Peter Ungphakorn
Thank you, Nick. Nick’s explained what I used to do, so I’m, sort of, coming back to what I did before, in a sense, but I will be explaining the WTO, and some of you may already know about the WTO. So, forgive me if I tell you things that you already know, but, maybe, from a slightly different point of view, but what I was specifically asked to talk about was the World Trade Organisation in relation to Brexit, and the short answer to that is, the World Trade Organisation is caught up in a war in Brexit. It’s not the first time the World Trade Organisation has been caught up in a war, I have the T-shirt to prove it.
There was a Ministerial conference in 1999, which turned into a movie, some of you may even have seen. I didn’t dare, it would just bring nightmares back to me, but the difference between that war and the war we have here, in – over Brexit is that that was a war against the WTO, whereas, what’s happening with Brexit is that the WTO has become a weapon between two different groups of people. So, the Leavers and the Remainers throw ideas about Brexit at each other, sometimes quite false. Sometimes people justify the incorrect things that they say. I’m trying to be very careful in case I’m prosecuted, by saying, “We’ve been to the WTO, we talked to some people in Geneva, at the WTO, and therefore, you can trust what I tell you, because I’ve met them, and this is what they said,” and here you’ve got two examples, of Leavers and Remainers, who came back from the WTO and completely exaggerated, to put it mildly, what the WTO told them, or what they learned from the WTO. So, that’s one aspect of it.
The other aspect of it is because some Leavers, like Patrick Minford, believed that there’s nothing wrong with leaving the European Union without a deal, because you then fall back on WTO rules. They say, “That’s fine, the WTO is a basic agreement that can apply in the case of no deal within the UK and the EU.” Well, when Leavers say that, the Remainers then go around and say, “No, it’s the opposite of being free. Countries do trade deals to escape the WTO.” Well, I’m sorry, if you’re a member of the WTO, you can’t escape the WTO. Everything you do comes under WTO rules, as we shall see. So, let’s start off with a little bit of the truth. What is the WTO? I like to describe the WTO as an elephant, the elephant, that the proverbial six blind men came across, and each of them touched different bits of it and thought it was something different. It was a rope if they got hold of the tail, or it was a banana tree trunk if it was a leg, and so on, because, in a sense, that’s how a lot of people look at the WTO. The Lawyers will focus only on dispute settlement, because that’s litigation, and because dispute settlement’s in trouble, they say the WTO is about to die.
Some Journalists will look at negotiations, and judge whether the WTO’s working or not, based on whether the negotiations are going well or not. My answer is all four legs are important, the WTO does not stand on one leg. So, what are these four legs? The first leg is negotiations. This is the beginning of everything that happens in the WTO. Everything comes from negotiations. It’s done by the members, agreed by consensus and there are rules. We’ve had now, since 1947, negotiations, periodically, right up ‘til now, and including now, that have led to a rules-based system and gradually lowering trade barriers, two key aspects of what the WTO has achieved, and we have $20 trillion of trading goods and services that flows around the world at the moment, almost unnoticed, in terms of being newsworthy or not, as a result of those negotiations. When you’ve signed an agreement, that’s not the end of the story. You want to know you’ve got obligations that you’ve got to implement, and you want to know that other countries are keeping their promises and complying by the agreements.
So, the second leg, implementation and monitoring, I would say is perhaps the most important leg of the WTO in its day-to-day work, but it’s unnoticed. Journalists are not interested in it, it’s deadly boring and dull. You get new chemicals regulations that are notified to the WTO, and other members look at them and say, “Well, our chemical industry can handle this, or can’t handle it,” but it’s not something that hits the headlines, but it happens every day. If you look at an organogram of the WTO, it consists entirely of meetings. It’s only committees, hierarchies of committees dealing with implementation and monitoring. Some of them do other things, but the majority of them do that. If you look at the schedule of meetings in the WTO, it’s meetings mainly about implementing, and that’s a really important part of the WTO’s work, which I don’t think we should forget.
Part of that job in implementation is for countries to discuss, to raise issues with each other. If they don’t like the new chemical regulations, the REACH rules of the EU, some of you may have heard of, then they can discuss them, or they can try and find a solution, a way around it. So, what that does is that it actually avoids litigation, and it’s only a handful of issues that get beyond that that then come to a dispute settlement. Now, this leg really is in trouble. Dispute settlement has two parts, it has the main – the first ruling, by what are called panels. That’s okay, for now, and then you have an appeal stage, and it’s the appeal stage that’s in trouble. Some of you may know already, there are normally seven appeals, Judges. The United States has blocked the reappointment or replacement of those Judges. We’re now down to three, because they’ve been blocked. That’s the minimum number of Appellate Body Members who can hear an appeal. At the end of this year, there’ll be one left, and then there can be no appeals, and that means if China appeals a case that it lost against the US, ironically, on agricultural subsidies, then that case will just stop, and the US will not get to the enforcement stage of a case that it’s won. Yes, this leg is limping very badly, but it doesn’t mean that the WTO elephant will die just because of that.
