Brexit and trade: SIEL 2016 conference highlights concern

While the media frenzy has tapered since Britain’s shock announcement that (the majority of) its people have opted to exit the European Union, questions remain as to the long-term implications of the referendum on global trade.

Alongside Trade Pacts’ Prof Lukasz Gruszczynski, I had the privilege of presenting at the fifth biennial Global Conference of the Society of International Economic Law (SIEL), in Johannesburg during early July.

Of the many pressing trade topics, this year’s conference provided a timely platform for several respected UK-based academics to discuss Brexit, with an emphasis on its possible repercussions for international trade.

The University of Cambridge’s Dr Lorand Bartels; King’s College London’s Dr Federico Ortino and Dr Holger Hestermeyer; together with former South African government officials, reflected on how the UK’s exit from the EU could shape the future of trade for the sovereign state and its trading partners.

The constitutional hurdles

Many people are left pondering the procedural aspects of initiating Brexit, the details of which Dr Holger Hestermeyer laid out aptly in his presentation for SIEL.

Article 50 of the Treaty of the European Union (and Lisbon Treaty) requires an EU Member leaving the EU to provide the Union formal notice of its intention. This, in turn, will see the exiting member negotiate a withdrawal agreement with the EU and Brexit will take place either upon the entry into force of that agreement or two years after the notification.

However, it is unclear what procedure domestic UK law prescribes before notice can be given; as the Referendum was held on the basis of a statute. It was challenged because UK citizens who have lived abroad for more than 15 years were not allowed to vote. A decision of the UK Supreme Court upheld the rules on voting rights.

The Statute though does not provide for any legal consequences of the Referendum and the UK’s (unwritten) constitution does not provide for a binding effect of it either. The referendum then should be considered non-binding under current UK law – and does nothing to clear up the question: What needs to be done before Art. 50 TEU notice can be given?

Some believe that this task falls to the government as part of what is called “royal prerogative”. Others argue that; given the effect the exit will have on statutory law, government cannot act on the basis of royal prerogative and requires a formal act by parliament authorizing the government to give notice. And, with a pro-remain majority in parliamentary chambers, this could get tricky. “Some UK statutes will certainly lose their effect as a result of the withdrawal”, noted Dr Hestermeyer during his address. “Think, for example, of elections to the European Parliament…”

Further complications arise under the UK’s devolved system of government which might, under the so-called Sewel Convention, require consent of the Scottish Parliament to Brexit. While ignoring this convention is a constitutional possibility, it raises the political stakes.

These issues are no doubt going to leave constitutional lawyers reaching for their strongest headache pills, but I can only wonder what will happen to the UK’s international trade, its existing obligations towards the WTO, those toward other EU Members and its extra-EU trading partners.

Brexit and the WTO

Dr Lorand Bartels’ stimulating presentation focused largely on how Brexit will influence UK membership with the WTO.

The UK and the EU are both original Member to the WTO as provided in Article XI.1 of the WTO Agreement, and arguably the EU submitted schedules ‘for’ the UK within the meaning of this provision. On this basis, the UK should inherit relevant parts of the EU’s scheduled commitments, along with all other WTO rights and obligations. This is also consistent with the usual international rule applicable to succession of States, which is that obligations are inherited, especially where they affect the territory of the seceding country, and apportioned where necessary.

Dr Bartels described that, while the import tariff inheritance can easily be inherited, apportionment, he says, is a potential issue in relation to agricultural subsidies and tariff rate quotas (TRQs). The UK contributes more to the common agricultural policy than it receives, so it is unlikely that apportionment of this share will produce problems for the UK. There will however need to be an apportionment of the EU’s import and export TRQs. This is unlikely to pose great difficulties. Unless the EU claims the entire import TRQ, which is unlikely, exports to the UK will not see a difference.

As for export TRQs, the main UK exports that are affected concerns cheddar to the US. This should be able to be negotiated. Ultimately, predictions that the UK will necessarily have to negotiate its schedule with all other WTO members are likely to be exaggerated. 

Brexit and trade in services

When it comes to trade in services, the UK’s exports tripled between 2001 and 2014, from £18.8 billion to £65.2 billion, and it is second only to the US among services exporters globally. These exports though remain higher to non-EU countries than to the EU market.

As detailed in Dr Federico Ortino’s talk, the above is simplified by the fact that, under the EU, GATS Schedules of Commitments are divided by each individual Member State, meaning that each Member State can fall on their respective schedule. There exist specific procedures in case Members wish to modify their schedules or rectify/improve their schedules. While it is not altogether clear which set of procedures are applicable in the case of Brexit, a level of consensus among the Members on the ultimate outcome with regard to the UK-only schedule will be ideal.

When it comes to UK trade relations with non-EU Members, it will be politically difficult to exclude any (even) informal negotiations by the UK with third countries at least from the activation of Art. 50. But what happens to external FTAs concluded while the UK was part of the EU with third countries? Will they continue to apply to the UK after Brexit? It will depend in part on the nature of these agreements, but the more reasonable approach would be to apply rules on the succession of States. Take the example of the EU-South Korea FTA: upon Brexit, the FTA will not only continue to apply between the EU27 and South Korea but also between the UK and South Korea. Some provisions will need to be adjusted, of course; and some tariffs binding with regard to trade in goods may need to be apportioned (as explained by Dr Bartels above). Trade in services commitments benefit from a similar EU Member State structure as in the context of GATS, so they will be transposed more easily.

For the latest Brexit developments and general trade law news, visit the Trade Pacts homepage. Look out for our upcoming posts on apportionment: what is of the role of other WTO Members and FTA partners in the UK apportionment? And we will take a closer look at the European Partnership Agreements.

Headquartered in Geneva, Switzerland, Trade Pacts is a leading trade law consultancy with experts positioned across the globe. Follow us on Twitter (@TradePacts) for the newest updates or, for professional advice, speak to one of our friendly experts.

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