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How bad is it to violate WTO rules?

Let me start by saying that I would never advocate wilful disregard of WTO rules. The WTO has created a rules based multilateral system that has brought many benefits in terms of providing a robust framework within which members can resolve trade disputes. It is important that WTO Members respect the rules and work within the agreed system. However, it is also necessary to consider the context of any possible WTO violation and the type of circumstances within which that may occur.

Government breaking the law is a theme that has dominated media coverage over the past few months, fuelled by clear covid law-breaking at 10 Downing Street and by the government’s intention to renege on the Northern Ireland protocol as it was agreed between the UK and EU. The possibility of the UK breaking WTO rules in relation to further extension of the steel safeguard for 5 categories due to expire at the end of June 2022 has, therefore, received a much higher profile than it would have done in the absence of this media theme.

These issues are complex and do not necessarily have clear answers. However, for the benefit of discussion, I am raising some of the points that seem important to me for consideration:

  • It is possible that the extension of the steel safeguards is WTO consistent - It is not certain that the further extension of the steel safeguard is WTO inconsistent. WTO consistency is not usually black and white. There is always a degree of interpretation and the standard of review is such that members are given considerable discretion on the way that WTO obligations are met in domestic laws. WTO disputes are often fought out through each side advocating a particular interpretation of the WTO agreements. Even if there are risks in the UK extending steel safeguards for the 5 categories concerned, it is possible that strong arguments can be developed that the measures are in line with the UK’s obligations under the WTO. In all honesty I could advocate both positions i.e. there are some strong arguments on either side of the issue and ultimately it would be the role of a WTO panel to decide whether the UK had actually violated WTO obligations.

  • The nature of steel safeguards globally is primarily political - Many countries adopted steel safeguards in response to the Trump/Section 232 tariffs imposed on US steel imports. It is arguable that other countries, including the EU, would not have adopted such safeguards in the absence of such US action. As in the previous point, I do not think that the WTO consistency of the Trump steel tariffs or the EU steel safeguard is clearly one way or the other. My opinion is that both have their vulnerabilities in WTO terms. However, on the other side, I think that there are WTO justifications that can be employed for these measures. There is definitely a risk of WTO consistency but there is also a fighting chance of being able to defend the safeguards against WTO challenge. The EU managed to successfully defend the EU steel safeguard in winning most points in the panel decision on the dispute initiated by Turkey.

  • WTO disputes and the possibility for retaliation are all focused on encouraging consultation and negotiation between parties - WTO dispute resolution never results in retroactictive actions or remedies. Rather, dispute resolution under WTO rules is always forward looking and is aimed at negotiation and resolution. It can be noted in this regard that the EU challenged the US steel tariffs at the WTO. Although the dispute proceeded for a while, eventually the EU and US reached a mutually agreed solution early in 2022. Thus, again, adopting measures where there is a risk of WTO inconsistency is not necessarily as bad as it may seem at first as there may be the possibility diplomatic/negotiated solutions further down the line.

  • Politicians must balance the interest of their electorate with WTO obligations - Every WTO member has to take risks in taking actions that are in the national interest yet may raise WTO consistency issues. Many years ago at a conference in Washington DC I asked a US trade politician what mattered most, WTO consistency or democracy? The politician answered that democracy always comes first. And I think that this is the case for all WTO members. With other countries continuing their steel safeguards, and the UK steel jobs being in politically important areas, one can see the political logic for extending the safeguards even if there is a risk of WTO inconsistency. This is particularly the case given that the EU safeguards will continue, meaning that the big steel market next to the UK is still protected and the result of this may be a massive surge of imports into the UK if measures are removed.

  • There are many WTO questions around the unprecedented situation created by Brexit - The whole Brexit process has raised many WTO questions around which there is uncertainty. It is an unprecedented situation for a WTO member to leave the most extensive customs union and free trade area in the world. WTO rules cover the requirements for a country to join customs unions and free trade areas but not the reverse. In terms of trade remedies, the whole process of transitioning EU measures into UK legislation has raised many interesting issues. The EU measures were UK measures in that they were measures taken by the EU on behalf of 28 countries. Transitioning the measures is, therefore, WTO consistent in principle. However, precisely how the separation of the UK part of the measure is done has raised unprecedented questions in relation to WTO rules. On the whole I feel confident that the Brexit process followed by the government has been broadly WTO consistent, though I am in no doubt that there are vulnerabilities where the UK may be challenged at the WTO. Any possible WTO violations now must be considered in that regard. The Prime Minister is reported in the press as saying that “I think it is reasonable for UK steel to have the same protections that absolutely every other European steel economy does”. I don’t always agree with Boris Johnson but on this occasion I think he is right, even if that does raise questions in relation to compliance with WTO rules.

  • The press is misrepresenting the possibility for other countries to impose tariffs agains the UK in response to the steel safeguard - The press has talked about countries being able ‘retaliate’ to the extension of the UK safeguards by imposing tariffs on UK exports. It is important to consider this possibility in the correct context. The term ‘retaliate’ is used more in the context of the dispute process under the WTO dispute settlement understanding. If another WTO member challenged the UK steel safeguard as being WTO inconsistent, retaliation would not be authorised until the whole process and been followed (consultations, panel, appeal, compliance panel). This process can take years particularly at the moment due to the problem of there being no functioning Appellate Body. This type of retaliation can be distinguished from the possibility to increase tariffs under Article 8 of the WTO safeguards agreement. After a safeguard has been in place 3 years, other WTO members can suspend equivalent concessions. This is not related to WTO consistency but, rather, to the fact that safeguards allow protection against fairly traded imports and therefore the possibility to increase an equivalent level of tariffs is related to maintaining the same overall level of treatment i.e. compensating for the removal of concessions on the product subject to safeguard by permitting the other party to remove equivalent concessions. This doesn’t only apply to the UK. It also applies to the US and EU whose steel safeguards have also now been in place for more than 3 years.

In isolation from the other events that have made ‘law-breaking’ such a big story in the media, I do not believe that the steel safeguards issue would have received the same coverage as it has in the current climate. I’m not a lawyer but I have worked on trade disputes and negotiations for over 3 decades. It is my opinion that this story does not deserve the status it seems to be gaining in the context of the media law-breaking theme. It is certainly not the equivalent of breaking covid laws, neither does it have the political sensitivity of reneging on the Northern Ireland Protocol. This is not to say that WTO rule breaking should ever be explicitly condoned but it is to say that the situation is more complex than the over-simplistic coverage of the media. And the truth is that WTO disagreements about obligations being met are occurring all the time amongst all WTO members and these generally do not make the front pages of the press. The UK decisions on safeguards, therefore, are the type of routine trade decisions that are occurring all the time and that become the subject of WTO consultations, negotiations and disputes.

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