WTO is not the answer

https://twitter.com/LeaveEUOfficial/status/915208400459493378

A lot of Eurosceptic commentators and politicians who said before the EU referendum that the UK would easily and quickly get a trade deal with the European Union seem now to be backpedaling somewhat. 

Some are saying that we could get a deal, and that it is as easy as they said – but Brussels is not playing ball.

[We will look at that claim in another post – in summary however, there are things the EU could be doing differently to speed up the process and make it easier, but most of the problems are coming from the UK end, not the EU end.

The other new line they are now coming out with is – we should “walk away” with no deal and trade on WTO rules alone. 

https://twitter.com/LeaveEUOfficial/status/915109542848905223

They not only claim that we would be fine trading with the EU on such terms, but also claim that major economies trade with the EU on just WTO rules. 

We would divide these people into three discrete categories:

  1. Those who know that the WTO approach would be terrible for the UK but want to pretend it is a viable option; as a negotiation tactic during the EU negotiations. 
  2. Those who know that the WTO approach would be terrible for the UK but want to pretend it is a viable option; to line their own pockets
  3. Those who either through lack of research, lack of understanding or sheer unwavering belief in the UK, don’t think WTO rules will be bad, and possibly will be good for Britain. 

The facts of the matter are these:

  1. Most major countries don’t trade with the EU on WTO-only rules. 
  2. Those who do are trying to get better deals with the EU.
  3. Trading on just WTO rules poses a threat to UK consumers, importers and exporters. 

If you look at the EU’s trade map – there are very few countries which the EU trades with on WTO rules alone. 

 


Let’s look at some of the countries often cited by Hard Brexiteers as trading with the EU on WTO-only rules:

Japan

Not content with trading under WTO rules, Japan and the EU have negotiated a  EU-Japan Mutual Recognition Agreement which entered into force on 1 January 2002.

They have signed an  Agreement on Co-operation on Anti-competitive Activities and an Agreement on Co-operation and Mutual Administrative Assistance (CCMAA) which entered into force on 1 February 2008.

A Joint EU-Japan Customs Cooperation Committee (JCCC) meets once a year. These meetings bring together customs representatives and experts from both the EU and Japan.

In addition, The EU-Japan Business Round Table was established in 1999 to bring together representatives of EU and Japanese businesses.

Even though they have negotiated these additional measures which go above and beyond standard WTO rules, neither side is happy with trading under these conditions, and so are in the process of negotiating an EU-Japan Free Trade Agreement.

 


China

Not content with trading under WTO rules, the EU has established The European Union Chamber of Commerce in China (EUCCC) “with a core structure of 25 Working Groups and 7 Fora representing European business in China.” 

The EU and China have set up a Joint Committee on Trade and an EU-China High Level Economic and Trade Dialogue. 

The EU has also set up a  EU China Trade Project (EUCTP) which works on Trade Facilitation and Customs issues. 

They have also signed a Strategic Framework for Customs Cooperation.

Even though they have negotiated these additional measures which go above and beyond standard WTO rules, neither side is happy with trading under these conditions, and so are in the process of negotiating a Comprehensive EU-China Investment Agreement.


USA

Not content with trading under WTO rules, USA and the EU have negotiated a USA-EU Mutual Recognition Agreement

They have EU-U.S. Summit meetings and established a High-Level Working Group on Jobs and Growth, led by the EU Trade Commissioner and the US Trade Representative.

They have also set up the Transatlantic Economic Council (TEC) in 2007  to foster economic integration and EU-U.S. regulatory cooperation.

Additionally, they have signed an Agreement between the European Community and the United States of America on trade in wine.

Even though they have negotiated these additional measures which go above and beyond standard WTO rules, neither side is happy with trading under these conditions. 

Below we reproduce some passages from the USA 2017 National Trade Estimate Report on foreign trade barriers:

“U.S. exporters and investors nonetheless face persistent barriers to entering, maintaining, or expanding their presence in certain sectors of the EU market. Some of the most significant barriers, which have endured despite repeated efforts at resolution through bilateral consultations or WTO dispute settlement, have been highlighted in this report for many years. Many are highlighted again in this year’s report.
The EU’s approach to standards-related measures, including its conformity assessment framework, and its efforts to encourage governments around the world to adopt its approach, including European regional standards, creates a challenging environment for U.S. exporters. In particular, the EU’s approach impedes market access for products that conform to international standards as opposed to European regional standards, even though international standards may meet or exceed the objectives set forth in EU legislation. U.S. producers and exporters thus face additional burdens in accessing the EU market not faced by EU exporters and producers in accessing the U.S. market.
The EU also promotes adoption of European regional standards in other markets and often requires the elimination of non-EU standards as a condition of providing assistance to, or affiliation with, other countries, which can give EU manufacturers commercial advantages in those markets.
The withdrawn standards can be international standards that U.S. producers use, which may be of equal or superior quality to the European regional standards that replaced them. U.S. producers thus must choose between the cost of redesigning or reconfiguring the product or exiting the market.”

As a result of these issues and others, the EU and USA are in the process of negotiating a trade and investment deal – the Transatlantic Trade and Investment Partnership – or TTIP.


 

In summary, if the UK was to leave the EU with no deal it would revert to GATT/WTO rules when trading with the rest of the world. It would face not only tariffs but also non-tariff barriers. These barriers would lead to a significant economic impact

There is no need for this outcome at all. It won’t be good for anyone but a few wealthy hyper-capitalists and would lead to disruption in many fields unrelated to trade – Aviation, Nuclear Science, Reciprocal Healthcare and Police co-operation, the list is staggering.

 WTO is not an option for the UK post-Brexit.


Postscript:

Given the amount of time elapsed of the 2 Year Article 50 period, the only realistic answer for the UK is to transfer from EU/EEA to EFTA/EEA – i.e. the Norway model. We would be able to trade all across the world as we would be outside of the EU’s Customs Union, Common External Tariff (CET) and Common Commercial Policy (CCP) but part of the EFTA free trade network. The UK helped to create the European Free Trade Association in the 1960s and if we rejoined it would be mutually beneficial. 

 

6 thoughts on “WTO is not the answer”

  1. I couldn’t agree more. The course being taken by the government is reckless and ignorant in the extreme. It is beyond pathetic.

    I am not optimistic now, the only way of getting out sensibly is the EEA/EFTA route but I fear the Tories are too arrogant, incompetent and detached to even consider it.

    This will mean major disruption after we leave – and we are talking empty supermarket shelves, riots etc. I suppose the only good part of it this is it will mean the end of the Conservative Party probably for a generation or possibly for ever.

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