Trade in a turbulent world (Parliamentary evidence)
Overton Advisory submitted written evidence to the International Agreements Committee’s inquiry into Trade in a turbulent world. The original is available here
Summary
The rules-based trade system has not collapsed, but it is being deliberately eroded, and the UK is more exposed to that erosion than many other countries. For the United States and China, trade rules are a constraint on power, whereas for the UK, they are a source of it. A regression toward a power-based international order therefore creates disproportionate risks for the UK, and the current policy response has not yet matched the scale of that risk.
Three fault lines are widening simultaneously:
the Appellate Body's non-functionality has revived pre-1995 US unilateral enforcement tools that were assumed superseded, leaving the UK with no reliable dispute recourse;
the MFN principle is being normalised away as the US treats discrimination as an instrument of statecraft; and
the US-China rivalry has made economic interdependence itself a vulnerability to be reduced rather than a benefit to be extended.
The UK has also compounded its exposure through avoidable own goals. Its Yaoundé ministerial submission signalled readiness to engage on MFN revision, which the US immediately cited as legitimising its own position. Its bilateral arrangements with the US cannot be presented as WTO-consistent while the legal conditions required to make them remain unmet. And the UK-US pharmaceutical arrangement embeds ongoing compliance conditions that make tariff relief contingent on continued UK behaviour as defined by the other party, which is not a deal, but rather managed dependency. The commercial evidence is instructive. UK goods exports to the US averaged £4.7bn monthly between April 2025 and February 2026, down from £5.5bn in 2024, a period during which tariff relief was nominally in place. Tariff relief without enforcement does not give businesses legal certainty, but instead gives them exposure dressed up as a deal.
The 2025 trade strategy is broadly appropriate in framing but lacks the willingness to make explicit choices between competing priorities. The EU accounts for roughly half of UK trade yet is positioned as one priority among several. Financial services, the UK's largest export sector, are underweighted. Defence and advanced technology, simultaneously a commercial priority and a strategic instrument in an era of rearming allies, are underdeveloped. The lapse of the WTO E-Commerce Moratorium exposes the UK's highest-growth export sector to tariff risk for the first time in nearly three decades, without adequate urgency in response. At a moment when strategic ambiguity is being exploited by larger powers as leverage, deliberate clarity is a competitive advantage.
Three recommendations run through this submission. First, MFN must be treated as foundational and non-negotiable: engaging with US criticism as though it were offered in good faith hands over leverage for very little. Second, every trade instrument the UK concludes should pass two tests: is it WTO-consistent, and is it transparently presented as what it actually is? Non-binding arrangements should be stepping stones toward binding commitments, not substitutes for them, and Parliament should have formal scrutiny over those with significant commercial effect, including sunset clauses. Third, the UK's trade policy energy should be directed toward plurilateral norm-setting within WTO architecture rather than bilateral damage limitation - expanding MPIA membership, consolidating the e-commerce joint statement initiative, and arriving at multilateral fora with a defined negotiating position. The MPIA should be treated as a bridge, not a destination. A UK that arrives at the WTO without a clear reform mandate is an absent member, and its absence will be filled by others.
Questions
1. Do you think the current system for rules-based trade is functioning as it should? Is it beneficial to you, your industry or organisation?
The rules-based trade system is not broken, but it is being eroded. Global goods trade exceeded expectations in 2025, growing by 2.4%, the MFN principle still governs almost three-quarters of world trade, and 22 new disputes were filed through the WTO mechanism in the past two years alone. For many of our clients in the advanced technology and defence and defence-adjacent sectors, the system has delivered concrete benefits: predictable market access, protection against arbitrary discrimination, and a consistent framework within which intellectual property rights and dual-use export controls can be negotiated. The most immediate cost of current trade turbulence is higher prices for businesses and consumers, but that surface resilience is not structural integrity, and the UK should not confuse the two.
Three fault lines are widening simultaneously. The consequences of the Appellate Body's non-functionality extend further than is commonly appreciated. It is not merely that rulings go unenforced. By disabling the multilateral dispute settlement mechanism, the United States has effectively revived pre-1995 unilateral enforcement tools that were widely assumed to have been superseded by the WTO agreement. The UK and other members now face a situation in which the US can impose economic consequences on trading partners with no reciprocal accountability through the rules-based system. For an economy whose comparative advantage lies in services and digital trade, and which lacks the market scale to absorb such pressure unilaterally, this is an unaddressed strategic liability. Separately, the MFN principle is being normalised away as the United States pursues bilateral arrangements that treat discrimination as an instrument of statecraft rather than a violation of legal obligation. Underlying both is a structural shift as the US-China economic and trade rivalry becomes the dominant organising logic of global trade policy. These economies do not just compete, but each increasingly treats economic interdependence itself as a vulnerability to be reduced, leading to greater regionalisation through protectionism. When the two largest trading economies operate on that logic, the multilateral system becomes a secondary consideration for those with the power to ignore it.