The fourth leg is about development. The WTO is not a development agency, but there are rules that are more lenient for developing countries. They’re designed to help developing countries perform in trade, and they also – the WTO is basically a meeting place for all of this stuff, and includes allowing donors and recipients to get together, so that development assistance can be tailored better to allow developing countries participate in trade. So, that’s basically the functions of the WTO in – very much in summary, but I’d also talked, at the beginning, about negotiations and agreements, and I think it’s important, when we look at Brexit, to understand that there are actually two sets of outcomes of negotiations. This is the agreement that was signed by then, 120 countries in Marrakesh in April 1994 to set up the WTO, to take over from what was previously the GATT, the General Agreement on Tariffs and Trade, and there are two parts to this. One part is the rulebook, which is over on the left. It’s 500 pages. It covers a lot of substance. It’s goods, services, intellectual property, and within goods, you’ve got agriculture, anti-dumping, product standards. In services, you’ve got financial services, telecommunications, and so on. So, there’s a lot in those 500 pages.
So, that’s the rule making part of the negotiations. The rest of it, 20,000 pages, is lists of commitments that countries have made as a result of the negotiations, and, basically, this is about agreeing to lower trade barriers. So, much of that are tariff ceilings. The European Union’s commitment on certain types of shoes is to lower – was to lower its tariff down to 8%, and not go above 8%. So, it’s a ceiling, but it could unilaterally go below 8%, if it wanted to, and that’s also the UK’s commitment, because the UK is an EU member. Which brings me to the question of: is the UK a member of the WTO? Because a lot of people out there are still confused, and the answer is yes, it is. The United Kingdom was a – original signatory of the General Agreement on Tariffs and Trade. It joined the European Union, and when the WTO was set up here, twen – when the WTO was set up here, a UK Minister also signed on behalf of the United Kingdom. The WTO now has 29 European Union members. The 28 member states, plus the European Union itself. So, that rulebook, 500 pages, applied – continues to apply to the UK in the EU and after it leaves the EU. That doesn’t change.
What may need sorting out is the schedules of commitments of the European Union, that part of that big pile of paper on the right, because, at the moment, EU member states’ commitments are bound up in the EU’s own schedules of commitments, and, by and large, extracting what applies to the UK is fairly straightforward. If the EU’s tariff ceiling on shoes, on some types of shoes, is 8%, the UK says, “Well, we’ll stick to 8% as our committed ceiling in the WTO.” You may have seen stories about whether the UK’s going to go duty free on everything after Brexit or not. That I would interpret as being a unilateral step that just goes below the ceiling in the WTO. The ceiling in the WTO will stay at 8%, but the shoes – actual tariff charge on shoes could go down to zero, if that’s what they want.
By and large, either a direct copy and paste, or some technical conversion, for example, for market access for services, and so on, that can be done fairly straightforwardly. It’s time consuming, but it can be done. The tariffs in the goods schedule, the schedule that deals with goods, tariffs cover about 680 pages out of 700 plus. There are 25 pages within that that are really difficult, and there’s something called tariff quotas, and tariff quotas are where a country says that it will import a certain quantity, either duty free or at very low duty, but anything outside that quantity’s charged a much higher duty.
For example, the European Union’s tariff quota for sheep meat is around – is 0% for around 300,000 tons, of which 200,000 tons comes from New Zealand, is allocated to New Zealand. Question, that’s the EU 28. When they split UK and EU 27, how much would the tariff quota for the UK be? How much would the tariff quota for the EU be? Well, it’s fairly complicated. They’ve took a long time, the UK and the EU, to try and sort out, to reach agreement on how they would do that split. They reached agreement, they submitted their proposal to the WTO, they had the data submitted to other countries, but other countries said, “Well, for the tariffs, maybe we’re not that concerned, but for tariff quotas, we really are.” And, for example, New Zealand says, “Well, we don’t agree with the way you’re splitting our 200,000 tons between the UK and the EU.” I won’t go into details here, we can follow-up later, but the point is, the United Kingdom, because of the length of time taken to do all of this, the United Kingdom eventually said, “Okay, we agree, this is going to be a negotiation,” and that step was taken on December the 21st last year. And that meant that they had a three-month period for countries to formally raise objections under the rules of the General Agreement on Tariffs and Trade, and that three month means that that comes to an end on March the 19th. So, the negotiation phase begins on March the 21st.
