In a recent question on Brexit, Kevin suggested the following solution allowing the UK to be out of the EU customs union while keeping the UK-Ireland border to a minimum:
One could imagine Ireland and the UK passing a law stating that the entirety of the Irish border is a "green lane" for customs purposes, perhaps with a few designated crossing areas to serve as "red lanes" for people with goods to declare, and (maybe) with a very small number of travelers randomly stopped and searched. It's not entirely clear to me that this would uphold the strict letter of the Good Friday Agreement, but it would arguably uphold its spirit (provided the random searches truly are minimally invasive and greatly infrequent), and the UK and Ireland could sign a treaty modifying the GFA to that effect.
I am wondering how that approach holds up with respect to the most favoured nation principle. The WTO has the following on that principle:
Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.
This principle is known as most-favoured-nation (MFN) treatment (see box). It is so important that it is the first article of the General Agreement on Tariffs and Trade (GATT), which governs trade in goods. MFN is also a priority in the General Agreement on Trade in Services (GATS) (Article 2) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (Article 4), although in each agreement the principle is handled slightly differently. Together, those three agreements cover all three main areas of trade handled by the WTO.
Specifically from article 1 GATT (emphasis mine):
With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III,* any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.
Based on the emphasised parts, wouldn't agreeing not to enforce the border by law be in direct violation of GATT, thus having any of the other WTO members filing a challenge immediately?
In particular, the implication would be that if I in an EU country would want something from a country X which the EU does not have a trade agreement with (thus tariffs per the WTO schedules would apply) but the UK does, then I could use the Northern Ireland border as a loophole. For example, the goods could go from X to Northern Ireland, then to Ireland (via this backdoor) then to the EU without tariffs being levied on them.
I know there are special and differential treatment provisions of the WTO that exempt or relax certain cases. For example when it comes to regional trade agreements or developing countries.
Now I'm wondering to what extent this option is viable based on case law or opinions given by the WTO or other experts in this field. After all, the open border is still regional, but it has global loophole (per my example) implications.
In particular, I'm thinking along the lines of any other WTO member who has some beef with the UK or EU to file a dispute. For example China or Argentina. I'll clarify in my question.
This is not hypothetical, a few quotes of this already going on:
From The Independent:
The US and China are reportedly among 20 countries attempting to prevent Britain from agreeing a fast-track deal with the World Trade Organisation (WTO) on its post-Brexit terms of trade with the rest of the world.
From The Telegraph:
Argentina would exploit the fallout from a no-deal Brexit to further its efforts to bring the Falklands under its control, the country’s foreign minister has said.
Jorge Faurie told The Telegraph that Argentina would use the situation to “enhance” its own diplomatic push to pull the islands away from the UK and towards Buenos Aires.
Once the UK leaves the European Union, all EU treaties will cease to apply and member states will no longer be obliged to support the UK’s claim over the territory.