In August, I provided this explainer on the UK’s WTO Schedules, where they were at legally and why you probably had bigger concerns in your life than stressing about them. With a few months passed, it’s time for an update.
In this post, I’ll cover:
A brief recap on the story so far;
The UK’s next steps (AKA GATT Article XXVIII);
How the WTO Government Procurement Agreement ties in;
Debate: What does this mean for the UK’s future FTAs?
Controversy: Did Minister Liam Fox mislead when he said it would all go swimmingly?
This UK WTO Schedule thing, recap it for me?
The UK is a fully fledged WTO Member. However, unlike most Members it was part of the European Union which has a single common set of external tariffs. Historically that meant it didn’t need its own independent WTO Goods Schedule setting out the maximum tariffs it promised other WTO Members it wouldn’t go beyond.
Anticipating no longer being part of the EU, the UK sought to address this by submitting a new, draft WTO Goods Schedule. To do so it basically copy-pasted the existing EU schedule except where that schedule contained quotas which it split according to a complex formula.
Under WTO procedures, the Director-General will certify a draft schedule as ‘official’ 90 days after submission if no WTO Member signals an objection. Unfortunately for the UK, a number of Members did indicate they have objections and so the Director-General was unable to give his stamp of approval to the draft schedule.
Having an uncertified schedule doesn’t mean you’re not a WTO Member, or reduce your legal status in the organisation;
Whether your schedule is certified or uncertified doesn’t impact the tariffs you actually charge the border, unless you want it to;
Trading on an uncertified schedule is rare, but not unheard of.
Ok… so what happens next?
There are no fixed procedures or mechanisms in the WTO to force a Member to withdraw its objection to certification. If Samoa wanted to block the UK’s schedule for the rest of time because they hate crumpets, the WTO rules don’t have any avenues for the UK to force them to reconsider or even to justify their decision.
However, a range of Members do have slightly more substantive objections to the UK’s draft schedule. These Members consider the approach the EU and UK took to splitting their tariff quotas to be a reduction in access compared to what they enjoyed under the joint EU schedule.
Fortunately the WTO has a well established procedure for when a Member decides to walk back something they previously promised to do (or in WTO terms ‘modify a concession’). This procedure is called GATT Article XXVIII.
GATT XXVIII? Sounds ominous.
It’s a scary looking legal text to be sure, but it’s actually fairly benign.
When a Member intends to withdraw or modify something in their schedule downward (reduce their commitments) they have to let other Members know, discuss the issue with impacted Members and potentially compensate those Members whose trade will be hurt most by their decision.
XXVIII lays out each of these steps and the rules around them.
Compensate? So the UK is going to have to pay other countries?
The Article XXVIII procedures are meant to help Members find a mutually acceptable solution, whatever that may be. This solution could be anything, from a handshake deal to address the issue in a future FTA to a package of development assistance. As long as both sides are happy, the process is considered a success.
The most common ‘compensation’ Members end up paying is actually improved market access in something else. So for example, if Botswana wants to raise its previously committed maximum tariff on cheese and that impacts Nigeria, a common way for them to settle things is for Botswana to proportionally lower its tariff on something else Nigeria cares about.
This might be how the UK settles some of the objections to its schedule too.
What if the GATT XXVIII process doesn’t find a compromise?
If that happens, the WTO rules enable those Members most impacted by the withdrawal of a concession to ‘retaliate’ by raising their own tariffs up to the same value of impacted trade. It’s something of a last resort, and hopefully in the UK’s case things won’t get that far.
If it does happen, keep in mind we’re not talking about huge numbers here. The UK doesn’t have that many quotas, and the difference between the UK’s draft schedule and the previous EU total is in most cases not that large.
We’re not talking about the blockade of Naboo, here.
Cool, so the UK goes through Article XXVIII and then its schedule gets certified?
Honestly? Probably not.
Article XXVIII provides a process for the UK to negotiate with those whose objections are specifically related to quotas. Other Members are objecting for political, tactical or simply baffling reasons. Article XXVIII won’t help there.
What about the Government Procurement Agreement, how does that come into all this?
Great unprompted question, imaginary interrogator!
The main WTO agreements (the GATT and the GATS) have full carve outs for government procurement. In other words, all the normal WTO rules which prevent discriminating between countries and favoring your own suppliers don’t apply when it’s the government buying stuff or hiring firms to do things.
Global government procurement is a huge market worth trillions of dollars annually. While WTO Members weren’t quite ready to subject it to the same rules as other trade, a sub-group instead agreed to commit to opening up some types of government procurement to one another, and to some rules about transparency and fairness when conducting procurement.
This meant firms in these countries could compete equally or near equally for lucrative government contracts and tenders offered by the governments of other members. It’s called the Government Procurement Agreement (GPA) and it’s a big deal.
Fascinating, but what’s that got to do with the UK’s schedule?