I think you all know what happens, or is supposed to happen within a few days of March the 21st. The short answer is, this is not going to meet – the tariff quota bit is not going to be sorted out by Brexit day, if Brexit day is March the 29th. Does that mean they can’t trade? Not necessarily, there are ways round it. The EU doesn’t have certified schedules. The EU has spent a lot of time trying to sort out tariff quotas for its enlargement, from 25 to 28 to whatever. So, it’s possible to be practical, and the hope is that everybody will be practical, even though there may be objections and the tariff quotas may be tweaked later. We’re not talking about trade coming to a halt because these tariff quotas are not sorted out.
There is good news. Good news is that, for services, that – which are – also have a lot of commitments, very complicated commitments that I don’t really understand, because it – because they are so varied. Services are – you know, professional services, and banking and telecoms are all very different, and have different rules, but all the objections to, or reservations about the UK’s proposals have been dropped, except from Russia. So, there’s only one country left that they need to negotiate with to get the services deal done, and on Government procurement, that’s through. It’s up to the UK, now, to ratify that, tell the WTO and, for the Government Procurement Agreement, which actually is the only one the UK actually has to accede to, that, by and large, is done, it’s in the UK’s hands.
Remember, this system allows $20 trillion of goods and services to be traded annually, almost all of it without anybody making any comment or objection, because it all flows smoothly. It’s a rules-based system. It means that this is not operating in the rule – in the law of the jungle, and there are certain rules that are very important. Non-discrimination is one that I’m going to come back to, and there are two types of non-discrimination. One is this famous MFN, most favoured nation, which means that you have to treat your trading partners equally. So, when the European Union cuts its import duty for non-members from whatever it was down to 8%, it had to apply that to all other WTO members equally. So, that’s equal treatment. There’s also national treatment. If you give your own authors copyright protection under certain laws, in theory, you’re supposed to do the same for nationals of other countries as well, but there are lots of exceptions.
And the other important part about this rules-based system is what I’ve already mentioned, that second leg, the transparency, stability and predictability that it provides to the system, through the system of notification, information gets shared, people are able to comment, and there’s peer review. But the one I’m going to focus on is MFN, because that’s the one that seems to be coming up a lot, in terms of Brexit, because it means – the question is this, well, let’s give you an extreme example. Some people have said, including Tony Abbott, former Australian Prime Minister, said that, “That’s fine, you leave, you don’t have an agreement with the European Union, you just don’t charge tariffs on products from the European Union, you continue to give them duty free.” This statement astonished me, because if that were to happen, and the UK weren’t to do the same, i.e. duty free imports from the US, China, Australia and so on, Tony Abbott’s Government would be the first in the queue to complain that the United Kingdom was violating MFN. It was favouring the European Union without a free trade agreement.
So, what about ‘no deal’ in WTO terms? I think that one point I would make is, definitely, I can predict with total confidence that it won’t be the end of the world. I can also predict with a degree of confidence that it won’t be the same for everybody. Some people may even thrive in a situation of ‘no deal’. There are people who can step into – who are agile and can step in and benefit, but there are some people who will be hit hard, and I think that’s a fairly important point to remember, that the impacts of ‘no deal’ will not be spread evenly throughout the economy. The other thing that I would say is, because people quite often say, “Well, look, the US and China and Australia and so on trade with the European Union without free – a free trade agreement, they’re doing very well indeed,” and my answer to that is, if the UK had never joined the EU, the UK will probably do well trading outside the EU, and not necessarily having a free trade agreement, although I think that the natural way economies work, and the UK would have a free trade agreement with its closest economy, but that’s another matter.
The point is this, it’s the change, the change of direction from an economy that is directed towards the European Union and turning it around, the way you have difficulty when you’re turning a super tanker around, because it’s going in one direction. It has this huge momentum, and that it’s that that is going to cause the disruption. If the UK and the EU were to end up with no deal after 15 years, the impact wouldn’t be so much. If they end up with no deal on March the 30th, the impact will be immense. Why?
