Why Scottish businesses need to be clued up on WTO rules

  • Insight

09 March 2020

Benjamin Franklin, one of the Founding Fathers of the United States, once said “No nation was ever ruined by trade”. Whilst that may be so, the current US President’s choice of leverage in a trade dispute over subsidies to Airbus is causing financial distress to Scottish businesses in sectors unconnected to the civil aviation market.

President Trump has imposed a 25 per cent tariff on imports of whisky and biscuits to the US from the Airbus consortium nations and has threatened to raise that to 100 per cent from April.

The relevance of the biscuit tariff is not as immediately obvious for us here in Scotland as the whisky tariff, but far and away the biggest biscuit import from the EU to the US is shortbread – the biggest export market for that product. The current tariff is damaging profits, but a fourfold increase will threaten jobs.

What is most surprising is that those tariffs have been sanctioned under the disputes process of the World Trade Organisation (WTO).

Established in 1995 and based in Geneva, the WTO is the only international organisation dealing with the global rules of trade. Its main function is to ensure trade flows as smoothly, predictably and freely as possible. The 30,000-plus pages of treaties and associated commitments by governments which make up WTO rules include provisions on subsidies and public procurement. It has rule-making, monitoring and dispute settlement functions. There are also emerging subsidiary agreements between groups of member countries on topics such as e-commerce, domestic regulations and investments.

Although not part of the UN family of bodies, the WTO does have near-global membership, including China (since 2001) and Russia (since 2012). The UK took its own seat at the WTO, separate from the EU, on February 1.

I was a member of the Scottish Government-led capacity building delegation which recently visited Geneva to meet WTO officials and UK diplomatic staff who engage with them, to learn first-hand the workings of the body and how to engage with it.

In the coming months, the UK will seek to negotiate a future trading relationship with the EU and other nations. This will not be a simple 'cut and paste' replication of existing free trade agreements with the EU.

How existing EU-wide quotas, allowed under WTO rules for agricultural products, are to be dealt with in the future is a tricky issue. New Zealand lamb is a case in point – what percentage of the EU total should the UK take? Should future EU and UK totals exceed the existing EU figure? Does even a generous UK figure really restrict New Zealand to EU flexibility in the future?

Whatever the final UK-EU position on 'divergence' of law and 'level playing field' regulation, devolved administrations within the UK as well as the UK Government will need to be mindful of whether or not future legislation here is compliant with WTO rules.

Unlike the EU, individual citizens or companies do not have a right to bring a dispute before the WTO. That is the preserve of member states. Nonetheless, one of the key messages I took from the visit to Geneva was that there is an opportunity and a need for individual businesses and trade organisations to engage with the WTO process with our own government and in Geneva. To do so needs professional advisors both at home and in Geneva who understand not only the WTO rules but also how the system operates. In many ways that is no different to domestic commercial law or parliamentary work. The stakes and thus the necessary leverage, however, may not be for the faint-hearted.

For more information on this topic, contact

Neil Amner

  • Director / Business Resilience Group Lead

Glasgow

0141 242 7984