The rule-based system was designed on the assumption that its most powerful members had a stake in sustaining it. That assumption, specifically with regards to the United States, is no longer wholly valid. The UK's exposure to this shift has also increased materially since leaving the European Union. Inside the EU, the UK had 450 million consumers standing behind it at the WTO. It now stands independently, which makes the integrity of the rules architecture more important for the UK economy, not less. For countries like the United States and China, trade rules are a constraint on power, but for the UK, they are a source of it.
This creates a structural tension the UK cannot afford to manage through deliberate ambiguity. Justifying preferential bilateral treatment under WTO rules requires a credible commitment to a comprehensive agreement covering substantially all trade i.e., the standard set by Article XXIV of the GATT and Article V of the GATS. The current US administration has shown no intention of concluding such an agreement with anyone; its explicit preference is for bilateral leverage over binding global commitments. The UK cannot simultaneously maintain that its arrangements with the United States are WTO-consistent and acknowledge, as it must, that the conditions required to make them so are not being met. That tension needs to be resolved through a clear public position, not deferred. The UK should state explicitly that its bilateral arrangements are interim, WTO-compliant in intent, and subordinate to its multilateral commitments, and it should be prepared to defend that position when tested.
If the current trajectory continues, the consequences are foreseeable and serious. Exporters face sustained tariff uncertainty with no reliable dispute recourse. Technology trade is fragmenting into competing blocs organised around US, Chinese, and EU standards, with alignment decisions that constrain market access on one side or the other; if those blocs become incompatible, the damage to globally integrated businesses will be severe and difficult to reverse. The direction of travel without reform is towards a world in which trade outcomes are determined by economic size rather than legal right. The UK is not large enough to win that world. The UK's influence in this space is not, however, purely a function of trade volumes. Its institutional credibility, the quality of its policy analysis, the consistency of its public positions, and its active participation in coalitions such as the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), gives it a disproportionate capacity to shape norms and sustain the architecture others depend on. That influence is contingent on consistency. A UK that defends multilateral rules selectively will find its voice discounted precisely when it matters most.
2. What are the implications of recent tariff volatility and the proliferation of 'mini deals' for WTO rules, and how should this influence the UK's approach to trade agreements in future?
Tariff volatility is a symptom of rules erosion, not its cause. Prescribing bilateral deals for a multilateral disease will not cure the patient. The proliferation of mini deals is an understandable reaction to a multilateral system under stress, where comprehensive FTA negotiations take five years at minimum and are frequently indefinite. But pragmatism is not the same as strategy, and the UK has not yet articulated a coherent framework for how these instruments relate to the rules-based order it depends on and benefits from upholding. That framework needs to exist before the arrangements that are replacing formal agreements become the new normal by default.
The WTO compliance implications vary significantly depending on the instrument. Non-binding arrangements carry no formal obligations and do not technically breach WTO rules, but if implemented preferentially, they raise MFN questions that cannot be resolved by labelling. Preferential sectoral goods deals must meet Article XXIV's substantially-all-trade threshold; most standalone sectoral agreements cannot. Services arrangements face an equivalent test under Article V of the GATS. The result is a proliferating class of agreements that occupy a legal grey area, not formally non-compliant, but not clearly compliant either. A grey area, once normalised, does not remain grey. It becomes the new baseline. The UK cannot be in the business of creating precedents it would object to if larger economies used them against its own interests — and in a power-based order, they will.
The UK has already provided a concrete illustration of what inconsistency costs. Its submission to the Yaoundé ministerial indicated readiness to engage on whether MFN remains fit for purpose. The US subsequently cited both the UK and EU submissions as evidence that MFN is legitimately in question. This was a strategic error, not because MFN reform is inherently wrong to consider, but because US criticism of MFN was not being offered in good faith. The current US administration does not want a reformed WTO with a more flexible approach to non-discrimination. It wants leverage. The UK's submission provided that leverage at no cost to the US and at real cost to UK credibility. The same applies to the UK-US bilateral arrangements: justifying preferential treatment under WTO rules requires a credible path to a comprehensive agreement covering substantially all trade. The current US administration has shown no intention of concluding such an agreement with anyone. The UK cannot maintain that these arrangements are WTO-consistent while acknowledging, as it must, that the conditions required to make them so are not being met.
