Can the WTO assist British trade post-Brexit?

The World Trade Organisation (WTO) has been in the press recently perhaps more than it would like, with concerns being raised about whether its rules would be sufficient to maintain British trade in the event of a "hard Brexit". But what is the WTO, and how does it deal with disputes?

What is the WTO?

The WTO has many roles: it operates global trade rules, acts as a forum for negotiating trade agreements, settles trade disputes, and it supports developing countries. The WTO is made up of 164 member nations (Members) who collectively hold decision making power.

How does the WTO deal with disputes?

Although the WTO is not a court, it has dispute settlement procedures called the Dispute Settlement Understanding,(the DSU). These are used to settle disagreements between Members.

The DSU is administered by the Dispute Settlement Body (the DSB), a general council of Members that wear dispute settlement "hats". Every member is eligible to sit on the DSB, and therefore every Member is part of the DSB. The DSB decides whether another state has breached the WTO trade rules, and what the consequence will be.

Unique attributes of the DSB

There are three attributes of the DSB that are unique in comparison to other public international law bodies:

Speed

The WTO's system of dispute resolution is extremely fast, given the subject matter. A panel report (effectively a judgment of first instance) is automatically accepted unless the whole DSB rejects the finding. This makes it difficult for a panel report to be rejected as both the complainant and respondent Members must agree to reject it. Similarly, if a decision is then appealed, the Appellate Court ruling can also only be rejected by consensus.

On average, the WTO aims to resolve a dispute in 15 months. While this has slowed down, it is still much faster than some other international public law bodies, and is comparable with high-value claims in the English High Court.

Lack of restitution and damages

Panel decisions differ from normal litigation in England and Wales because they do not provide compensation to non-state actors. Even if a panel's finding determines that a Member breached the trade rules, any private parties that were harmed will not receive direct compensation. This differs from domestic and EU rules, where private parties are able to bring actions for damages against states.

The WTO is able to limit future damage by making the Member take remedial steps and continuing to ensure the rules are complied with. However, this does little to help the companies and individuals who are hurt by the breach, as was shown when Irish workers faced being made redundant when the US imposed tariffs on Bombardier.

"Retaliation"

The WTO's most unique attribute is the idea of "retaliation". This is the primary way the WTO enforces the DSU, and is very different from the normal remedies available in English and Welsh courts.

If a respondent Member fails to comply with a finding of the DSB or the Appellate Court, the WTO can authorise "retaliation". Instead of enforcing a judgment or damages, the WTO authorises the wronged Member to take action to rectify the breach; for example, by raising tariffs (see page 148).

The WTO's role post-Brexit

If the UK leaves the EU without some form of transitional deal, trade disputes between the two nations will no longer be dealt with by the Court of Justice of the European Union (CJEU). Instead, it is possible that the WTO will become the forum for these disputes.

Firstly, DSU rules dictate that if disputes between the EU and the UK arise over issues contained within the DSU Appendix 1, the UK must rely on the WTO for dispute resolution.

At present, it is the CJEU that is responsible for regulating EU trade issues. It has various restorative remedies available to parties affected by a breach. Although the DSB process will allow for speed and retaliation, it is likely that the lack of restitution and minimal powers of compliance will be seen less favourably by states that are used to the compensation available under EU law.

Secondly, the benefit of retaliation through the DSU would be lost due to the UK being an independent Member, whereas previously it had retained the 'blanket protection' as an EU Member State.

Conclusion

Although Britain's economy is significant, it remains smaller than the USA, China and the EU itself. Previously it has enjoyed the protections offered by the EU, as well as the CJEU's comprehensive dispute settlement powers. The WTO rules, which are far less concrete, might not be sufficient. It is hard to see how the UK could effectively "retaliate" against a state like China or the US. As a result, legislators in the UK must think carefully about how they plan to manage trading relationships between the UK and other nations post-Brexit.