Part one: Introduction to the World Trade Organization

Ursula Johnston: Hello and welcome to the first of a series of webcasts delivered by Gowling WLG in the UK. Today you will be presented to by myself, Ursula Johnston and Savannah Would.

So normally when we are delivering training ideally that would be in person and we would have the opportunity to find out a little bit more about each other, so I just want to kick off by giving you a very brief introduction to the team at Gowling.

So we are the EU, Trade & Competition Team. We have members of the team spread across our international offices. I myself very much focus on trade and customs regulations and we cover focus on assisting clients with audit dispute resolution and we also help with helping companies understand the regulatory barriers for import and export and sanctions.

We also advise on implementing and adopting trade compliance programmes and thinking about how legal teams can help support those. And you know more broadly and obviously very timely we look at how do clients prepare for geo-critical change, whether that be as we are undergoing now Covid-19 - which is obviously impacting global supply chains, Brexit, or looking more broadly at trends in international trade relations.

We have a sector focus so many of our clients are from life sciences, automotive and retail manufacturing backgrounds.

So as I mentioned this particular session, which we have titled "Introduction to the World Trade Organisation" or "WTO", this forms one of a short series of what we are calling "Trade Law Bitesize" with the idea that you can access these sessions as and when you can and simply the idea is just to give you a very much an introduction to some of the key themes and topics that surround international trade and the regulations. As possible we will look at this with a UK slant but actually all the commentary that we will deliver is relevant at a global level because we are looking at how global trade is regulated from the top umbrella - that is the WTO - and how does that trickle down into national provisions and legislation.

So for this particular session we are going to touch upon the origins of the WTO, look at that membership and the current membership structure. We will also talk a little bit about what is the WTO's mandate, what is the extent of their powers and we will also finish by thinking about the decision making processes and as I said throughout this we will try to think about what is the relevance to the UK particularly as the UK stands today, not being within the middle transitional period.

So I am going to pass over to my colleague Savannah. Savannah is a junior lawyer in our EU Trade and Competition team and she is going to kick off by talking about the origins of the WTO.

Savannah Would: Thanks Ursula. So following the Second World War the formation of an international trade organisation had been proposed by the architects of the Bretton Woods Agreement with the idea being that such body would oversee a new multilateral system of international trade. The ITO was intended to sit alongside the international monetary fund however it never came into existence because of opposition in the US Congress with the concern being that it would encroach excessively on domestic sovereignty. This led to a provisional agreement being negotiated with a General Agreement of Tariff and Trade (the GATT). The GATT was intended to preserve the tariff reduction commitments of parties until such time as the ITO was established. However the GATT ended up becoming a permanent framework for the multilateral trading system and was considered to be the default basis. Various negotiations have been held under the GATT, initially relating to tariff reductions but evolving to include other areas such as anti-dumping and none tariff measures. Over time the GATT therefore evolved into the creation of the World Trade Organisation in 1995 which was considered to be the biggest reform of international trade since the Second World War.

So in terms of membership of the WTO as we have mentioned it is an umbrella organisation providing the forum for negotiation, treaty revision and also dispute settlement. As of the 30 September 2018 the WTO had 164 members which accounts for 98%25 of world trade. Some of the countries amongst others which are not yet members of the WTO include Iran, Iraq, Serbia and Algeria. For the negotiating members their regime broadly follows the WTO regime and this map we have included on the slide, those countries in green are currently WTO members and those highlighted in yellow are the ones that are negotiating accession.

Ursula: So I think, I mean you will see a couple of countries there shaded in grey for example, North Korea and those represent those countries that have not yet applied or have decided not to apply to become a member of the WTO.

So just to think about what has been the UK's involvement in the birth and development of the WTO. So it was a founding party to the General Agreement in Tax and Trade so this is obviously pre-EU or EC membership days so it was an original member of the WTO in its own right with its own voice and voting power. But obviously as the UK became a member of the EC and in turn the EU, European Union, so the UK's concessions and its commitments on what it essentially signs up to in terms of saying, well this is how we will trade in goods, this is how we trade in services, these are the tariffs that we intend to apply, those are all wrapped up in the EU schedule so the UK does not have as it stands its own programme. As we are now in the midst of a transitional period and at the time of this recording which is mid-April 2020, the EU schedules continue to cover the UK throughout the transitional period.