The binary between mini deals and comprehensive FTAs is also less illuminating than it appears. For services, where the UK's comparative advantage is greatest, there are in practice almost no successful liberalisation agreements anywhere in the world. The difficulty is not a failure of ambition; it is the fundamental challenge of aligning regulatory environments across sovereign jurisdictions. If comprehensive FTAs do not reliably deliver on services, the question is not whether to use more targeted instruments in this space, but what those instruments are designed to achieve. A non-binding arrangement designed as a stepping stone toward something binding is a legitimate tool. One designed as a destination. or one that blurs the distinction to avoid scrutiny, is a different matter entirely. The 2022 UK-Singapore Digital Economy Agreement illustrates what the former looks like: targeted, legally substantive, and oriented toward future binding commitments. The majority of arrangements concluded in response to US tariff pressure do not meet that standard. They are reactive and structured around leverage rather than rules.
The UK Government should therefore apply two tests to every trade instrument it concludes. First, is it WTO-consistent? And if preferential, does it credibly meet the legal threshold to justify that preference? Second, is it transparently presented as what it actually is? On that second point, Parliament currently scrutinises the agreements the UK concludes while not fully knowing about the arrangements that are increasingly replacing them. This Committee is well placed to recommend that the Government establish a formal scrutiny mechanism for non-binding instruments, including sunset clauses requiring periodic review, that closes the gap between the oversight applied to FTAs and the near-total absence of oversight currently applied to the deals that matter most in practice.
The deeper strategic question is where the UK directs its trade policy energy. The model should be plurilateral norm-setting within WTO architecture. The e-commerce agreement concluded at Yaoundé, imperfect and incomplete, demonstrates what this looks like i.e., a coalition of like-minded members moving forward on emerging-area rules without waiting for consensus, using WTO mechanisms where possible, and bypassing the veto of those who would block progress. Coalitions of the willing, operating within WTO architecture, are not currently a second-best alternative to multilateralism. They are the only functional version of it. This is where UK diplomatic capacity and institutional credibility generate disproportionate returns, but only if that credibility is maintained. A UK Government that defends the rules selectively will eventually find it has no rules left to defend.
3. To what extent are the UK's trade policy objectives, as set out in its trade strategy, appropriate for the changing geopolitical climate for rules-based trade? What sectors should be prioritised in the UK's trade negotiations, why, and how?
The 2025 trade strategy is coherent and its emphasis on diversifying trade instruments and partners, and its recognition that WTO gridlock necessitates more targeted sectoral approaches, reflects a realistic assessment of the current multilateral environment. Its focus on UK comparative advantage in digital services, financial services, advanced manufacturing is broadly appropriate. What it lacks is the willingness to make explicit choices between competing priorities. Without that, it risks being a framework for managing relationships rather than a strategy for advancing interests.
The most significant structural weakness is the treatment of the EU. The EU accounts for roughly half of UK trade, yet the strategy positions the EU reset as one priority among several rather than acknowledging its structural dominance. No trade strategy credibly oriented around UK comparative advantage can treat its nearest largest market as a political relationship to be managed incrementally. The focus on SPS measures, carbon pricing and electricity trading represents genuine progress on discrete frictions, but addressing the UK-EU relationship policy by policy risks stalling momentum on the broader question of services access, which is where the UK's structural losses since 2020 have been greatest, and where the gains from deeper engagement would be most significant. The UK must also be careful not to conflate regulatory alignment with market access: alignment creates the conditions for access but does not deliver it, and the strategy is not always clear about which it is pursuing. Describing the relationship as a "reset" understates both its structural importance and the extent to which its terms remain fundamentally unresolved.
On sector priorities, the strategy is right to centre digital services and AI, but it does not treat the most immediate risk in this space with sufficient urgency. The lapse of the WTO E-Commerce Moratorium exposes the UK's highest-growth export sector to customs duties on electronic transmissions for the first time in nearly three decades. Digital services are simultaneously the UK's greatest export opportunity and its most under-protected trade interest. The immediate priority should be pressing JSI participating members to pass domestic implementing legislation and consolidate the agreement into a durable, enforceable digital trade framework, one capable of attracting accession from major economies and establishing norms before further fragmentation makes consensus impossible. Alongside this, the UK should accelerate exploration of accession to the Digital Economy Partnership Agreement, which offers a plurilateral architecture for shaping international digital trade rules that bilateral agreements cannot replicate.
