Brexit commentary | Governance and Trade Risk | 04 Jul 2019

GATT 24: is it really the solution to "no deal"?

Overview

In recent weeks there has been much discussion of whether Article 24 of the General Agreement on Tariffs and Trade ("GATT 24") could mitigate many of the adverse effects of a "no deal" Brexit, with Brexiters in particular claiming that it could. As explained below, the reality is that GATT 24 is very unlikely to provide any assistance in a "no deal" scenario.

What is GATT 24?

GATT 24 allows countries (or trading blocs) to conclude free trade agreements with one another in relation to goods without having to extend the benefits of those agreements (e.g. lower tariffs) to all other WTO members (as is generally required under WTO rules).  For example, it allows the EU and Canada to agree amongst themselves to levy substantially lower tariffs than would apply if they were only obliged to act in accordance with their commitments to the WTO (agreed as part of the GATT) – whilst not having to apply those lower tariffs to other WTO members.

But to rely on GATT 24 you must have an agreement with the country or bloc that you wish to trade with on preferential terms.  If there is no agreement, GATT 24 is of no assistance.  Fairly obviously, in a "no deal" Brexit, there will be no agreement between the EU and the UK and therefore trade will revert to WTO terms.   The requirement for agreement also means that GATT 24 cannot be invoked unilaterally so as to preserve existing preferential trading arrangements, pending agreement on their replacement.

Time to move on?

The GATT 24 controversy also puts the focus on tariffs on goods, when in fact, many of the adverse effects of a "no deal" Brexit would arise from the imposition of non-tariff barriers as a result of the UK leaving the Single Market. This will affect services as well as goods - and it is services which account for almost 80% of the UK economy.  From a business perspective, the sooner the debate moves on from GATT 24, the better – because it is a distraction from the real issues raised by the prospect of "no deal", which appears to be contemplated as a serious option by both contenders to be the next Prime Minister.

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