LONDON — The United Kingdom has been accused of undermining World Trade Organization rules through its trade pact with the United States, potentially straining Britain’s “reset” with the European Union.
Washington struck an agreement with Britain earlier this month to reduce tariffs on U.K. auto and steel exports and to increase reciprocal market access on beef, while also leaving the door open for further deals in areas like pharmaceuticals.
EU officials and trade experts, however, have now asked whether the agreement — and any future deals stemming from it — could violate WTO rules.
Because Britain’s pact was not a full free-trade agreement with the U.S., if London lowers tariffs for the U.S., it must do the same for all its WTO trading partners under the organization’s Most Favored Nation principle. The rules state that countries can’t discriminate — or show preferential treatment — among their trading partners.
The questions come at an awkward time for the U.K., which has just struck a new trade pact with the EU, after an all-important summit in London this week aimed at overhauling its post-Brexit relationship with the bloc.
Asked about the implications of the U.K.-U.S. pact for the Brexit reset in the European Parliament last week, the European Commission’s head of U.S. trade relations Matthias Jørgensen said that “the devil is in the detail” of the deal.
He added: “We would be very vigilant to ensure that the agreement we have with the U.K. is fully respected and also that the U.K. has respected its WTO commitments.”
One of the key concerns he flagged was on tariff-rate quotas — which allow certain volumes of imports to enter the U.K. tariff-free or at reduced duties, after which higher tariffs kick in.
The new U.K.-U.S. pact reworks two quotas — allowing up to 13,000 metric tons of American beef into the U.K. tariff-free, and replacing a 19 percent tariff on ethanol with a zero-tariff quota for 1.4 billion liters.
“We have a bit of worries in that regard,” Jørgensen said. “[…] Who’s paying for that? Who is getting less access to the U.K. market if the U.S. gets more?”
The need for Britain to respect WTO rules was underscored in the new U.K.-EU trade pact signed at the reset summit. The two sides committed to “free, sustainable, fair and open trade, in line with [their] shared values, as well as … recognizing the role of the World Trade Organization in promoting certainty, predictability and fair trade practices.”
UK parliament weighs in
EU officials are not the only ones asking difficult questions about the U.K.’s commitment to WTO rules.
Speaking before a U.K. House of Lords committee on Wednesday, experts warned that the U.K. risked a serious breach of WTO rules.
“There are elements [of the deal] which are clearly WTO incompatible, such as the announced changes in tariffs — although not much has been announced with regard to that — and the announced changes in tariff-rate-quotas,” said Michael Gasiorek, a professor of economics at Sussex University.
“Countries have committed those sorts of offenses as it were in the past in relationships with the U.S. so it’s not the most egregious problem in the deal, but there is the potential in what has been outlined that any further deal could be quite highly WTO-incompatible,” Gasiorek added, commenting that this would be a “serious error on the part of the U.K. government.”
Dmitry Grozoubinski, founder of ExplainTrade, a trade and negotiations consultancy, agreed that the deal appeared to break WTO rules “a little bit.” In particular, he flagged the beef quota as a “new preferential quota for the U.S.”
Liam Byrne, the chair of the U.K. House of Commons Business and Trade Committee, said the government should collaborate with the EU to uphold their “shared ambition to safeguard international trade globally.”
His committee has recommended that the U.K. join the WTO’s alternative dispute resolution system, an initiative whereby countries can dispute unfair trade practices through the organization. The current system has been paralyzed since the U.S. blocked the appointment of judges in 2017, meaning any disputes are endlessly appealed — and never settled.
The U.K. is currently not a member, even though the dispute system includes 27 WTO members, including the EU, Canada, Australia and China — but notably not the U.S.
Two officials close to the WTO said the U.K. was keen to avoid irritating the U.S. by joining. As the MPIA, an interim solution to address the WTO impasse, was seen as a Brussels-led initiative, the previous government had been wary of any perceived alignment with the EU.
Trade Secretary Jonathan Reynolds previously told members of the House of Lords that the U.K. “should be looking to take forward” any moves to “strengthen the role of the WTO.”
U.K. Ambassador to the WTO, Simon Manley, said Britain’s joining the alternative dispute system is “under active consideration.”
A Department for Business and Trade spokesperson, meanwhile, said: “We are strong supporters of the WTO, which plays a vital role in providing stability and predictability for businesses and consumers around the world. This is the first step towards a legally binding Economic Prosperity Deal with the US, with further talks planned to build on what we have already agreed.”
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