European Union: GATT Article XXIV (Article 24) Under The Spotlight

Article XXIV (also referred to as Article 24) of the General Agreement on Tariffs and Trade (GATT) recently came into focus when Conservative Party leadership candidate and potential future UK Prime Minister candidate, Boris Johnson, claimed it could be a potential option for the UK in the event of a 'no deal' exit.

During the hustings for leadership of the Conservative Party, he appeared to be of the view that the UK can unilaterally invoke Article XXIV, whereby a 'standstill' provision would apply while the UK and EU negotiated a free trade agreement. He was also of the view that this standstill provision could apply for some 10 years.

This standstill provision is found in paragraph 5 Article XXIV GATT.

This idea simply will not work. The provision is actually irrelevant in the context of Brexit and will not apply so as to allow the UK tariff free access to the EU while it is negotiating a deal with the EU. For a full explanation, please see Gowling WLG's discussion of Article XXIV with the BBC.

At the outset, we should also add that, even if it could work (which it can't), the provision would be of limited use. It only covers tariffs on goods, not services where the UK has a balance of trade surplus. Nor does it cover so called 'non tariff' barriers, which is where the true impediments to trade lie.

What is Article XXVI?

GATT was agreed in 1948 and remains the main agreement that governs multi-national trade in goods. Before 1995 when the World Trade Organization was set up, the term 'GATT' also applied to the international organisation that administered the multi-national trading system.

The fundamental principle of GATT found in Article 1 is that there should be no discrimination as between contracting parties (currently some 164 countries). This is referred to as the Most Favoured Nation (MFN) principle. Any preference given one country by another must be available to all the other 163 countries.

Article XXIV allows an exception to this principle of MFN - which will apply where countries or regions agree a free trading agreement (FTA) which covers 'substantially all the trade' between them. The EU is an example of an FTA.

But - in order to protect the third countries that are not in the FTA from having higher tariffs and other restrictions put on them, paragraph 5 of XXIV requires the parties to the FTA to have a 'standstill' for their current tariffs and trade rules as between the participants in the FTA and third countries - and not as between the parties to the FTA - they will be busy implementing a free trade zone between them. This is known as the 'standstill' provision. It is found in paragraph 5(b) of Article XXIV. It is essentially aimed at protecting third countries that are not parties to the FTA. As such, it has no relevance to Brexit.

Boris Johnson admitted that he did not know what was in paragraph 5 (c) of Art XXIV in his interview with Andrew Neil on 12 July. This provision applies to 'interim agreements' - i.e. agreements where the parties had agreed that their FTA should introduce free trade (i.e. zero tariffs and no quota) gradually over time, to allow their respective industries time to adapt to the fresh competition from overseas.

GATT allows for such a period of implementation, as the full FTA is gradually implemented, but under paragraph 5 (c), the parties to the FTA must put a plan and schedule for full implementation before the other GATT contracting parties. And this is where the fabled 10 years comes in - (see the 1994 Understanding on Article XXIV), 10 years is treated as an appropriate transition period. Any longer should only be under exceptional circumstances.

Under the GATT rules with respect to an interim agreement, the other contracting parties then have a considerable degree of control.

Again, in order to protect those countries that are not parties to the FTA, the parties are required to notify to the GATT signatories "a full listing of each party's preferential duties to be applied over the transition period". If the WTO organisation or any of the third countries are not satisfied that an FTA will not be fully introduced within a reasonable period, they can make binding recommendations to ensure that this will happen.

It is due to this level of oversight by dozens of WTO members and the WTO organisation that, since the WTO was established in 1995, GATT Article XXIV has never been used for interim trading arrangements. Instead, countries prefer to adopt 'full' FTA' s with an implementation period, in order to circumvent the high level of control that would apply to them.

The UK (with the EU's agreement) could try a similar tactic - i.e. agree a full FTA - and circumvent the high level of scrutiny. This may be damaging politically to both the UK and EU. Such an FTA will take time, especially where the UK has indicated that it wishes to have different regulations to that of the EU.

But this is where the whole reliance on Article XXIV falls apart. The 'standstill provision' does not apply to relations as between the UK and EU. Microphone drop. It applies to trade with third countries, to protect them from protectionism and circumvention of the MFN principle by parties to a free trade agreement. It will not serve to give the UK a 'standstill' provision with respect to its trade with the EU.

In all of this, the UK remains at square one - in order to have tariff free access to the EU, it has to conclude an agreement with the EU. As many commentators have said, Article XXIV is but a red herring.

Alternatives to GATT Article XXIV

In a no deal scenario, the UK could choose to continue applying zero tariffs to goods being imported from the EU in order to minimise disruption to trade and prices. Under the 'Most Favoured Nation' principle, the UK would have to offer zero tariffs to all third countries.

Over the years, the WTO and GATT has been largely successful in bringing tariffs down to relatively low levels, save for agriculture and other sectors of strategic importance. In a modern trading environment it is 'non tariff barriers' i.e. rules on health and safety which are act as impediments to trade, rather than tariffs.

While zero tariffs would mean cheaper imports for some products, it could also put major pressure on a number of British companies by making them less competitive. What's more, there would be no obligation on other countries to offer the UK reciprocal tariff-free access for products of UK origin. It also opens UK industry up to competition from countries which have unfair trading practices, such as unfair Government subsidies, or who dump products on foreign markets at prices below cost prices.

In March the UK issued the tariffs that it was going to impose if the UK left without a deal. According to the government, 87% of total imports would be tariff free - but tariffs would apply with respect to some agricultural products; finished vehicles; and certain products which were being dumped or subject to state subsidies such as certain ceramics, fertilizer and bioethanol.

Further information on GATT Article XXIV can be found in this useful explainer from the House of Commons Library.

Preparing for Brexit

Whatever the outcome of the Brexit negotiations will be, businesses need to be prepared for every eventuality. Gowling WLG's Brexit Unit advises clients on planning for the future, offering expertise in areas such as strategic planning, contingency risk management and managing transactions.

Read the original article on GowlingWLG.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
19 Sep 2019, Seminar, Birmingham, UK

Providing GCs, Heads of Legal and senior in-house lawyers with timely, topical and practical legal advice on a variety of topics.

26 Sep 2019, Seminar, London, UK

Providing GCs, Heads of Legal and senior in-house lawyers with timely, topical and practical legal advice on a variety of topics.

8 Oct 2019, Seminar, Birmingham, UK

Supporting the development of paralegals, trainees and lawyers of up to five years' PQE by providing valuable knowledge and guidance together with practical tips.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions