Brexit and trade: what EU and WTO rules imply
Bruegel in collaboration with Leuven Centre For Global Governance Studies organizes an event at which we will discuss the options for redesigning trade relations in the post-Brexit era.
Ahead of the UK triggering the Article 50 in the course of next month, it became crucial to assess the impact of Brexit on trade. Brexit will not only affect EU-UK’s trade policies, but it will also have an impact on global trade. The aim of that event was therefore to analyze what the Brexit will mean for the UK and the EU in terms of legislation and trade negotiations.
Andre Sapir launched the event with a short presentation mentioning what kind of problems would potentially arise from an EU perspective. According to him, the UK will leave the Customs Union (CU) which means that negotiations will turn around a Free-Trade Agreement (FTA). However, such an agreement requires customs controls due to the rules of origin and will therefore slow the overall flows of trade between UK and EU. UK and EU are likely not to adopt the same tariff schedules and will need border adjustments.
Petros Mavroidis discussed more in details the legal procedure implied by Brexit. There will be two rounds of trade negotiations: the UK will negotiate with the EU and then will negotiate with the rest of the world (within WTO). From an EU perspective, his proposal is the following: the EU-27 should adopt the EU-28’s tariff schedule and let the UK negotiates and deals with its own quotas at the WTO. He added that WTO cares only about FTAs and CUs, but not about the different scales of integration. It means that UK-EU can negotiate an agreement without worrying too much about WTO rules. From a UK perspective, real problems will come from the fact that by leaving the EU, it leaves an entity that has trade agreements with the rest of the world. The UK will therefore have to adjust the EU existing schedule and re-negotiate its own trade agreements which might lead to retaliation from third countries (even if the overall risk of retaliation is low).
Jan Wouters highlighted that Article 50 is not about trade, it’s all about a divorce. According to him, the process for the Withdrawal Agreement (WA) will take less than two years. However, negotiating a trade agreement will take much more time for two main reasons: first, starting discussions about a trade agreement while the WA has not even been agreed is almost illegal and second, examples such as CETA show that the standard procedure for trade negotiations takes much more than two years. Finally, as long as the UK is still a Member State, it is supposed not to be able to negotiate trade agreements with third countries. However it should be manageable and feasible to allow the UK to start having explanatory talks in order to future trade negotiations faster.
Hosuk Lee-Makiyama argued that the future of EU-UK relationships cannot be predicted based on previous negotiations like CETA since the divorce settlement is going to be based on the dynamics of status quo. He added that the only deadline that matters is the elections which will impact the future of the Tory party. He also stated that we cannot write off so quickly the possibility of a CU. First, the rules of origin do matter and the damages implied by breaking the regional supply chain will be considerable. Second, the other three freedoms barely exist and the services won’t experience true disruption after the Brexit. When the time for negotiations with third countries will come, he argued that UK and EU will have to sit on the same side of the table. When negotiating Tariff Rate Quotas (TRQs), third countries won’t be just satisfied by the UK and the EU splitting the quotas because they would lose flexibility. Finally, since previous negotiations were all about making associations, the EU faces now one big political challenge: defining what leaving the Union means.
The questions from Viktoria Dendrinou and the floor discussed further the CETA example and the implications of small countries trying to leverage their power through institutions on trade agreements, the threat of blocking from third countries regarding TRQs, the cases of Turkey and Ukraine as potential models for a future UK-EU agreement, the supremacy of EU-law model and the effectiveness of international law.
Notes by Justine Feliu
Video and audio recording
Check in and lunch
Chair: Viktoria Dendrinou, Reporter, Bloomberg
Petros C. Mavroidis, Edwin B. Parker Professor of Foreign & Comparative Law, Columbia University
André Sapir, Senior Fellow, Bruegel
Prof. Jan Wouters, Director, Leuven Centre for Global Governance Studies - Institute for International Law, KU Leuven
Hosuk Lee-Makiyama, Director, ECIPE
Chair: Viktoria Dendrinou, Reporter, Bloomberg
Petros C. Mavroidis
Edwin B. Parker Professor of Foreign & Comparative Law, Columbia University
Senior Fellow, Bruegel
Prof. Jan Wouters
Director, Leuven Centre for Global Governance Studies - Institute for International Law, KU Leuven
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