So over the last three years there has been a lot of discussion about what does a no-deal Brexit mean for the UK and that is often something referred to as a WTO / MFN / third party Brexit. There has been lots of commentary in the press around, what are the implications for the UK vis-a-vis its trade with other countries? So there is obviously connotations for the current agreements with which the UK currently enjoys access to preferential markets under the current EU Trade Agreement frameworks. It will be continued to be treated as in a member state of the EU for any on-goings, that is current WTO disputes to which the EU is a party. The EU has always obviously been there as a strong component of the multi-lateral trading system and we suspect that to obviously continue and for the UK to look at how can it have positive influence on the development of the WTO as an institution and its policies as we enter 2021 and beyond. And interestingly, where we think the UK should sort of try and draw inspiration is to look at the noisier members of the WTO which have a lot of clout just by their sheer size and the volume of international trade so for example the UK, China, the EU, but actually to look at the tier below that. So for example, how does Japan influence policy at the WTO, Canada, Singapore and to learn lessons from those nations as to really the importance of, not just talking to the bid players in the global trade landscape, but all of those other countries where they have developed or are developing economies and to find out what can the UK do for those nations to help pull them into the sphere of global trade on a much more efficient level. Because by doing that you increase your base of supporters essentially within the WTO membership base.

If you would like to have a further insight on the UK's role in the WTO after Brexit, I highly recommend that you access a recorded forum that was put together by the Institute of Government last year and indeed one of my colleagues, Bernadine Adkins who leads our EU Trade and Competition Team, is one of the panellists and this will provide an in depth discussion on some of the strategic decisions that the UK may choose to take over the coming months and years.

So coming back to that term, trading on WTO terms that we have seen a lot of in the press, so what does that mean? Well, essentially the WTO is a multi-lateral trade agreement albeit one that encompasses a lot of countries and has a skeleton framework but, in the absence of a specific trade agreement with another territory, then we will trade on WTO terms so we will trade under the GATT. So the GATT, General Agreement of Tariff and Trade provisions and the General Agreement of Trade and Services provisions and we will be bound by the specific schedules on tariff and quotes that have been posted by the individual members of the WTO.

So in the case of a no-deal Brexit, so that is where we do not have a trade agreement with the EU and my understanding is that the UK intends to post a temporary schedule of tariffs and one of the key questions that has been posed throughout the negotiation process is, what do we mean by the most favoured nation rule that underpins the WTO mandate. And what that means is, we essentially cannot treat another member of the WTO more favourably than another in the absence of a specifically negotiated trade agreement. And one of the challenges in particular this has posed is looking at the border between Northern Ireland and Ireland and saying, well if we have a different regime to allow trade to flow freely across the island of Ireland, does that mean actually we breach those most favoured nations rules because actually we are offering preferential market access to Ireland and indeed then the EU without a trade agreement in place.

WTO terms are also important because we need to assess what are the non-tariff barriers that might apply to trade with third parties. So that could include licencing requires because it is crossing international borders and can include certain regulations so it all of those parts of trading which are not actually around the money, the duties, so what is the cost, what is the tax that is levied on those goods as they cross the border. And then, obviously what you have now in place for the UK is a number of countries with which the UK has negotiated a continuity of the existing EU Agreements. So for example that includes Switzerland and South Korea.

So I am going to pass back to Savannah who is just going to give us a brief overview of the structure of the WTO.

Savannah: Thank you Ursula. So one of the key facets of the WTO is that it is run by its members and this is something that can differentiate it from other international organisations. At the top of the structure we have the ministerial conference which is the highest level and meets every two years. Then the day to day work in between the ministerial conferences is handled by three bodies, the General Council which is made up from delegates from all member countries and its various sub-councils and committees listed on the screen; the Secretariat located in Geneva which is headed up by the Director General who is appointed by various members. Due to decisions being taken by members themselves, the Secretariat does not have a decision making role itself. We also have the Dispute Settlement Body which consists of panels and the appellate body. Then at the third level you have the councils for each broad area of trade for example the council for trading goods, council for trade and services and the council for trade related aspects of intellectual property rights. Six other bodies do report to the General Council and they are deemed to be committees due to their scope of covering being smaller. However these do still consist of WTO members. Finally, each of the high level councils has subsidiary bodies which all consist of member countries. These deal with specialist subjects such as market access, agriculture, safe-guard and rules of origin amongst others. And as you can see on the screen in more detail, there is a high level structure chart from the WTO's website.

