14 August 2019

Mini-deals and the future of the WTO

by IFT

This week US National Security Advisor John Bolton proposed a series of mini, sector-by-sector trade deals with the UK. While this is intended to dodge the more complex political economies involved in pursuing a comprehensive FTA, a larger legal issue would stand in its place: GATT XXIV. It stipulates that free trade agreements must eliminate duties and other restrictive regulations on “substantially all the trade between the constituent territories”.

This provision – in keeping with the purpose of the WTO itself – is present in order to encourage countries to liberalise the most amount of trade possible. As an ambition, free traders must praise this. Whether it has worked in practice is hard to tell. Without the single-undertaking approach, many of today’s trade agreements may not have been as deep as they are. Alternatively, many of those that failed may not have done so had there been more flexibility on extent of coverage.

Were the UK to entertain this piece-meal approach, she would not be the first to do so. In recent months both Japan and the EU have considered sectoral agreements with the US. Japan’s “small deal” with the US would include new market access for US agriculture, in return for Washington reducing tariffs on Japanese auto-parts. The EU, meanwhile, have proposed a trade deal with the US that does not include agriculture.

Inevitably a piecemeal approach would make for a more complex global trading system. While it seems that some trespasses in this area are already afoot, would it be wise for the UK to follow? Although WTO members would likely understand it as an interim step toward a comprehensive FTA, the move would be challenged at the WTO – which would be notably more problematic for the UK than the US.

The UK has a decision to make: defend WTO rules, or follow the big-boys into mischief. Either way, the UK must accept that its actions will set a legal precedent. It should, therefore, be based upon robust, thought-through evidence that the path chosen will lead to greater global liberalisation than the other.