FMLC has published a paper exploring the basis of UK trade with the EU following Brexit, and the interplay this will have with World Trade Organization (WTO) principles. As many commentators have noted, the basis of UK-EU trade could take the form of the UK’s continued EEA membership, a transitional arrangement, a new bespoke treaty, or via the EU’s commitments to the WTO, with the UK qualifying as a WTO Member and Third Country under existing EU provisions. All four options are impacted by WTO principles.
The UK is a WTO Member both independently and by virtue of being an EU Member State. It is a party to WTO multilateral agreements such as the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS). The WTO rules applicable to financial services are contained in legal instruments arising from GATT and GATS.
FMLC explores a number of obligations and commitments applicable to WTO Members by virtue of these instruments, including the Most Favoured Nation commitment (and the Preferential Trade Agreements exception), Mutual Recognition Agreements, and the Prudential Carve-out. FMLC considers that these rules have the greatest impact on the UK-EU relationship in a scenario where the UK negotiates a new future agreement with the EU, whether in the form of a transitional arrangement or free trade agreement (FTA). Before doing so, the UK would have to certify its schedule of commitments to the WTO. Its paper looks at how the rules could apply to (i) the fall back scenario, (ii) a short-term transitional arrangements and (iii) a bespoke new treaty. It also suggests some mitigants that could provide a measure of greater legal certainty for the UK financial markets.
As far as non-EU countries are concerned, the UK will no longer be a party to multilateral FTAs (for instance, with South Korea, Singapore and Canada) when it exits the EU, and will have to negotiate new agreements with any such country.