So in terms of the mandate of the WTO, it has various key functions which we have listed on the screen. So primarily administering WTO trade agreements, the current set of WTO agreements is largely the outcome of the 1986 - 1994 Uruguay round negotiations which included a major revision of the GATT. These agreements allow the members to operate a non-discriminatory trading system and also set out various rights and obligations for the members. It also provides a forum for trade negotiations. Additionally, it provides a dispute settlement procedure mechanism. The relevant procedure is the dispute settlement understanding. This allows governments to bring disputes to the WTO's attention if they believe that their rights under the WTO agreements are being infringed. Initially the procedure encourages members to resolve disputes through consultations with each other however, if this does prove to be unsuccessful, then disputes can be brought on a WTO level. The dispute settlement procedure contains various states including obtaining a ruling by a panel of experts as well as the opportunity to appeal the ruling on legal grounds through the appellate body.

So in terms of trade monitoring, all members must undergo periodic scrutiny and the WTO undertakes regular monitoring of global trade measures. Following the 2008 financial crisis in particular, this monitoring role as become a regular function of the WTO. The WTO provides technical assistance and training for developing economies. All WTO agreements contain specific provisions to assist members with developing economies for example by giving longer timeframes to implement commitments and also additional support to build the infrastructure needed for these countries to participate the WTO. The WTO's committee on trade and development also looks in particular at developing economies' special needs. Furthermore the WTO cooperates with other international organisations such as the World Health Organisation and the International Monetary Fund.

(Ursuala) And I think that last point you make Savannah on the cooperation with other international organisations is going to be really key because we are already seeing at the moment a raft of regulations and new licencing provisions around looking at how we globally move some of the equipment and medicines needed to help countries treat and look for a vaccine for the Covid-19. So it has been a very good example of where trade is helping individual countries respond to the health crisis.

Savannah: So continuing to look at the mandate of the WTO, we have listed out the various key WTO agreements. At the top of the agreement list you have the umbrella agreement which deals with the functioning of the WTO which is known as the WTO agreement. As we mentioned previously, the current set of agreements are largely the outcome of the Uruguay negotiations which did include a major revision of the General Agreement on Tariffs and Trade otherwise known as the GATT. This is the principal agreement dealing with goods and historically tended to focus on goods but more recent multi-lateral negotiations have focussed on non-tariff barriers to trade as Ursula mentioned earlier.

Domestic regulatory policies have often been argued as creating impediments to cross-border trade which is why the Uruguay round has led to the focus expanding onto removing impediments to trade so for example for in food safety standards and other technical standards, harmonising regulations in relation to cross-border services and as we can see on the screen, the principal agreement for services is the General Agreement on Trade and Services, the GATS, in which each of the members have a schedule of commitments in relation to services in particular. It also looked at harmonising intellectual property standards and as you can see we have the Trade Related Intellectual Property Rights agreement otherwise known as TRIPS. It also looked at minimising discrimination in the treatment of foreign direct investment and also minimising discrimination in government procurement which has led to the agreement on government procure in particular.

We will be covering a session on the GATT and GATS and also the TRIPS agreement in this webinar series so we will look at these in more detail then.

So in terms of decision making within the WTO, taking a decision by a consensus is how the WTO differentiates from other international organisations such as the IMF. The WTO is run by member governments therefore the power of decision making is not delegated to a board of directors or to an individual. The original Article 25 of the GATT provided for joint action by a majority vote. However this in time has led to the development of a practice requiring consensus for all decision making. In particular, the WTO agreement only binds those members who have signed and ratified it and the same goes for any amendments which are made to that agreement. So any proposals to amend at WTO agreement must be tabled for a minimum of 90 days. There are also specific provisions which can only be amended by a unanimous agreement of all members and these are set out in Article 10(2) of the agreement. All other provisions can be amended by a two thirds majority of the ministerial conference. However, such amendment is only binding on the members who have voted in favour but this is subject to an exception in Article 10(5) whereby the ministerial conference can decide by a three quarters majority that an amendment is of such a nature that any member which has not accepted it within a period specified by the ministerial conference is free to withdraw from the WTO or it may remain a member with the consent of the ministerial conference.

Ursula: Thank you Savannah. What we will do is we will include a module that looks at some of the future challenges for the WTO and that hopefully as we have gone through the session and we have given you some initial information on the institution and the structure and the framework of agreements that you would have thought about some of the challenges particularly in light of current geo-physical developments and whether the WTO can keep up to speed with changing international trade landscape.

If you do have any questions arising from this session or any of the other modules that we record, please do feel free to contact one of the team, our contact details are here.

Thanks very much for joining us and we look forward to getting in contact with you soon.

Goodbye