The US Response to Brexit: Implications for International Trade Rights and Obligations Under the WTO System

This report seeks to legally arm the US government to pursue US interests vis-à-vis the UK and the EU (“Brexit Parties”), and to push trading priorities in negotiations under the auspices of the WTO. The report examines exactly how and when the US may assert its rights at the WTO and appropriately challenge existing trade remedy orders. It also explores the legal approaches by which the US would have valid bases to complain against the UK and the EU in the context of Brexit, which could be used as negotiating leverage. This report address the following topics: (1) tariffs; (2) agricultural tariff-rate quotas (“TRQs”) and agriculture measure of support (“AMS”); (3) government procurement; and (4) anti-dumping and countervailing duty (“AD/CVD”) orders.
 
 

 

Executive Summary

 

This report explores the United States’ (“US”) third-party rights and obligations under the World Trade Organization (“WTO”) framework upon the United Kingdom’s (“UK”) withdrawal from the European Union (“EU”), or “Brexit.” Brexit charters unknown territory in the world trading framework under WTO multilateral and plurilateral agreements. Amidst and despite this uncertainty, the US has an opportunity to re-orient its trading relationships with two historically close allies and significant trading partners. This report seeks to legally arm the US government to pursue US interests vis-à-vis the UK and the EU (“Brexit Parties”), and to push trading priorities in negotiations under the auspices of the WTO. The report examines exactly how and when the US may assert its rights at the WTO and appropriately challenge existing trade remedy orders. It also explores the legal approaches by which the US would have valid bases to complain against the UK and the EU in the context of Brexit, which could be used as negotiating leverage. This report address the following topics: (1) tariffs; (2) agricultural tariff-rate quotas (“TRQs”) and agriculture measure of support (“AMS”); (3) government procurement; and (4) anti-dumping and countervailing duty (“AD/CVD”) orders.

 

The Tariff chapter examines how negotiations to set up the UK's new tariff schedules would proceed and provides several elements to consider. This report concludes that the UK must establish its own tariff schedule to fulfill its obligations as a WTO Member, before the UK officially exits the EU. First, the US should refer to the last certified EU schedule, EU-25, to establish the baseline for negotiations with the UK and the EU—also to be used as the basis for any potential WTO claims against either the UK or EU, or both. The certified EU-25 tariff schedule legally binds the UK as well as the EU. Relatedly, Article XXVIII:4 would be applicable to negotiations to bifurcate the EU’s current tariff schedule from the UK's future one. Although disentangling the UK’s tariff schedules from the EU’s (and modifying the EU’s) is entirely unprecedented and procedures remain unclear, previous negotiations may be helpful to understand how negotiations to establish the UK's new tariff schedules would proceed. This report provides two models—EU enlargements and dissolution of Czechoslovakia—to inform Brexit negotiations and to illustrate useful lessons for the US to carry forward in its approach. Moreover, the US is encouraged to press the UK to establish tariff schedules different from the EU’s current ones to obtain better access to the UK market. Lastly, the US government may consider bringing WTO complaints against the UK and the EU as a strategy to pull them into tariff negotiations, although it might not be successful. Against the UK, the US may file a request for consultation, arguing that the UK violates GATT Article XXVIII:4, read in conjunction with paragraph of the Procedures for Modification and Rectification of Schedules, and GATT Article XXIII:1(b). Against the EU, the US may initiate another non-violation claim under GATT Article XXIII:1(b).

 

The Agriculture chapter discusses the reversal of the agricultural trading relationship between the EU-27 and the UK and its impact on the US. Namely, the Chapter examines the post-Brexit options for the EU-27 and UK with respect to TRQs in place for agricultural products as well as the UK and EU’s post-Brexit division of Aggregate Measure Support (“AMS”) subsidies. First, three options are considered for reallocating the UK and EU’s TRQ commitments. The report concludes each possibility would result in challenges requiring the EU-27 and the UK to enter into negotiations with the US. Second, the division of AMS commitments is considered. The report concludes theoretical challenges against the UK and EU-27 are possible but impractical. Finally, the Chapter concludes with recommendations for a Section 332 Investigation.

 

The Procurement chapter describes the EU and Government Procurement Agreement (“GPA”) legal framework governing UK procurement. Then, following an analysis of the UK’s status vis-à-vis the GPA, this report concludes that the UK is not itself a party to the GPA and accordingly provides a brief overview of the accession process. Finally, this part explores the UK’s possibilities to structure procurement laws with (or without) the EU. The US would have a strong interest in encouraging the UK to join the GPA—rather than the UK “going it alone.” Notwithstanding the UK’s GPA decision, continuing to adhere to European Communities directives on UK procurement would be most attractive for American businesses, by enhancing predictability and ensuring contractual adherence under already-known EU rules (even if the UK government’s current position is to entirely forego participation in the Single Market).

 

The Anti-Dumping and Countervailing Duty Orders chapter identifies two anti-dumping orders on American products in which UK producers were included in the injury determination and/or calculation of duties. Those measures are on (1) bioethanol and (2) grain-oriented flat-rolled products of electrical steel (“GOES”). Both cover products of significant US export interest, subject those American exports to high duties, and will be imposed until at least 2018 and 2020. The section then describes the two routes available to the US (and American exporters) to challenge existing orders—one within the framework of the EC and the other at the WTO. The procedural aspects and legal basis to challenge these orders in both fora would also apply to any future orders imposed between now and the UK’s slated 2019 exit.

 

The full report can be accessed and downloaded here

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