There has been a lot of talk about ‘trading on World Trade Organisation (WTO) terms’ in a no-deal Brexit. But the UK will take up its seat on the WTO in any Brexit scenario. So what is the WTO and why does it matter?
WHAT IS THE WTO?
The WTO is an international organisation which governs the rules of trade between nations.
It is made up of 164 member governments from across the globe which work together to negotiate WTO agreements.
WTO agreements – not to be confused with trade agreements between countries – set rules on how governments can pay agricultural subsidy or apply food safety and animal and plant health standards, known as sanitary and phytosanitary (SPS) measures.
The rules are underpinned by five general principles, including trade without discrimination, predictability and promoting fair competition.
The trade without discrimination principle is important when it comes to Brexit as it would prevent the UK from granting special favours, such as lower tariffs or fewer checks on imports, to the EU alone.
Under most-favoured-nation rules, the UK would have to give all other WTO members exactly the same treatment as the EU, unless the favour was granted through a separate trade deal.
In addition to these general rules, WTO members are required to take on specific ‘commitments’ relating to matters such as market access. One example is being unable to increase tariffs once a country has already agreed to set them at a certain level.
These agreements and commitments form a baseline for fair trade, but it is rare for members to trade on these terms alone.
Most of the time, they choose to build on their WTO obligations by signing bilateral and multilateral trade deals with each other.
WHY DOES IT EXIST?
The WTO exists partly to liberalise trade and lower barriers, but it is also there to prevent Governments from behaving in an unfair way.
Peter Ungphakorn, who worked for 18 years at the WTO Secretariat and now writes for Agra Europe, said: “The idea is if you are going to introduce a ban on imports because there is an animal disease somewhere, for example, you have to have the grounds to do it. You cannot just do it arbitrarily.”
WHAT IS THE WTO’S STRUCTURE?
At the highest level is the WTO’s Ministerial Conference, which Ministers from member Governments sit on. It meets at least once every two years.
Underneath the Ministerial Conference, and reporting to it, is the General Council, made up of ambassadors or officials of equivalent level.
This council meets in two guises: the Dispute Settlement Body, to oversee procedures for settling disputes between members; and the Trade Policy Review Body, to analyse members’ trade policies.
Below the General Council are the Council for Trade in Goods, the Council for Trade-Related Aspects of Intellectual Property Rights, and the Council for Trade in Services.
Each of these has subsidiary committees which deal with specific areas.
Underneath the Council for Trade in Goods, there is an agriculture committee and an SPS committee, which officials from each WTO member will sit on.
There is also an Appellate Body made up of seven people which hears appeals in disputes brought by WTO members.
HOW ARE DECISIONS MADE?
All decisions are made by consensus, which means if one WTO member objects, a proposal cannot be passed.
The rules do allow a formal voting procedure, but it is not used, so informal consultations play a vital role in bringing members together.
Because of this system of consensus, it is not uncommon for one or two smaller countries to hold up agreement.
Mr Ungphakorn explained how countries horse-trade to achieve their end goals.
He pointed to the example of Switzerland, which has a protectionist agriculture policy.
In the latest round of agricultural trade reform, Switzerland agreed to lower some of its protections only on the basis that its geographical indications were respected.
For negotiations on certain topics, including agriculture, countries form coalitions and use a single co-ordinator to speak with one voice, increasing their bargaining power.
The Cairns Group, for example, which is pushing for agricultural trade liberalisation, includes members such as Argentina, Australia, Brazil and Canada.
IS THE WTO POLITICAL?
Although the WTO is a technical organisation, politics is inevitably involved in its decision-making.
Mr Ungphakorn said: “Russian membership of the WTO was held up by a quarrel with Georgia for a long time.
“And when Taiwan was going to join, it dragged out forever because there was an agreement that the timing of China and Taiwan’s accession would be synchronised so neither of them could block the other’s membership.”
Closer to home, the UK’s application to join the WTO’s Agreement on Government Procurement after Brexit was temporarily blocked by Moldova because its Minister and officials were refused visas to travel to London to discuss Britain’s exit from the EU.
HOW ARE DISPUTES RESOLVED?
Disputes can arise when one WTO member believes another is violating an agreement or commitment it has made.
In the first instance, the complainant would raise the issue in the relevant committee, such as the SPS committee.
Most problems are dealt with at this stage, but if things are not resolved, the matter can be put through the formal dispute settlement process, which goes through three stages – consultations between the parties, adjudication by panels and potentially the Appellate Body, and the implementation of the ruling, which includes the possibility of countermeasures.
One well-known case which went through this process is the EU’s ban on hormone-treated beef, which was contested by the US and others.
“The ruling after appeals was the EU had not provided scientific evidence to justify the ban,” Mr Ungphakorn said.
“After losing the case, the EU did not lift the ban. Initially it faced sanctions from the US and other countries, but then there was a negotiation which led to the EU opening up a bigger quota for beef without hormones.”
After appeals, this dispute settlement process can take several years.
CAN THE UK BE A BIG INFLUENCE IN THE WTO?
Some commentators have suggested the UK has the ability to reshape world trade when it regains its seat at the WTO, but Mr Ungphakorn is less optimistic.
“Britain is big enough to have some influence, but it is not going to be at the top table,” he said.
“When I say the top table, I am talking about unofficial structures. The present structure right at the top of unofficial meetings is five members: the EU, the US, China, India and Brazil.
“There is a second tier of about 20 countries, middle powers such as Canada and Australia, and there is no reason why the UK should not fit into this group.
“But do not have any airs about it being some kind of leader in the WTO.”
Mr Ungphakorn went on to point out it would be more difficult for the UK to take on the US at the WTO than the EU.
He said: “The UK is a large economy, but it is not a match for the US, so if the UK got into a retaliation war, it would have less bargaining power.”
He also suggested the UK may be forced to offer the US a beef quota if it intends to maintain the ban on hormone-treated beef after Brexit.
“This would be negotiable with the US, but the quota might be larger than the UK wants,” he said.
DO WTO RULES ALLOW COUNTRIES TO BAN IMPORTS ON WELFARE GROUNDS?
Former Farming Minister George Eustice has in the past suggested the WTO’s ban on trade in seal furs showed it may be possible for animal welfare to become a key consideration in future WTO agreements.
But Mr Ungphakorn pointed out in the latest round of agriculture negotiations, which have been stalled since 2008, Switzerland proposed Governments should be able to offer additional subsidy to farmers who incur higher costs because of animal welfare standards.
“The response from the rest of the members, particularly developing countries, was we care a lot more about human welfare because we have got starving people, so let’s not even discuss this,” he said.
“It is possible in the long run it would be recognised, but it will take an awful long time.”