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Home International Economic Law Lack of Certification of the WTO Schedules of the United Kingdom: A Way for Frictionless Trade under a No-deal Brexit Scenario?

Lack of Certification of the WTO Schedules of the United Kingdom: A Way for Frictionless Trade under a No-deal Brexit Scenario?

Published on March 7, 2019        Author: 
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The departure of the United Kingdom (“UK”) from the European Union (“EU”) without any agreement, the so-called no-deal Brexit, seems more likely to happen after the House of Commons voted against Theresa May’s Brexit deal by a record margin of 230 votes (432-202) on 15 January 2019. Under a no-deal scenario, World Trade Organization (“WTO”) rules will govern the UK’s trading relationship with both the EU and other countries. The UK’s trade in goods and services will be subject to most-favoured nation (“MFN”) tariff rates.

However, the UK, as a member State of the EU, does not have its own schedules of concessions under the WTO – for now – because the EU, as a single customs union, has consolidated schedules for goods and services. Accordingly, to conduct its post-Brexit trade, the UK submitted draft schedules on goods and services for certification in 2018. The UK is currently negotiating its schedules with other WTO Members, but time is running short ahead of the UK’s scheduled exit from the EU on 29 March 2019. If the UK fails to certify its schedules before March 2019 – a highly likely scenario – the question becomes whether the UK could unilaterally establish its new schedules and conduct trade based on “uncertified” schedules that have not been agreed by all WTO Members.

Certification

Certification is the process of attesting changes to the authentic text of schedules to reflect modifications resulting from renegotiations under Article II, XVIII:7, XXIV:6, XXVII and XXVIII of the General Agreement on Tariffs and Trade 1994 (“GATT”), as well as rectifications of schedules of a purely formal character. Certification is important, because it ensures annexed schedules to the GATT and the General Agreement on Trade in Services (“GATS”) are up-to-date, and maintains schedules as sources of predictable and enforceable legal obligations of WTO Members. One could argue that certified schedules officially bind Members and, thus, the UK’s new schedules must be certified to have legal effect.

Certification Not Required to Give Effect to the UK’s New Schedules of Goods

However, a close analysis of the panel report in EU – Poultry Meat (China) provides that the UK would not be required to certify its new schedules of goods to enforce them, regardless of whether the agreements are reached between the UK and other WTO Members under Article XXVIII negotiations. The panel’s conclusion that certification is not a legal prerequisite for giving effect to the modifications resulting from Article XXVIII negotiations at the national level (para. 7.551) indicates that certification of schedules is procedural rather than substantive. The panel also confirmed that the certification process does not confer a “veto” right to Members who failed to reach an agreement in Article XXVIII negotiations or those who are not satisfied with the compensation agreed. (para. 7.541) Members may object to certification only “on the ground” that the draft does not correctly reflect the modifications or that the proposed rectification is not within is terms.

This means that the UK would be free to give effect to its new schedules of goods before completing the certification process. Thus, the UK could establish its new schedules for goods and enforce them despite the absence of the certification.

Three Caveats

While the panel’s ruling in EU – Poultry Meat (China) supports the UK’s unilateral action to establish its new schedules of goods and to implement modifications resulting from Article XXVIII negotiations without certified schedules, this decision needs to be understood with three caveats.

First, the UK must certify its new schedules of goods eventually. It would be wrong to interpret the panel’s finding to mean that the UK is exempted from the certification. Referring to Articles II and XXVIII of the GATT, paragraph 8 of the Procedures for Negotiations under Article XXVIII, and paragraph 1 of the Procedures for Modification and Rectification of Schedules of Tariff Concessions, the panel emphasized that the certification procedures are important to ensure the authentic texts of Schedules annexed to the GATT and the GATS are up to date and properly reflect the legal rights and obligations of Members. (paras. 7.504, 7.511-7.513, 7.519, 7.528-7.530, and 7.540) It is important to note that the panel took extra care to avoid unnecessary misinterpretation of its conclusion. After examining relevant provisions of the GATT and the Procedures for Negotiations under Article XXVIII, the panel clearly distinguished the two different questions: (i) whether certification is a legal prerequisite for introducing changes into the text of a Schedule in the context of Article XXVIII negotiations; and (ii) whether a Member is free to give effect to the changes agreed in Article XXVIII negotiations prior to the changes having been introduced into the authentic text of its Schedule. (para. 7.538) The panel only considered the second question and was careful not to undermine the importance of the certification – certification is a legal prerequisite for introducing changes into the text of a Schedule in the context of Article XXVIII negotiations. Thus, as soon as the UK concludes Article XXVIII negotiations with other WTO Members, the UK must certify its schedules of goods.