However, the UK was a party to the GPA as part of the European Union. A legal quirk means that leaving leaving the EU also kicks the UK out of the GPA and forces them to re-apply for membership. In the WTO, we call that ‘Accession.’
Accession can only occur once every existing GPA parties gives their assent. Basically, the UK comes to the existing GPA parties and says, “here are the government procurement sectors I will commit to opening to your firms. Please let me in.” It’s then up to those parties to decide if the UK’s offer is good enough. If even one says no, the UK can’t join.
Still haven’t mentioned the schedules. You are bad at stories.
I’m getting to it. Geez.
At the most recent meeting of the GPA, a number of parties blocked the UK’s accession for a variety of reasons. There are rumors swirling in Geneva that at least some of those parties have privately told the UK that unless their quota related issues on the UK’s schedule are addressed, they will keep blocking the UK’s entry into the GPA.
That doesn’t seem fair! Can they do that?
It’s a bit of dick move, but they absolutely can.
Now granted, by doing so they’d be locking themselves (and all other GPA parties) out of the UK’s very lucrative government procurement market, so this is by no means a freebie… but it is something they can do.
Forget the GPA for a minute, what does this schedule stuff mean for the UK’s future FTAs?
The exact impact of goods schedule uncertainty on the UK’s future FTA negotiations is a subject of some debate among trade nerds with black and white twitter profile pictures.
My personal view is that it’s not going to be a significant factor, but smart people can and do disagree with me. The reasons get a bit wonky.
Walk me through it.
Ok. You asked for it.
When working on an FTA, a negotiator will often be put into a position where they have to establish how much an offer by the other side is ‘worth’.
So in other words, “if the UK is offering to lower its tariff on beef to 5% as part of our FTA, how good a deal is that and what would be a fair reciprocal offering on my part?”
To work this out, a negotiator would look at a few things:
What tariff does my beef currently face?
What tariff does the beef of my competitors currently face?
What tariff will the beef of my competitors likely face in the future?
The UK’s WTO Schedule doesn’t really impact the first two questions because these refer to applied tariffs (what actually happens at the border) not bound tariffs (the maximum tariffs listed in a WTO schedule).
The third question however, is where schedule uncertainty can play a role. If I’m considering a UK beef offer, but I know the UK is in the middle of Article XXVIII negotiations on its beef quota with my main competitors, I can’t answer Question 3. That’s a problem.
That does sound like a problem, why are you relaxed about it?
Because while theoretically capable of producing any result, the Article XXVIII process is actually fairly tame.
The most a Member could possibly hope to get out of Article XXVIII is the difference between the UK’s new quota, and the EU’s previous total quota. That’s a predictable band of results, which an FTA negotiator could account for. Further, the actual results are likely to be far more modest.
The real reason question 3 above might be a problem is that no one yet knows what the UK’s trade relationship with the EU is going to be. Better beef access into the UK is good for me as 3rd country if the UK and EU end up with duty free trade… but it’s far, far more valuable if they don’t because then my beef doesn’t have to compete with tariff free EU imports.
The lack of clarity on EU-UK trade is likely to be a far greater impediment to rapid FTA conclusion for the UK than the comparatively minor issue of WTO schedule uncertainty.
Didn’t Minister Fox tell Parliament this schedule thing wasn’t going to be an issue?
On October 26, Angus McNeil MP the Chair of the UK House of Commons International Trade Committee was critical of Minister Fox. He said the Minister had, in July testimony before the Committee, offered assurances the UK’s schedule process would be quick and easy when in fact we now know it faces a host of objections both substantive and political.
I try to stay away from politics on this blog, but I’ll say two things.
First, Minister Fox unquestionably knew well before July that Members had objections to at least the quota splitting methodology. The trade ministers of other countries have been delivering this message personally for well over a year, and a jointly signed letter in September 2017 from Argentina, Brazil, Canada, New Zealand, the US and Uruguay made things pretty clear.
Second, if one were being maximally charitable to Minister Fox one could argue that the UK’s position required him to take a positive outlook. The UK’s formal argument was basically that their approach to splitting quotas based on past trading patterns was so fair that no reasonable country could possibly take issue with it. To say on the record therefore that objections might come anyway would be to either admit the less than unimpeachable nature of the UK approach or to accuse other WTO Members of being unreasonable.
I’m not convinced.
Sorry. I really don’t have a view on this issue and it’s not my field. This is really a question for the British voters, of which I am not one.
So give it to me straight nerd, should I care about this?
I still don’t think you should be massively emotionally invested in whether the UK Schedule is certified or not. It likely won’t be for years and you likely won’t notice.
What I would keep an eye on, especially if you work in one of the impacted sectors, is what the UK might offer as compensation as part of the Article XXVIII and potentially to buy its way back into the GPA.
As always though, my advice to UK citizens is to keep your eyes firmly on the main game: the future of trading arrangements between the UK and EU. Compared to that, everything else is a house fire on Pompeii while Mount Vesuvius is erupting.