Why Article 24 Is No Soft Landing for a No-Deal Brexit

(Bloomberg) --

The prospect of a no-deal Brexit is back and British politicians are fighting about just how disruptive a hard break from the European Union would be. Boris Johnson, the front-runner in the race to become prime minister, is arguing that the worst consequences of leaving the European Union without a withdrawal accord could be avoided. He says a no-deal Brexit can be softened by bringing an arcane bit of trade regulation, called Article 24, into play. The problem is the EU, the World Trade Organization and many in the U.K. say it doesn’t work.

1. Why would the U.K. lose EU duty-free access?

The U.K. is already part of the WTO, and will remain so after its departure from the EU. All of the WTO’s 164 member states agree to deal with each other equally according to a principle known as most-favored nation treatment. So if Britain leaves the bloc without an agreement, it will lose its preferred access to the EU and trade will be subject to WTO terms, meaning trade will no longer be frictionless and tariff-free between the U.K. and the 27 remaining countries of the EU.

2. What is Article 24?

Brexit supporters have argued that Article 24 of the General Agreement on Tariffs and Trade -- the precursor agreement to the WTO -- offers a way to avoid tariffs and border restrictions if the U.K. leaves the EU without a deal. They say the provision allows WTO members engaged in trade negotiations to discriminate in favor of each other without passing along those benefits to all members, as the organization’s most-favored nation principle requires. But the provision cannot be unilaterally invoked, and the EU is unlikely to agree to it because it would compromise the stability of the EU’s external customs border. Furthermore, any WTO member could object to such an arrangement and demand it be modified.

3. Could Article 24 be involved anyway?

Liam Fox, the U.K. trade secretary and a Brexiteer, has rejected the approach. Bank of England Governor Mark Carney has repeatedly said Article 24 only applies if two trading partners have already agreed to a trade deal. After Johnson insisted that it could work in a no-deal scenario, Carney spelled it out again on June 26. The EU has repeatedly said that it won’t engage in mini-deals if the withdrawal agreement isn’t ratified, meaning tariffs would be imposed as well as border checks. WTO Director-General Roberto Azevedo in May said there must be a bilateral agreement between the EU and U.K. in order to claim an implementation period under GATT Article 24. “Once they have an agreement, I think Article 24 could give them some time for implementation of that agreement,” he told Bloomberg. “But the first question is the agreement itself.”

4. Why is it being held out as a solution?

Johnson is offering it as potential choice as part of his campaign to lead Britain’s Conservative Party and become the U.K. prime minister who will remove the country from the EU more than three years after voters said they wanted out. Johnson acknowledged that his initial description of Article 24 was wrong, but then insisted that it could still offer a “hopeful prospect” and a “way forward.” He said there was scope in the event of a no-deal Brexit for the U.K. and the EU to come to what he calls a standstill agreement on the basis of Article 24. “It would be very bizarre if the EU should decide on their own to impose tariffs on goods coming from the U.K.,” he said in the interview. The EU has indicated this is exactly what it will do.

The Reference Shelf

• Bloomberg Opinion: Therese Raphael debunks the myth of Article 24.
• A primer about the WTO and what it does.
• The U.K. government’s guidance on how to prepare for a no-deal Brexit.
• A QuickTake guide to the Brexit drama, and a Q&A on the no-deal scenario.
• A collection of stories on how businesses are preparing for Brexit, deal or no deal.

--With assistance from Bryce Baschuk and Jessica Shankleman.

To contact the reporter on this story: Emma Ross-Thomas in London at erossthomas@bloomberg.net

To contact the editors responsible for this story: Flavia Krause-Jackson at fjackson@bloomberg.net, Melissa Pozsgay, Richard Bravo

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