Expert View

10 reasons not to fall back on WTO

by Roderick Abbott | 06.06.2017

Roderick Abbott was a senior trade negotiator for the European Commission and deputy director-general at the WTO.

With Brexit divorce talks starting in two weeks’ time, Theresa May fatuously insists that ‘no deal is better than a bad deal’. It wouldn’t be the end of the world, Brexiters argue, if we failed to reach a free trade agreement (FTA) and had to fall back on World Trade Organisation (WTO) rules. After all, the likes of the US and China have no preferential access to the EU and yet trade smoothly under WTO rules.

So let’s take a closer look at what those rules mean and what would change if the Article 50 negotiations ended in deadlock.

How should you vote?

1. The rules guarantee that you are treated exactly the same as every other WTO member.

This is the Most Favoured Nation (MFN) rule. Think of it as a guarantee against discrimination. The EU could not ‘punish’ the UK by imposing higher tariffs (import duties) on us than on other WTO members. Equally, though, duty-free access to the EU market for UK exports would be a thing of the past (except for those items on which no duty is levied).

2. A second general rule is the national treatment rule.

Under this principle, once your goods have entered another country they will face the same internal taxes or other charges as domestically produced merchandise.  Again, you are protected against discrimination but enjoy no added advantage.

3. Will tariffs have to be paid?

Of course.  All countries protect their domestic production by tariffs. If no free trade deal is agreed with the EU, this will be the consequence. For example, the EU imposes a 10% tariff on imports of cars and 55% on dairy produce.

4. Will there be non-tariff barriers as well, such as origin rules and other regulations on imports?

Of course. Trade barriers are the inevitable result of regulation of international trade.  In an FTA, for example, rules of origin specify what minimum percentage of a product must be made domestically in order to qualify for preferential access, such as lower tariffs. For UK manufacturers that are linked to global supply chains and rely on components imported from third countries, the small print of such rules will be critical.

5. What will be the position for British exports of services?

Service exports will benefit from the same general principles as above, but WTO rules offer no guarantee of access to other markets. Service exports to the EU will be subject to Single Market regulations.

6. Brexiters argue that since the UK has complied with Single Market rules since 1992 it will be simple to agree on the same treatment in future.

This is wishful thinking. There is no automatic transition from ‘before’ to ‘after’. Post-Brexit the UK will be treated as a non-EU country and will be subject to the same checks as other non-member states. This could cause delays at the border. Compliance with rules of origin may be especially burdensome.

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7. Michael Gove says the UK has the same rights for free trade into the EU as Albania.

By definition, because it is not an EU member, Albania faces obstacles to trading with the bloc. So to get only as good a deal as Albania cannot be the best possible trade deal for Britain – even if what was said was true (which it is not).

8. Boris Johnson says trade does not depend on governments and international rules.  If a company has something to sell, it can go directly to the market.

It is a mystery what Boris is talking about. If you cross a border and declare that you have goods to sell, you will be checked for payment of import duty and compliance with other regulations.

9. So does the UK absolutely need an FTA in goods and agreement on access for its services?

In the view of many independent observers, such arrangements are essential. Without a deal on services, for example, the ability of the City of London to trade easily with the EU will be severely curtailed. Some banks and other financial service providers are already making contingency plans to move staff to other European centres. In the area of professional services, the basis for recognition of equivalent qualifications will be lost, undermining the ability of UK firms to provide such services in the EU.

10. Will we get a good deal?

See you later.

Edited by Alan Wheatley