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29th April 2019

BREXIT – Achieving Free Trade with Europe in a ‘No Deal’ scenario

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What do the international trade rules offer the UK as a route to ‘free trade’ with Europe outside the Union, if the withdrawal terms cannot be agreed? The advocates for what has become known (eponymously of its architect) as ‘The Malthouse Compromise’ have in mind that the rules of the World Trade Organisation (WTO) would permit the UK to notify a ‘managed no deal’ arrangement in respect of the UK’s relationship with the EU as an ‘interim’ free trade arrangement, enabling the UK and EU to keep trading as if the UK is an EU Member State while negotiating a future trade agreement. It is certainly fair to say that the WTO rules provide an interim mechanism for transition to a free trade agreement. As you would expect from a rules based scheme however, there are conditions to be met.

The context of the proposition is Article XXIV of the General Agreement on Tariffs and Trade (GATT), which makes provision for ‘interim agreements’ between contracting states. To start with, the rule does not allow the UK to simply choose to apply zero tariffs to the EU unilaterally, to keep barriers to imports from the EU as low as before (ie the UK within the EU). Whilst Article XXIV(5) does permit the adoption of an arrangement of “a reasonable length of time” not exceeding ten years (essentially to facilitate the formation of a customs union or free trade area), the arrangement has to be “an agreement”. The EU would need to agree.

Secondly, the interim agreement would need to be supported by an agreed “plan and schedule” towards the final customs union or free-trade agreement (Art XXIV (5)(c)).

Thirdly, care would need to be taken to ensure that the agreement is not in character and effect one that would be blocked by other WTO members (which is not entirely beyond the bounds of possibility).

Although a time limited free trade agreement could be notified as a full free trade agreement (which might be another route and one I gather favoured by WTO members on other occasions), I wonder whether that would begin to look quite a lot like a ‘deal’ and not a ‘no deal’ scenario.

Searching out best achievable outcomes in negotiating a settlement for a client is always going to be key for any dispute resolution lawyer. By the same token, on the plane of international politics addressing the issues posed by the international trade law scheme with thoroughness and practicality is going to be central to deliverability of a free trade outcome, and deliverability has to be at the heart of any negotiation. As to that, over the weeks and months ahead, let’s see what UK and EU politicians can make of the tenet that “Politics is the art of the possible, the attainable – the art of the next best” (per Bismarck).

NB. GATT Article XXIV applies to arrangements for goods, not services. GATS Article V would be relevant for services.

Dominic Hopkins is head of Disputes and Litigation at Hewitsons and an Associate Member of the UK Constitutional Law Association. For more information please contact Dominic Hopkins on 01604 233233 or click here to email Dominic.