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Analysis

3 big problems with Brexiters ‘trade on WTO rules’ plan

by Graham Bishop | 29.11.2018

With Theresa May’s deal looking likely to be voted down, a change of direction on Brexit seems up for grabs. Some Brexiters continue to call for the UK to crash out of the EU and “trade on WTO rules”. As well as the short-term problems with this, such as having to stockpile medicines, the UK would face huge and continuing risks to its foreign trade by going it alone. These would also come into play for non-EU trade after the transition ends, even if the government strikes its preferred trade deal with the EU. Here are three reasons why.

Trump could cause WTO powers to collapse by the end of 2019

When members don’t accept an initial ruling by the WTO, they can appeal to the Appellate Body. This consists of seven judges who serve four-year terms. It requires a minimum of three judges, and judges may recuse themselves if they face a conflict of interest – such as their own government being involved.

Since 2017, Donald Trump has refused to agree to any new judges. There are now only three left: the terms of two expire in December 2019, the other in November 2020. If the UK “crashes out” next March, then we might not have any WTO protection against cases involving the US, India or China – the nationalities of the remaining judges. And in 2020, all protection will cease – unless we are willing to accept the WTO’s initial ruling. This hardly constitutes “taking back control” from foreign judges.

Russia has already rejected our new ‘tariff rate quotas’

“Tariff rate quotas” set the amount of certain goods that can enter a country at a cheaper tariff – usually zero. When the UK leaves the EU we will need to agree our own new TRQs with all 164 WTO members. The EU and UK have proposed splitting the existing quotas for specific goods among themselves on the basis of trading patterns over the last three years.

But the UK’s trading partners rightly complain that this simple split of the TRQ is not good enough. For example, if another country’s beef exports enter the UK to be processed, then move into the EU, under the new regime they will face two sets of quotas – instead of one, as happens now because we are EU members. Other countries want the UK to open up to more trade to compensate for the loss of privileged access to the EU’s market.

The US and several other countries – including Australia, Canada, New Zealand, Argentina, Brazil, Paraguay and Uruguay – have objected. Then last month, Russia blocked the proposal entirely. There can be no progress until Moscow’s complaint is resolved. Our post-Brexit trading future will now be at the long-drawn-out mercy of foreign judges – if they still exist!

Most Favoured Nation rules raise questions about the point of leaving the EU at all

The Most Favoured Nation (MFN) rules of the WTO require members not to discriminate against each other. That means whatever deal is offered to one trading partner, must be offered to all. Thus a special deal on, say, some agricultural products offered to Australia must be offered to all other WTO members – including the EU. Correspondingly, special deals offered to the UK may also have to be offered to the EU. So what is actually gained by this “freedom”?

Falling back on WTO rules is a much worse deal for our trade than being a member of the world’s largest trading bloc. It leaves us weaker in disputes with bigger economies. Foreign policy can also come into play in allegedly innocuous trade disputes – for example our relations with Russia. Far from Brexiters’ “global Britain” dream, we would end up a weaker player in world trade.

A longer version of this article was originally published on the European Movement website.

Edited by Luke Lythgoe

Tags: , , Categories: Economy

3 Responses to “3 big problems with Brexiters ‘trade on WTO rules’ plan”

  • The Brexiteers obviously never bothered to read para. 3.80 of the “Alternatives to membership” paper published by the government in March 2016. On the question of trading on WTO terms this said: “The UK would face a stark choice: lower tariffs for all countries in the world, or raise tariffs with respect to the EU. The first option would undermine our position in future trade negotiations. The second option would raise costs for businesses and consumers.”

  • I think as remainers we need to be cautious in our use of the most favoured nation (mfn) argument. It dorsn’t apply in the case of a bi-lateral “free trade agreement” (fta) which is what brexiters we’re hoping for. These agreements have to cover “substantially all trade” with zero tariff. But if that condition is met then fits gets you out of the mfn bind.
    Where mfn should be invoked more is in discussion of the NI border, in my humble opinion. How does the EU propose to defend itself against the charge, in WTO, that by relaxing regulatory border controls in Ireland it has established that this is how its external borders operate, and this has to apply to other third countries too? Where is the legal certainty on this arrangement?

  • @Gareth : that’s where backstop comes into play. NI will be legally bound by the Single Market rules. In the withdrawal agreement it was fudged to make it sound like UK-wide backstop. But as reality creeps in, there are only two choices:
    “close regulatory alignment” meaning whole UK following SM rules to the letter, or regulatory checks at the Irish Sea.