Playing by the rules

29 Sep 2017

One of the issues that have fascinated me since my undergraduate days is the enforceability of international law, particularly European trade law.   The caricature of public international law is that, ultimately, enforcement comes down to 'might' rather than 'right'.  While public international lawyers would demur, EU law is very different.  It is an international legal system where the law concerned is enforced, both at international and domestic level. 

The law of the World Trade Organisation (WTO) occupies a mezzanine level between the two.  Under the General Agreement on Tariffs and Trade (GATT), dispute settlement largely involved diplomats on both sides negotiating deals that would work politically, consistent with the legal norms set out in the GATT.  The advent of the WTO saw a shift away from the diplomatic into a largely legal world, with a dispute settlement mechanism in structure and practice looking much more like conventional litigation.  And it's a system backed with teeth.  Success in a WTO Panel can ultimately, though very rarely, lead to authorised retaliation if the loser fails to bring its legislation into line with its WTO obligations.  As a result, compliance with WTO dispute findings is very high.

There is still a tension underlying the WTO's dispute settlement function.  For example, the United States under various administrations has seen it more as a diplomatic process and has been wary of any suggestion that Panel and Appellate Body decisions can add to Members' existing obligations.  In other words, the idea that there is 'judge-made' law in the WTO system.

But in all the excitement about new bilateral trade deals, what is often forgotten is that these agreements will need to be interpreted and enforced if they are to maximise economic benefits.  As the Scotch Whisky industry has experienced in practice, there are often genuine differences of understanding between parties as to what specific provisions mean.  These can have real commercial consequences, such as exporters deciding not to claim the preferential tariff under the FTA in question because to do otherwise would disrupt existing, highly complex supply chains. 

There is plenty of academic literature exploring why arbitration under Free Trade Agreements (FTAs) remains unusual.  The SWA itself has been involved in eight WTO disputes and one GATT Panel over the years, yet we have never had a dispute under an FTA.

That is partly because we want to avoid the expensive and time-consuming business of litigation in the first place.  Many of our market access issues are resolved through the lower profile tools in the trade policy repertoire - diplomatic contacts, the standing WTO mechanisms and so on.  But it is also because there is more value in establishing jurisprudence which will clarify what the WTO agreements mean on a multilateral basis. 

As a result, it is an open question whether bilateral FTAs are as respected in compliance terms as is the case with WTO rules.

In the Brexit context, this means that UK negotiations must be undertaken with an eye to future authoritative interpretation and enforcement of its bilateral agreements.  Given the resource implications of litigation for government and industry, there should be a hierarchy that seeks to deal with disputes as to interpretation and implementation informally at first, perhaps through a joint committee, where industry on both sides is a participant.  If that fails, there might be the option of mediation.  Only when all alternatives have been exhausted should a dispute panel be constituted.  UK FTAs should also include provisions setting out the consequences of non-compliance.  There is a policy question as to whether that would be a prospective remedy only, as in the WTO system, or something more.

Equally, there is a debate to be had about locus standi in FTA disputes, or at least mediation.  This could be open to companies and trade associations as well as government.  Direct private sector access to a transparent legal process, possibly with an appeal, would take much of the burden off parties to an FTA.  The discipline of paying hefty legal fees would concentrate the minds of potential litigants such that disputes would be relatively rare.  Only issues where there were significant economic gains at stake would be litigated.

The successful negotiation of a trade deal is generally career-enhancing for those who deliver it.  But once the dust settles and the news cycle moves on, the real work of implementation - technical and boring though it may be - is what brings the growth and jobs in succeeding years.  Key to delivering those benefits is the ongoing interpretation of the agreement and the adjudication of disputes.

Martin Bell is SWA deputy director of global affairs