There are a lot of reasons. I’m going to stick to tariffs. Be aware that in – for many products, tariffs are not the biggest deal. It’s things like compatibility of standards and regulations, and all of that, and also their services, which is not part of this goods thing. This thing on the right that you can’t read is a tariff profile of the European Union from the WTO website. So, it gives you average tariffs, it gives you average tariffs for different categories of products, but on the left you could – I’ve highlighted some numbers, and people will say to you – some people will say to you, “Look, the average European Union tariff is about 4%. For agriculture, it’s about 10%. That’s not very high. If those tariffs go up between the UK and the EU, then it’s not such a big deal,” but that’s not looking at the detail. Averages hide detail.
If you actually look at individual product groups, the highest tariff on one type of dairy product is 190%. Somebody who’s exporting that product to the EU duty free and suddenly confronts a tariff of 190% is going to lose that market. Now, I’ve no idea what that product is, and I’ll show you in a minute why I have no idea what it is, but you can see that there are fruit and vegetables that go up to 181, there are fish – there are peaks at 26%, and transport equipment, the peak is 22%. That one I could look up, it’s certain types of trucks.
You can see from this, if you can just about read it – if you can’t read it, let me explain. This comes from the Agricultural and Horticultural Development Board, and the point is that tariffs are very complicated for agricultural products. For example, for fresh, chilled beef, boneless, there are two components. The first part of the tariff is 12.8% of the price, and the second part is €303.40 per hundred kilos, and if you want to make that a percent of the price, you have to know what the price is, and if you don’t know the price, then you can’t do it, but thankfully, this group do. So, they calculated that that actually comes to 65% for beef and for lamb, sheep meat, it’s 45 to 51%. I’m moving on quickly. Dairy products, the highest is milk and cream, is 74%. You’ve got a range from 40 to 70 something percent. That is a big bill, a big barrier that exporters would have to face if they’re trying to export through normal tariffs to the European Union. Remember, at the moment, it’s duty free.
So, finally, the magical Article 24 that some of you may have come across. I would like you to try and, if you have come across it and heard about it, try and put yourself in the position of me and some of my colleagues, who come to this from a completely different angle, and are completely puzzled by how this ever came up. Remember, we have this non-discrimination rule. You’re not supposed to discriminate between your trading partners. So, how come Canada and the US can trade duty free with each other, but not with the rest of the world? The answer is because there’s a tool called GATT Article 24. GATT Article 24 is a provision that deals with trading goods that allows countries to set up free trade agreements with each other. This is how we understand it: if you’re going to set up a free trade agreement, it has to comply with GATT Article 24. So, if somebody says, “We want to use GATT Article 24,” what they’re saying is, “We want a free trade agreement in goods that complies with WTO regulations, WTO rules, conditions.” It could be anything.
It could be one sheet of paper that says, “All duties between us and the EU are going to be 0%.” The last interim agreement that the European Union notified to the WTO was 1,100 pages long. The Single Market, the parts of the Single Market that deal with goods come under GATT Article 24. The withdrawal agreement would have to comply with GATT Article 24. The backstop would have to comply with GATT Article 24. So, why are people saying if there’s no deal we will use GATT Article 24? Because a deal means you’re using GATT Article 24.
Here’s an MEP, “Suddenly, GATT Article 24 has been an emergency piece of glass that you break in the event of no deal.” What nonsense is this? Article 24 is not about failed deals, it’s about deals, and you cannot break the glass unless you’ve got an agreement. So, I remind you, if people say, “We want to use GATT Article 24,” what they’re saying is, “We want a free trade agreement in goods that complies with WTO rules.” Before I end, they’ve also said, “The WTO is keen to facilitate the use of GATT Article 24.” Of course, it is, it’s its job. Its second leg is sharing information and allowing people to comment. So, this is what happens when you have a deal under GATT Article 24.
First step, UK, EU, strike a deal. How long is that going to take? What does it contain? I leave that to you, but it’s not going to be a single sheet of paper, I promise you. What they then do is they notify to the WTO that they have reached an agreement, and that notification is like this: it’s a single sheet of paper. So, this is how the WTO Secretariat facilitates this. They take this sheet of paper, they check it. Is it formatted correctly? Does it cite the right Article? Has it got a link to the actual agreement? Because the European Union’s admitted this, and they’ve very experienced at doing it, my guess is that my former colleagues looked at it for five seconds and said, “Fine,” and they put it in the system. Now, we do have a bureaucratic system, so you can’t send these out in five minutes. It may take 24 hours, but that’s as long as it takes, and then the information goes into a database, and then WTO members exercise their right to ask the parties to the free trade agreement, “What are you doing? Why do you have this? What does this provision mean?” etc., etc. There are Q&As, and that’s the end. That’s it.