Financial services are conspicuously underweighted given that they constitute the UK's largest export sector and the area where post-Brexit structural losses have been most significant. The absence of an EU equivalence framework for financial services remains unresolved and represents a material drag on one of the few sectors where the UK holds genuine global competitive advantage. The UK-Switzerland Mutual Recognition Agreement demonstrates that substantive bilateral progress is achievable; the question is whether the Government has the political will to pursue equivalent arrangements with the EU at the scale the sector requires. Defence and advanced technology are similarly underdeveloped. In an era of rearming allies, supply chain fragmentation and intensifying competition in dual-use technologies, defence exports are simultaneously a commercial priority and a strategic instrument. A trade strategy that does not address how the UK positions itself within allied defence supply chains, and how its export licensing and technology transfer frameworks serve or obstruct that positioning, is not adequate to the geopolitical moment it attempts to address.
The strategy also has a delivery gap that its sectoral ambitions will not survive. Guidance on how SMEs navigate new agreements, access export financing, and operationalise the opportunities the strategy identifies is largely absent. A strategy that cannot reach the businesses that constitute the majority of UK exporters is a framework only for firms already large enough to have trade departments. Closing this gap requires not just better information provision but active investment in trade facilitation infrastructure at the market level.
The fundamental test of a trade strategy in the current geopolitical climate is not whether it identifies the right priorities, but whether it makes choices between them. The UK cannot simultaneously position itself as a champion of rules-based multilateralism, a close bilateral partner of the United States, and a serious re-engager with the EU without confronting the trade-offs that follow any course of action between those three. The current strategy defers that confrontation, probably in an attempt to wait out the second Trump Presidential term and a hope that the United States’ trade policy reverts back to a non-Tumpian posture. At a moment when strategic ambiguity is being exploited by larger powers as a form of leverage, deliberate clarity can be a competitive advantage.
9. Is it appropriate for the UK to agree tariff concessions and other substantive commitments via non-binding mechanisms such as MoUs?
Non-binding instruments have a legitimate role in UK trade policy. The question is whether they are being used as tools or as substitutes for the political difficulty of concluding binding agreements. On that test, the UK's current approach could be improved.
There are circumstances in which non-binding instruments are genuinely appropriate. Subnational arrangements, such as the UK's MoUs with individual US states, provide valuable channels where no binding federal alternative exists. Where tariff shocks arrive faster than formal negotiation can respond, non-binding instruments offer speed that binding agreements cannot match. And where they function as building blocks toward something legally enforceable by establishing norms, creating momentum, and demonstrating political intent, they serve a legitimate purpose. The problem arises not with the instruments themselves but with their application: when MoUs become the default vehicle for substantive commercial commitments with major trading partners, rather than an interim step toward binding form, the logic inverts.
When used to deliver tariff concessions at that scale, three compounding problems emerge. First, enforceability: a commitment the other party can withdraw at administrative discretion is not a concession, it is a favour, extended on terms that can be revised unilaterally and without recourse. Second, conditionality: the UK-US pharmaceutical arrangement does not merely lack enforcement, for example, it actively embeds ongoing compliance conditions, meaning the UK's tariff relief is contingent on continued UK behaviour as defined by the other party. That is not a deal, it is managed dependency. Third, precedent: with significant bilateral negotiations pending with the GCC, the US, and at the next EU-UK summit each substantive commitment the UK accepts in non-binding form signals to future counterparts that it will do so again. The UK's negotiating position in every future bilateral is shaped by what it has accepted in every previous one.
The commercial evidence that this arrangement is not delivering is instructive. UK goods exports to the US averaged £4.7bn monthly between April 2025 and February 2026, down from a 2024 average of £5.5bn a month, a period during which the UK-US Economic Prosperity Deal was in effect and tariff relief was nominally in place. Tariff relief without enforcement does not give businesses the legal certainty long-term investment requires. It gives them exposure dressed up as a deal. Businesses making capital allocation decisions across multi-year horizons cannot price in commitments that exist outside any enforcement framework and can be withdrawn at the counterparty's discretion.
