it is the EU that is named as a party to a WTO dispute (not the individual member state(s)).
- EU member states (including the UK) did not individually become a party to various multilateral WTO agreements. Instead, they became parties to such agreements by virtue of their EU membership e.g. the Government Procurement Agreement (GPA).
Post-Brexit, and following the end of the Transition Period on 31 December 2020, the UK’s interaction and engagement with the WTO will be very different. For instance:
- The EU will no longer represent the UK in WTO meetings. Indeed the UK has already begun representing itself in the WTO since leaving the EU on 31 January 2020 (access the UK’s first statement to the WTO since leaving the EU). This will provide a direct channel for the UK to interact with the rest of the world on matters of international trade, and UK businesses should look to advise and support the UK’s engagement to address areas of interest or concern in relation to UK industry.
- The UK will also have its own schedule of concessions with respect to goods and services. The UK circulated these draft schedules on goods and services to the WTO on 24 July 2018 and 3 December 2018 respectively. Though still under negotiation with WTO members, at present, both schedules of concessions are broadly similar with the EU schedule of concessions and commitments. However, it is envisaged that the UK will make more substantive changes in due course, following negotiations with other WTO members.
- The UK will also begin engaging in WTO disputes independently. This means it will be able to initiate new offensive disputes against other WTO members; and will have to defend new disputes challenging UK trade measures. In addition, the UK will also have to participate in ongoing disputes that involve the UK, but were previously conducted by the EU. However, it is unclear how the EU and UK will deal with these disputes given that the UK was not a named as a counterparty to the dispute in its own right.
This is a significant change. In a situation where a UK business believes their commercial interests are being undermined by unfair trading practices such as dumped or subsidised imports, or from injury caused by unforeseen surges in imports UK businesses will now be able to directly engage the UK Government for support in in initiating WTO investigations and dispute proceedings. Crucially, UK businesses will no longer need to cultivate support and consensus with wider EU political institutions and businesses. The same is true for defensive situations where the UK is subject to WTO investigations and proceedings that might affect business interests in key foreign markets. In these situations, UK businesses will be in a more advantageous position to directly support UK representatives and decision-makers to ensure they have all the relevant strategic, technical and commercial expertise to effectively participate in these proceedings. As such, this development will provide UK businesses with an effective "sword" and "shield" in which to promote and safeguard their commercial interests.
- The UK will become a party to a number of multilateral WTO agreements in its own right. For example, on 7 October 2020, the Department of International Trade (DIT) announced that the WTO’s GPA Committee had confirmed that the United Kingdom can join the GPA as an independent nation from 1 January 2021 and continue to bid for public sector contracts around the world.
WTO Director-General Election
Another important development that will likely have an impact on the UK’s engagement with the WTO is the election for the Director-General of the WTO. The Director-General of the WTO is appointed by WTO members for a term of four years and is the head of the WTO Secretariat, primarily responsible for managing and directing the WTO’s administrative operations. Whilst WTO members make decisions collectively, the WTO Director-General has an important role in shaping how debates and negotiations are structured, as well as a role in building consensus amongst WTO members by managing the differing priorities of the developed and developing country WTO members.
The existing WTO Director-General, Roberto Azevêdo, stepped down on 31 August 2020, a year before the expiry of his four-year term. Following the nomination of eight candidates, this was eventually reduced to two - Nigeria's former finance minister Ngozi Okonjo-Iweala and South Korean trade minister Yoo Myung-hee. The selection between these two candidates is seen as a balancing of the respective interests of developed and developing WTO members. A key criticism often levelled at the WTO is that there is too much focus and power concentrated with the large, developed WTO members. With the value of developing countries’ exports having grown to represent almost half of total world exports, according to the WTO, it will be interesting to see how WTO members respond to these changing dynamics in global trade in the final stage of this election. The announcement of the next WTO Director-General is due in early November.