Except, something called an interim agreement, which is the ultimate magic for no deal, which some people like, because if you have an interim agreement in the WTO, you have to do it in ten years, and they think, “Oh, this is great. This means that we have a time limit on this, so we could have a very basic free trade agreement, then we go Canada plus, plus, plus after ten years.” Doesn’t make sense. With both of those Article 24 agreements, either they comply with Article 24 or they don’t. So, I will leave you with this notion. Article – and by the way, this is an example of that second leg, as I said. This is what happens in the WTO all the time. Information is shared, people exercise their right to ask questions, and proceed if they want. If they really think that this is illegal, then they can go to a dispute settlement, but that’s not happened with many free trade agreements, but that’s just one example where WTO rules underpin all trade relations with the – amongst WTO members. It’s not a case of either/or. You don’t have a free – have a deal with the European Union in order to escape the WTO. You have a free trade agreement that complies with WTO rules. You have – you set standards for your products that comply with the criteria of standards in the WTO.
That’s short and sweet. It’s only the tip of the iceberg, but I’m now open to questions from the floor. I think Nick asked you to identify yourselves and so on, and wait for the microphone. It’s a bit like Question Time, isn’t it? You had your hand up first.
Charles Spencer
My name is Charles Spencer. I can’t attest to any affiliations, I’m afraid, and I apologise, it’s an extraordinarily simple question. The slide you’ve just shown us showed all 29 EU signatories individually. Do we remain bound, whether there’s a deal or not on the 1st of April, as a signatory of that deal with Zimbabwe, Seychelles, Maldives, Mauritius?
Peter Ungphakorn
I don’t think you do, and it depends on – because that’s what the [inaudible – 29:12] calls rolling over agreements, and it really depends on those other countries whether they would accept rolling it over, but it would, in the end, be a separate deal with the UK, just as Switzerland has now agreed on an agreement that would partially roll over the deal that it has with the EU. Yes.
Katie Harrison
Thank you. Katie Harrison from ComRes. Thinking of the poll at the beginning, what do you think the public think a no deal Brexit is?
Peter Ungphakorn
I’ve read different interpretations of that poll. Can I say that I’m really glad that I live in a pretty village called Coppet, outside Geneva, and I’ve no idea what’s happening here in the UK.
Alan Grayson
Thank you, indeed. Alan Grayson, I’ll describe myself as a retired Shipmaster. I’ve been at the frontend of trade, and believe me, trade goes on regardless, even where there’s sanctions, UN, or even embargos, trade goes on, and notwithstanding commodities in older ships, like [inaudible – 30:40], cars, oil, grain, whatever, container ships, which I’ve served on. Many containers, goods being shipped within the EU, outside the EU, all mixed on the same ship, including trans-shipment through all the ports, and it’s all dealt with perfectly well electronically now. Given the fact that this is happening now, do you envisage, therefore, any necessary changes that would need to be made, with regard to documentation of such goods, other than, perhaps, the – an extra one line?
Peter Ungphakorn
And this is not my area of expertise. This is quite technical about how Customs and other proced – border procedures are handled. I’m told that it might change, because the UK is a third country, and the documentation that third countries need is different from the documentation that is used internally in the EU, but I’m told, I don’t know.
Ron McMorland
Ron McMorland, I’m actually a former Member of the European Parliament, and was on the Commission’s Observatory on the Internal Market. So, my question, obviously, is you’ve talked a lot about tariffs. What about the non-tariff barriers which, of course, I was brought up to believe were far more important and a problem, where do they fit in?
Peter Ungphakorn
How important they are depends on the tariffs, in a sense, because if – when tariffs are very high, it’s the tariffs that are the main obstacle, but as tariffs come down, it – one of my colleagues, who did sanitary-phytosanitary measures was the secretary of the Sanitary-Phytosanitary Measures Committee in the WTO, her explanation was, When the tide comes down you see the rocks.” So, the tariffs are like the tide going down, and then – and when they’re high, they are the biggest obstacle, when they go down then it’s the others that become obstacles. So, yes, sanitary-phytosanitary measures – well, food safety, animal and plant health, all sorts of safety regulations and labelling in what we call technical barriers to trade, all of that is going to be very, very important. It’s much more difficult to generalise about those, in the same way that it’s difficult to generalise about services, because with tariffs, you can pick a number, and it’s fairly easy to understand, but, yes, they’re going to be a problem.
Ron McMorland
But outside of the WTO’s jurisdiction?