Future use of non-binding mechanisms for substantive commitments should be governed by three explicit criteria. First, is there genuinely no binding alternative, or is non-binding form being chosen for speed or political convenience? Second, does the arrangement function as a credible stepping stone toward a binding agreement, with a defined timeline and political commitment to that outcome, or is it intended as a permanent substitute for one? Third, does it carry conditionality that creates ongoing compliance obligations for the UK, in which case it should be subject to the same parliamentary scrutiny as a binding treaty regardless of its formal classification. Where an instrument fails any of these tests, the presumption should be toward binding form. Where non-binding instruments have significant commercial effect, affecting tariff rates, market access, or regulatory treatment, they should be subject to formal scrutiny and sunset clauses requiring periodic review. Parliament should not be in a position of scrutinising the agreements the UK concludes while not knowing the full picture about the arrangements that are determining its most important commercial relationships in practice.
10. What WTO reform options would optimise outcomes for the UK? For example, on the future of the MFN rule, dispute settlement procedures, enhanced provisions for trade in services or consensus voting.
The UK cannot reform the WTO alone, but it can shape the conditions under which reform becomes possible. The appropriate approach is simultaneous: defending what functions within the existing system, building alternative architecture where the system has failed, and pushing targeted procedural reform that would unlock progress across multiple stalled agendas. The UK's published WTO reform position correctly identifies Chinese subsidy distortion, undermining the competitiveness of the UK advanced manufacturing sector, and US blocking of Appellate Body appointments as central problems. What it lacks is an explicit prioritisation of where limited political capital should be deployed. That prioritisation matters because not all reform options are equally achievable or equally valuable, and pursuing them with equivalent intensity produces incoherence rather than influence.
Dispute settlement is the reform that would most directly benefit the UK. Restoration of the Appellate Body, through agreed criteria for judicial appointments that address the US's stated procedural concerns, would close the enforcement gap that currently leaves WTO rulings unenforceable against members that appeal into the void. In the near term, expanding MPIA membership is the more achievable objective, and the UK should make it a consistent diplomatic priority in every bilateral and plurilateral engagement. But the MPIA is a bridge, not a destination: a dispute settlement system that the world's largest economy is not party to is better than no system, but only just. The UK should be clear in its public positioning that MPIA membership is a transitional measure, not an acceptance that the system has permanently fractured along these lines.
On MFN, the UK's priority should be defence, not reform. The Yaoundé ministerial demonstrated the cost of ambiguity: by signalling readiness to engage on whether MFN remains fit for purpose, the UK provided the US with a legitimising citation at no cost to itself. That error should not be repeated. US criticism of MFN is not a good-faith proposal for institutional improvement, but is just a justification for power-based bilateralism. Engaging with it as though it were the former strengthens the latter. The UK should state explicitly and consistently that MFN is a foundational principle it will not treat as negotiable, while acknowledging that its application requires updating for areas, digital services, government procurement, subsidy disciplines, where the original GATT framework was silent.
Consensus voting is the procedural reform with the greatest leverage across stalled agendas. The current requirement for unanimity has become, in practice, a veto available to any member willing to hold the system hostage. The UK should push for a modified procedure permitting plurilateral agreements supported by substantial majorities to be adopted within WTO architecture without requiring consensus of the full membership i.e., quarantining the veto rather than removing it. This would directly unlock progress on the subsidy and industrial oversupply rules stalled at Yaoundé, which matter specifically to the UK's manufacturing base, and establish an institutional precedent for emerging sectors to advance plurilaterally through the WTO rather than around it. Any such proposal will face resistance from members whose influence derives from blocking capacity. The UK should pair it with substantive development commitments, on preference access, technical assistance, special and differential treatment, that pre-empt the argument that procedural reform is a mechanism for large economies to remove protections that benefit the poor. That argument, however unfair, has consistently derailed reform coalitions; disarming it in advance is more efficient than rebutting it after the fact.
On services, the WTO remains structurally a tariff organisation. For an economy that is approximately 80% services, that structural mismatch is the central trade policy challenge of the next decade. GATS reform through the full membership is not achievable in any near-term horizon: services liberalisation requires regulatory alignment that sovereign governments guard closely, and the political economy of making those trade-offs transparent is unfavourable in most member states. The more productive route is the one demonstrated by the e-commerce joint statement initiative: plurilateral coalitions establishing norms in specific services areas, within WTO auspices where possible, with sufficient membership to create critical mass without requiring universal consensus. The UK should be an active and vocal supporter of this model, on digital financial services, on professional qualifications recognition, on cross-border data flows, and should use its CPTPP membership and MPIA participation as platforms for extending that coalition.
The post-Yaoundé reform process currently lacks a clear UK mandate, as reflected in the May 2026 General Council statement. That is a self-imposed constraint and should be remedied before the next General Council meeting. A UK that arrives at multilateral fora without a defined negotiating position on reform is an absent member, and its absence will be filled by others.