This election is being conducted at a critical time for global trade with widespread disruptions to international supply chains and increased trade barriers both of which are occurring within the backdrop of Brexit, increased tensions between US and China, and the US presidential election. According to a report by the United Nations Conference on Trade and Development (UNCTAD) published in October 2020, the value of global trade as a result of the COVID-19 pandemic set to decline by 7-9% in 2020, when compared to the previous year. UK businesses should not only monitor how the WTO, the new Director-General and UK responds to these issues on a multilateral level, but also to take pro-active steps to address global supply chain changes in their existing and target markets.
What will the UK’s priorities be and how will this involve business?
In February 2020, the UK issued a communication explaining to WTO members how its engagement with the WTO would be affected by Brexit. The UK has stated that it will “work to support efforts to strengthen the multilateral rules-based trading system, and to modernise the WTO” and “seek to participate in and initiate discussions in the WTO on issues of particular relevance to the United Kingdom and the global economy today”. In line with this, the UK will be keen to ensure that the WTO better reflects the advances in technology and the global trading system that have occurred since the WTO was established over 25 years ago. In particular the UK has already taken a vocal role in discussing key priorities, for example on the liberalisation of international trade policy relating to digital services and e-commerce.
The UK Government has also publicly signalled its interest to engage industry representatives in decisions about the UK’s trade policy and created a number of forums for businesses to do so, such as:
- Trade and Agriculture Commission (TAC) – The TAC was set up on 28 July 2020 and is an independent advisory board set up to advise and inform the government’s trade policies (access the press release). The TAC will consider how best the UK can advance its interests internationally and also promote the UK’s agenda at the WTO and other international forums. Members of the TAC were chosen from a variety of sectors including agriculture, retail, consumer, hospitality, animal health and environment.
- Trade Advisory Groups (TAGs) – Eleven new sectoral TAGs were established on 26 August 2020 with the aim of providing the DIT with strategic, technical and commercial expertise to better inform the UK’s current and future trade negotiations (access the press release). Members of the TAGs have been selected on the basis that they are able to provide the relevant understanding, insight and expertise necessary to support DIT.
- Board of Trade (BoT) – On 4 September 2020, the DIT established the BoT comprised of key figures from politics, academia and industry which will advise the government and DIT on its trade strategy, provide intellectual leadership on trade policy, and help the UK identify and seize new opportunities internationally (access the press release).
Businesses should look to maximise their benefits and safeguard their interests by engaging with policy makers and wider decision-makers, both within these forums and more directly, to inform and influence the UK’s trade negotiations and the future post-Brexit trade policy of the UK. The post-Brexit trading environment will certainly present the UK with a unique opportunity to give further voice to its international ambitions of a "Global Britain" and lead to changes in the UK’s approach to the WTO and to global trade with the rest of the world.
What should you be doing?
As part of Brexit preparations, businesses should begin to consider the wider impact of Brexit on the UK’s trading relationship with the EU and third countries. Business should:
- prepare to trade on WTO terms from the end of the Transition Period;
- engage with key decision-makers in the UK government on issues such as anti-dumping, safeguarding, trade remedies and dispute settlement to better protect yourself in the event your commercial interests are undermined; and
- begin to analyse the key trade barriers in your current and future target markets to better engage with the UK and EU governments, inform their positions for engagement with international organisations such as the WTO, and influence trade negotiations in your interest.
How we can help you
DLA Piper's team of lawyers and government affairs professionals in London and Brussels are here to assist you in your future preparations.
Our market-leading Brexit practice has a strong track record of helping clients prepare. We can carry out audits of your contractual agreements to assess their exposure to Brexit and undertake legal, commercial and human resources impact assessments, to identify areas requiring action.
With our full service, global capabilities, we can help you implement flexible Brexit-contingency plans, so that necessary adjustments can be made easily if a deal is reached before the end of the year.
Coming up next in the DLA Piper Trade Truths series
Following on from this weeks’ edition which focused on the UK’s new role in the WTO, we look at the UK’s accession to the WTO’s Government Procurement Agreement (GPA) which was announced by the Department of International Trade (DIT) on 7 October 2020. With the announcement that British businesses will be able to continue bidding for public sector contracts around the world (worth over GBP1.3 trillion a year) we will provide a summary of what the GPA is, how this differs from existing procurement rules with EU membership, and what effect this will have on businesses.