Peter Ungphakorn
Outside the – countries can sign away their rights under the WTO, but the WTO’s jurisdiction, the Sanitary and Phytosanitary Measures Agreement and the technical barriers to trade agreement will always be there, and, basically, what they say is, if you’re going to have these regulations, they should be disciplined, so that they’re not arbitrary. So, for example, for food safety and animal and plant health, either you use an accepted international standard set by FAO/WHO Codex, OIE, whatever of those organisations that deal with that, either you use an accepted international standard, or you have scientific justification, which can be risk, and, as you know, there seems to be a divergence about how risk is treated, even in WTO agreements by the US, where the emphasis is on science, and where, in the EU, where the precautionary principle, safety first seems to be more important. The WTO agreements seem to accommodate both, in a way, perhaps uncomfortably, but that’s there. So, what that means is that whether or not the UK and the EU have agreements on these standards, they will have to comply first with WTO agreements, but secondly, they may go beyond that and say, “Well, we recognise your testing, or your standards,” or whatever. It’s a, sort of, mutual recognition, and all of that kind of thing.
Richard Curry
Richard Curry, UPS. Just a comment and a question, if I may? As the person who asked about whether there would be Customs declarations, in the event of a no-agreement outcome, yes, there will be, and they would come in overnight. How each side is going to handle them is slightly different, but we’ve been told that they will be electronic, and they would want to have them in advance of movement, but the complication and the degree of difficulty isn’t – it’s not like switching off one switch and switching on another, it’s actually far more complicated than that. So, there is a fair bit of work involved. My question is, with there being possibly one Judge at the WTO left at the end of this year, won’t that just lead to paralysis, and doesn’t it send out a message to people that they can do what they want when they want, and there’ll be no comeback?
Peter Ungphakorn
Firstly, thank you for the information. I don’t have it, so I appreciate that. It does send a ba – out a bad message, but countries are trying to get around it. There have been a number of proposals, the EU has a proposal, Canada has got together a group that they call the Ottawa Group that are trying to do this. There are a number of ideas. One, of course, is to try and persuade the Americans. There are certain things that they can do legally, which I won’t go into now, but we can later, if you want. There are grievances that the Americans have, but they haven’t said if those grievances are addressed, then they will start appointing – agreeing to appoint new appellate body Judges. So, we don’t know if that will work. There are other alternatives, like some kind of arbitration whereby you may not have an appeal stage, or you agree that there’s an appeal stage, but it’s all voluntary, and it’s not strictly the way a dispute settlement happens, but it’s some kind of ad-hoc process that would allow disputes to be settled. Those are ideas that are all being floated at the moment, but we don’t know what’s going to happen. I believe the New Zealand Ambassador to the WTO is trying to get ideas together and sort that out. So, we’ll have to see what happens.
Simon Harris
Thank you. Simon Harris, Chatham House Member, and I was at Seattle in 1999.
Peter Ungphakorn
Did you get the T-shirt?
Simon Harris
The FBI got me through the lines, so I was very grateful. Just for the sake of clarification, my view is that the UK, in terms of its own tariff book, has to have an EBA arrangement, and ought to have a GSP arrangement. Could you confirm that my understanding is right, and that I’ve not gone mad? And then, there’s a proper question, the US has rightly raised the issue, especially on differential treatment, which is being applied absurdly, when a country like South Korea is still a developing country. This is a nonsense, and the US is right to raise it, but what are the chances of doing anything about it?
Peter Ungphakorn
Okay, EBA, for those of you who don’t know, is everything but arms. There was a decision in the WTO, I think at a Ministerial conference, at least one, where they agreed that developed countries and developing countries, who are in a position to do so, should give duty free, quota free access to products from least developed countries, and you said, “Does the UK have to?” Have to, in the WTO, means is there an agreement that the UK would violate if it didn’t do it? And the answer is no. On the other hand, it has a – I would say it has a moral obligation to, and, as far as I understand it, that’s the intention anyway, it’s going to do that. GSP is preferences for developing countries in general. Again, I understand the UK, or from what I hear or read in the press, in my little village out in Switzerland, the intention is to continue with preferences for developing countries. And you had a third point?
Simon Harris
Special differentiation.
Peter Ungphakorn
Special differentiation. This is a very difficult issue, and it’s not just the US. The EU also wants to change how developing countries are treated, and there are a number of proposals. It’s going to be very, very difficult, because the politics at the WTO has, for many years, been that developing countries, even if their interests may clash considerably, and they do, that they don’t want to be divided into separate groups. So, India and China and Zimbabwe and so on would, in general, try and stay together, and not allow themselves to be divided. There are a number of ways it might happen. I don’t – I’m not good at predicting, so I’m not going to say whether it will or won’t happen.
