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Leaving the European Union: World Trade Organisation

Published Tuesday, March 28, 2017

This Library briefing provides an overview of the World Trade Organisation. It examines the history, structure and membership of the organisation. It provides information on the agreements underpinning the international trading system and the principles that govern trade between members of the WTO. It also considers how the UK would trade with the EU under WTO terms, if the UK left the EU without a trade deal.

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A number of commentators have considered the possibility that the UK might leave the EU without a deal. In this situation, the UK would trade with the EU under World Trade Organisation (WTO) terms.  The World Trade Organisation is an international organisation which regulates international trade. It started operation in 1995 following the signing of the Marrakesh Agreement in 1994. The WTO’s overriding purpose is to help trade flow as freely as possible. Successive rounds of international negotiations since 1947 have sought to liberalise world trade. At the time of writing, the WTO has 164 members, and although the UK is an individual member, it is currently represented by the European Commission at the WTO.

The international trading system is underpinned by a number of WTO agreements. The General Agreement on Tariffs and Trade and the General Agreement on Trade in Services regulate trade in goods and services respectively. Under these agreements, countries negotiate lists of market access commitments, known as ‘schedules’. These can take the form of tariff levels on goods and how much market access foreign providers of services are allowed. In addition, the Trade-Related Aspects of Intellectual Property Rights sets minimum regulatory standards with regard to intellectual property.

Trade under WTO rules operates under the most favoured nation principle. This means that countries cannot normally discriminate between their trading partners. For example, if a country chose to lower a tariff on a good for a particular trading partner, it would have to do the same for all other WTO members. In addition, under WTO rules, a country must also treat imported and locally-produced goods, services and intellectual property equally. For example, a country could not impose a tax on an imported product after it had entered the market if it did not do the same for a locally-produced product. 

The WTO also provides a dispute settlement mechanism to resolve trade disputes between WTO members. It has been described as the “jewel in the WTO’s crown” and since 1995, over 400 disputes have been brought to the WTO. An independent panel makes a ruling on a trade dispute based on the WTO agreements that is binding on the WTO members.

Commentators have considered how the UK would trade with the EU under WTO rules, if it left the EU without a trade deal. The UK would need to negotiate a new set of schedules and the Government has indicated that it will seek to replicate existing schedules where possible. Some commentators have argued that trade with the EU under WTO terms would prove costly for businesses as they would face higher tariffs on certain goods. However, others have argued that WTO rules would not be an impediment to trade.

Lords Library notes LLN-2017-0017

Author: Samuel White

Topics: International organisations, International trade

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