What is the WTO and what are WTO terms?

 

The World Trade Organisation (WTO) is headquartered in Geneva. The vast majority of countries are members, and it is the international body where the rules that govern global trade are organised. WTO rules already cover how we trade – they are not some kind of ‘low-grade’ option.

The WTO was established in 1995 and replaced the General Agreement on Tariffs and Trade (GATT), founded World War II. The WTO’s aim was to promote international trade, through independent countries reducing barriers to trade between them, in particular tariffs (the taxes on imports and exports which make goods, for example, more expensive), quotas (a limit to the quantity of an import), and non-tariff barriers like regulations and taxes. So the UK’s exit from the EU is exactly the type of situation the GATT, then the WTO, were established to deal with.

 

The WTO and independent countries

 

The WTO adjudicates trade disputes and hands down some penalties or permits retaliatory actions where necessary. Unlike the EU, which has sovereign powers over the nation states which are members, the WTO is an organisation of independent states, and ‘WTO rules’ constitute agreements between them under international law. The WTO dispute settlement system cannot force a country to change its laws or overrule their courts and parliaments, but countries that violate these rules must pay trade sanctions to the countries they harm.

The GATT has gone through several ‘rounds’ of negotiations, and the WTO was officially launched in 1995 with the ‘WTO Agreement’ in the Uruguay Round. Tariffs are now far lower than they were when the GATT was founded, so since the WTO was launched in 1995 it has focused on other barriers, including domestic regulations that discriminate unfairly against other countries’ products. GATT is still the organisation’s central treaty for trade in goods, but WTO focuses on other questions like domestic subsidies (which can create unfair barriers in trade with other countries), intellectual property, and services.

The current round is the Doha round, named for Doha in Qatar where it was begun in 2001. The Doha round has made slow progress though, and is essentially stalled, partly because of the resistance of the EU to removing agricultural subsidies and barriers. That gives the UK a new opportunity to lead for freer trade, as it once did.

The UK was a founding member of the WTO’s predecessor, the GATT, but is now represented at the WTO by the EU, so lacks an independent voice. But in leaving the EU, the UK is already a WTO member, so simply places its tariff and services ‘schedules’ (levels) before members, and agrees agricultural import quotas, among other things. Our experienced diplomatic staff in Geneva are already engaged in this process, and have placed our schedules with other members.

 

What are WTO terms?

 

Despite what much coverage suggests, WTO rules are not something we would ‘fall back on’ without an FTA with the EU. They are in fact the structure around which all international trade happens.

Where there is a deal between two countries (bilateral deals) or groups of countries (plurilateral deals), WTO rules also apply to them, covering aspects of trade that are not dealt with directly in a trade deal, and regulating signatories’ trade with countries outside a trade deal.

WTO rules consist of a suite of agreements between members. The most important agreements are under the umbrella of the ‘WTO Agreement’. These include the GATT, the General Agreement on Trade in Services (GATS), and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The agreements include general overarching provisions; each country also has specific commitments called ‘schedules of commitments’. Other agreements at the WTO include subsidies, government procurement, and dispute settlement, where a body of cases exists. There is also a continuous process of trade policy review.

Simply put, WTO terms means the EU will be in violation if it:

  • Discriminates against like UK exports to any threatening degree
  • Doesn’t recognise the UK’s regulations that remain equivalent, or at least give reasonable consideration or recognition

 

WTO Principles

 

Perhaps the most important principle of the WTO is non-discrimination, divided into two main components: the ‘most favoured nation’ principle (MFN) and the ‘national treatment’ principle. These have major implications for how the EU can behave towards the UK if we opt for no deal.

To prevent discrimination in trade between members, the so-called ‘most favoured nation’ principle (MFN) means that when a preference is given to one member – like a lower tariff – it must be extended to all (unless it is part of an exception like a free trade agreement or customs union that covers ‘substantially all trade’, or forms support for developing countries). The ‘national treatment’ principle means discrimination between imported and domestic goods is also prohibited after the goods have entered a market, which helps tackle ‘non-tariff barriers’ to trade, like regulations that discriminate against other countries’ products.

  • For example, GATS prohibits discrimination against a country’s service providers in many sectors, securing market access and ‘national treatment’. With no tariffs on services, the barriers are regulatory, like getting licenses. The EU single market is very lacking for services: losing ‘preferential single market access’ is not as damaging as many claim. WTO rules will allow trade to continue.

Because the UK is a WTO member in its own right, it will continue to benefit from these rights and principles. So WTO terms would not be unusual, but a familiar way to proceed.