One of the ways of doing it is something that came up in a recent agreement called the Trade Facilitation Agreement, where developing countries were allowed to make commitments, depending on their – how they felt they were able to do it. So, in something like that, a country like South Korea would probably make a lot of commitments on trade facilitation, and some others would say, “Well, we would like to do this, but we don’t have the resources. Can you give us aid to help us do it?” And that – some people see this as the future of trade agreements and how they will deal with developing countries. So, it just doesn’t – it doesn’t say, “Developed countries do it in five years, developing countries do it in ten years,” it’s much more subtle than that now, and maybe that’s the way things will move, and so, one of the ideas was if you were to offer that to China, they might do it without having to recategorize themselves as being an advanced, developing country, for example. So, you keep the semblance of unity, but you actually make different commitments. It’s possible, I’m not predicting anything. Some more ladies, in the absence of.
Brunello Rosa
Hello. Brunello Rosa from Rosa & Roubini Associates. If I understand correctly, in case of no deal the UK will remain part of the WTO, but it might need to renegotiate the schedules of commitments, and that is a process that takes time. So, two questions. One’s – first question, is this negotiation happening between the UK and all the other member states, and has any of them veto power? Second question is, if the UK has to renegotiate the schedule of commitments, would it be fair to say that, the day after no deal, it’s not true, really, that the UK falls into WTO, but maybe falls below WTO status?
Peter Ungphakorn
I don’t think it’s possible to fall below WTO status. The – when you said members – all member states, you mean member states of the WTO?
Brunello Rosa
Of the WTO, yeah.
Peter Ungphakorn
The rules are actually quite complicated. So, you’re right, countries’ rights to negotiate with the UK, and, remember, I sort of skimmed over this, but they’re actually negotiating separately with the EU as well, ‘cause the EU has to adapt its own tariff quotas. So, specifically on the tariff quotas, which are the one – the area where there are going to be sticking points, there are rights written into the General Agreement on Tariffs and Trade, which say certain countries have the right to negotiate. They are principle suppliers, or they were the countries that originally negotiated this. Quite clearly, if a quota is only for New Zealand, New Zealand is going to be the only country to negotiate with the UK and the EU, but if there are quotas that are open to everybody, then it is the countries that are supplied through that that can do that.
In the end, a country can still, even if it’s not one of these, it can still block. China blocked the certification – the process is certification. When everybody’s objection to drop, then the WTO Director General can certify these as being the correct schedules, and they legally – they have legal strength. China blocked the certification of one stage of the European Union’s expansion, its schedules for its expansion, on the grounds that the European Union didn’t recognise its negotiating rights impact. So, it became a matter of principle about whether China had the right to negotiate or not. Even while that schedule was not certified, the U – the EU continued to trade. So, yes, everybody has a veto, because it has to be – all objections have to be dropped, but even if they’re not certified, trade can still continue, unless somebody brings a dispute, in which case there may be disruption, but Ch – and China did, and I think it lost that case. So, at the moment, it doesn’t look as though UK trade would be disrupted, but you never know, you never know. Here first, and then…
Eduardo
Hi, Eduardo [inaudible – 45:00] from Debevoise & Plimpton. So, I’ve got two quick questions. One is, looking back, do you have any examples of, basically, two WTO members that were either part of one, sort of, economic area, and divided up, and what happened to them, or, alternatively, that had Article 24 compliant agreements that went much beyond a, sort of, normal trade agreement, and also covered the non-tariff barriers that the gentleman was alluding to? And, sort of, when they finally moved away from that, then reverted to, you know, basically not having an Article 24 compliant agreement, what happened to their respective economies? And, secondly, another aspect that we’ve not really, sort of, talked about tonight, in terms of WTO and Brexit, is this idea of the UK taking charge and, sort of, leading a WTO arena, sense of a new round. I mean, to me, as a layman, it seems improbable, but I wanted to hear your opinion.
Peter Ungphakorn
There is no real example. The only – the closest example was when the – when Czechoslovakia split. They formed a customs union. It was all – so, that was Article 24, then they joined the Single Market. So, that’s – I mean, you go back a lot further, people talk about when some of the British colonies got independence, and so on. I’m too young, I’m sorry.
Anita Punwani
Anita Punwani, Risk Advisor. You touched on attitude to risk as part of your discussion on standards and the US and Europe. We’ve heard scare stories about chlorinated chicken and GM crops.
Peter Ungphakorn
They’re not scare stories.