Second, the panel’s finding that certification is not a legal prerequisite for implementing modifications resulting from negotiations under Article XXVIII of the GATT at the national level is not applicable to the modification of schedules of services annexed to the GATS. Contrary to schedules of goods, the UK would need to complete the certification procedure in order to enforce schedules of services. In its analysis, the panel pointed out the stark contrast between the wordings in paragraphs 7 and 8 of the Procedures for Negotiations under Article XXVIII of the GATT and paragraph 6 of the Procedures for the Implementation of Article XXI of the GATS (para. 7.533). Paragraph 6 of the Procedures for the Implementation of Article XXI of the GATS provides that the Member modifying its concessions “will be free to implement the changes agreed upon” in the negotiations “[a]fter completing the certification procedure“. On the other hand, paragraph 7 of the Procedures for Negotiations under Article XXVIII states that the Member “will be free to give effect to the changes agreed upon in the negotiations … as from the date on which the conclusion of all the negotiations have been notified” with paragraph 8 addressing the separate question of when the formal effect is given to the changes “in the schedules”. Accordingly, unlike schedules of goods, the UK must certify its new schedules of services to give them effect.

Lastly, as China decided not to appeal the panel report, the WTO Dispute Settlement Body (“DSB”) adopted the report in April 2017. However, this panel ruling, in principle, can be overturned by the Appellate Body if another Member brings a complaint concerning the UK’s new schedules and appeals. If indeed appealed, it is less likely that the Appellate Body will reverse the core part of the panel decision that certification is important in the context of the WTO legal system, but certification is not a legal prerequisite to implement the changes agreed upon in Article XXVIII negotiations at the national level. (paras. 7.550-7.551) However, the Appellate Body may take a different approach when applying the panel’s decision in the context of Brexit and come up with a different conclusion. In fact, the panel acknowledged that “the legal consequence of certification varies in different situations, and therefore must be analysed in relation to the particular situation at hand.” (para. 7.536) The panel also noted there are situations where the introduction of changes into the text of a Schedule is a legal prerequisite for effecting any change in Members’ substantive rights and obligations. For instance, an agreement among Members to reduce tariffs may not be legally enforceable in WTO dispute settlement until the change has been introduced into the text of the schedule through certification. (para. 7.536) In the context of Brexit, there are many uncertainties as to how Article XXVIII negotiations would develop between the UK and other WTO Members, which may provide different fact patterns than those under EU – Poultry Meat (China). In particular, if the UK indeed unilaterally establishes its schedules of goods without agreement with other Members and a dispute arises from the UK’s uncertified schedules, the Appellate Body could decide that the UK’s schedules need to be certified to be legally enforceable in WTO dispute settlement.

Conclusion

In the event of no-deal Brexit, the UK, in principle, would be able to unilaterally establish new schedules of goods without reaching the satisfactory agreements with other Members and enforce them before completing the certification procedures. For some hardline Brexiteers who support the UK’s complete departure from the EU single market and the customs union, the panel’s ruling in EU – Poultry Meat (China) may be perceived as good news that could save the UK from being isolated from international trade under a no-deal Brexit scenario.

However, this would be a wrong takeaway. Although Article XXVIII:3 of the GATT and the panel’s decision pave the road for the UK to establish its new schedules for goods and implement them without certification, the UK must ultimately certify its schedules of goods. The lack of certification would create uncertainty regarding the legal status of the UK’s new schedules of goods, since it fails to ensure that the authentic texts of schedules are up to date and properly reflect the legal rights and obligations of the UK. There is also a possibility that the UK’s unilateral action could lead to suspension of concessions by other Members and the initiation of WTO disputes which may lead to rulings against the UK. Moreover, unlike schedules of goods, the completion of certification is necessary for the UK to give effect to its new schedules of services.

In short, the UK must certify its schedules of goods as soon as it concludes Article XXVIII negotiations with other WTO Members. The panel’s decision does not support a way for frictionless trade between the UK and other countries under no-deal Brexit.

(This post was written when the possibility of a no-deal Brexit looms – just before the UK Parliament’s second “meaningful vote” on Prime Minister May’s Brexit deal scheduled for 12 March 2019. Even if the UK leaves the EU with an agreement, this issue will remain relevant as the UK eventually needs to establish WTO schedules. With an orderly Brexit, the UK would have more time to negotiate WTO schedules. However, if the UK fails to certify WTO schedules before the end of the transitional period under the Withdrawal Agreement (i.e. December 31, 2020), the UK would face the same issue.) 

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2 Responses

  1. Sandeep Thomas Chandy

    Thank you Jay for the post. Coincidently I had spoken on this same issue at a recent UNCTAD conference held in India and my conclusion was the same as yours. Going one step further, I would doubt the status of UK’s Membership at the WTO without a certified set of schedules. Being an Original Member of the WTO, Article 11 of the Marakkesh Agreement requires such Members to have their Schedules in place. In my opinion, uncertified schedules will not satisfy the requirement in Article 11.

  2. zhai

    Thank you also to Jay for the post, and to Sandeep for the comment. Perhaps the UK Government can, in the interim, adopt the substance of EU schedules (or maybe parts of the schedules), in case there is no deal-brexit? UK Government seems to be doing similar things in the context of other international agreements, an example is the private international law treaties in the Hague conference- http://conflictoflaws.net/2019/uk-ratifies-hague-choice-of-court-and-hague-maintenance-conventions/