Friday, 21 June 2019

Brexit: Is there a 10-year-rule to sort out trade?

A number of obscure pieces of trade law have taken on near mythical status in the Brexit debate. 
Supporters of a no-deal Brexit say it would allow the UK to continue to trade with the EU without tariffs (taxes on goods crossing borders) for up to 10 years, while the two sides negotiated a permanent future trade agreement. 
Brexit Party leader Nigel Farage told BBC News: "Under Article 24 of the original Gatt treaty we can apply, and the European Union have to join us in this, to have a two-year period of no tariffs, no quotas, during which we can sort out a trade relationship with the EU. It could be up to 10, but two years is standard."
So what is this all about?

Choosing tariffs

The key point is that you need a trade agreement in order to make use of Article 24, and the EU would be under no obligation to agree anything with the UK in the aftermath of a no-deal Brexit.
In other words, if the UK leaves the EU with no deal, and therefore no trade agreement, it will not be able to use Article 24. Instead it will fall back on the basic rules of the World Trade Organization (WTO) - the building blocks of international trade. 
The WTO has 164 members and each of them has a list of tariffs and quotas (limits on the amount of goods traded) that they apply to other countries.
In the event of no deal, the UK could choose to continue applying zero tariffs to goods being imported from the EU in order to minimise disruption to trade and prices. 
But under rules set out in Article 1 of Gatt (which are commonly known as Most Favoured Nation (MFN) rules), it would have to offer the same terms to the rest of the world. 
So what is the problem with that? If no-one had to pay anything to get goods into the UK, it would certainly mean cheaper imports. But it would also put a lot of British companies, that were unable to compete with cheap imports, out of business.
It is also worth remembering that there would be no obligation on other countries to offer the UK the same tariff-free access in return.

Need a deal

There are of course ways to bypass MFN rules and do specific deals - and this is where Article 24 comes in. 
It allows countries or trade blocs to agree lower (or zero) tariff rates with other countries or blocs, if they set up a customs union or a free trade area, or if they have an interim agreement - which acts as a stepping stone to a permanent agreement in the future.

Kate Hoey with Nigel FarageImage copyrightPA
Image captionBrexiteer Labour MP Kate Hoey (pictured here with Nigel Farage) has also talked about using Article 24

That is how international trade works, and the WTO's own database shows that 311 free trade agreements have been notified under Article 24.
But you do need to have a deal, at least in principle, to take advantage of Article 24. The UK leaving the EU with no deal suggests there would be… well, no deal. 
Or to put it in the words of Peter Ungphakorn, a former WTO secretariat official: "no deal means there is no agreement with the EU and therefore Gatt Article 24 doesn't apply".
And, to state the obvious, to have a deal, you need both sides to agree: the UK cannot invoke Article 24 on its own.
Supporters of a no-deal Brexit are betting that the EU would be keen to do a quick, basic trade deal if the UK leaves without any withdrawal agreement. But that is not what the EU itself is saying. 

'Not quite as simple' 

The other broad point to consider is that Article 24 applies to the trade in goods only. It has no effect on the trade in services, or on other important issues such as regulations and standards. 
It has been applied to "interim agreements" only on rare occasions since the WTO was established in 1995 and never to anything approaching the scale of the UK-EU trade relationship. 
Anyone looking for more detail on Article 24 could do a lot worse than read this explanatory piece from the House of Commons Library.
It even quotes Theresa May saying: "The question of Gatt 24 is perhaps not quite as simple as some may have understood it to be."
But that may not stop it being cited as a solution on a regular basis.


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