Anita Punwani
Well, that I – my question was, really, in terms of the four legs of the elephant, is it really that there is a stage before that, that any country really has to set its own attitude to taking that sort of risk before it enters into those negotiations, and there’s a lot of groundwork before it reaches the first leg of the negotiations?
Peter Ungphakorn
The ground rules are the WTO’s ground rules. There are – there is one very important case where the European Union’s precautionary principle was shown to violate WTO agreements, and it’s the hormone beef case, if you know about it. The European Union basically said, if it didn’t say publicly it said in private, “This is a political problem. We cannot, we just cannot accept this,” and so they haven’t accepted imports of beef with hormones, and continue to be in violation. Now, would that have been solved if TTIP had been negotiated? Could the UK – the EU and the US? We can all guess. I suspect if it’s politically difficult within the EU, then it would still be even within TTIP, and chlorinated chicken would be the same. I’m not aware that there’s been a case where the US has said, “This is a violation of WTO agreements,” so I don’t know. I forgot to answer another of your questions, which was about UK leadership.
Member
In general.
Peter Ungphakorn
In general. I would say this, just as a, sort of, matter of principle for any country. One, if you want to be a leader in the WTO, you have to have a trade policy. Two, the WTO is full of leaders. There’s a group of agricultural traders called the Cairns Group, which is sort of what the UK aspires to be, a sort of free trader, although the UK has this sort of schizophrenia, like the EU, where there’s a lot of protectionism in agriculture, but you would also like to export freely, and the Cairns Group itself has a lot of leaders, including Australia. So, I’m not sure that they would take kindly to the EU suddenly going in and saying, “Well, now we’re going to lead the agricultural liberalisation movement.” You win friends in the WTO by actually making good proposals that people like, and those proposals normally mean you giving up something, some of your red lines as well. I mean, that’s how breakthroughs have happened in the past in the WTO. The EU had some red lines for many years that were blocking things, and then it, sort of, said, “Okay, well, we’ll move on this,” and that happened. Yes, the – now, the other thing is, the EU is at the top tier in the WTO at the moment. The UK is at the top tier in the WTO at the moment. The top tier, in the last few Ministerial conferences, consists of the US, China, Brazil, India and the European Union, and the UK is in there. When the UK leaves the EU, as I said, I don’t often predict, but I’m willing to predict that the UK would not be in that group of five, but there’s another layer, lower down, Australia, Canada, Japan, Switzerland, and so on. There’s nothing wrong with being there. Just don’t have aspirations that you’re going to lead the world. You will be another middle-tier power.
Staff
We can take one more question. That was actually a really brilliant place to end the…
John Bishop
John Bishop, Chatham House Member. When I was operating as an Investment Strategist, just along the square, a long time ago, I spent quite a lot of time around here with DeAnne Julius, no less, talking about the Uruguay Round, and at least that left me with some concept that trade negotiations can be very lengthy and complicated, and, obviously…
Peter Ungphakorn
[Inaudible – 51:11].
John Bishop
…obviously, the UK leaving the EU and trying to sign up trade agreements all over the place isn’t quite the degree of complication of an overall trade round, but it does seem to me that it’s going to take a very long time, in many cases, before there is actually anything that can be presented to GATT. Am I on the right track there, do you think?
Peter Ungphakorn
Yes, but it’s not just GATT, because it – because – I mean, I’ve spoken about GATT, because that’s what’s come up, and it’s trading goods, but there’s also GATS, the General Agreement on Trade and Services, so it’s services as well.
John Bishop
I should have said WTO…
Peter Ungphakorn
Yes.
John Bishop
…rather than GATS, it’s been around a long time.
Peter Ungphakorn
But the point is what kind of agreement does the UK want with the EU, and the EU want with the UK? The Single Market is much bigger and deeper than the Uruguay Round. It may be just between 28 countries, but the level of integration in there is huge. Now, if the UK and the EU want something close to that, Norway, heaven forbid, Switzerland, whatever model you pick, it’s going to be big. It’s – you could say, “Okay, we’ll copy X, Y, Z rules,” but then if you say, “Well, the ECJ mustn’t come in,” and whatever else, then you start tinkering with that, then you’re getting into a very, very large exercise. So, I would agree with you, it will take a long time, but if you have – if you’re going for this one pager, which some people seem to be advocating, you know, just, no tariffs, and forget about rules and regulations and services, and so on, yeah, that could be done quickly, except I doubt if the European Union would agree.
Staff
Okay and on that point, I think we will finish. Drinks upstairs, as I said, but before we go, please say a big round of applause for Peter [applause].
Peter Ungphakorn
Thank you very much.
