What is actually wrong with WTO rules?: Why they are significantly worse than the EU

We have written this article not out of any love for the EU but because we feel duty-bound to explain to a still largely-unsuspecting public what ‘No-Deal’ would really mean, just how disastrous it would be — and what might still be done to stop it.

By Rupert Read and Adam Woods.

This article was first published on Medium

For the first time in 40 years, the UK has to re-consider its trading policy. At the moment, there is plenty of talk about “falling back” onto World Trading Organisation (WTO) rules in the event of a no-deal Brexit, an outcome which Theresa May’s giant game of ‘chicken’ makes dangerously likely. And indeed, if this is what happens, the UK will find itself solely under the minimalist rules-based trading system of the WTO. As this remains the legal default position, in the event of a no-deal Brexit we will find ourselves in a position in which tariff-free trade between the UK and the EU ceases and the agreements held in place over the last four decades to boost revenue on imported goods and protect specific sectors of the economy will be rendered null and void. New tariffs will mostly be paid by the importer, but ultimately it will be the consumer/citizen who pays the price.

Perhaps this is what is currently motivating the political chatter surrounding Article 24 — a topic shrouded by misinformation. Conservative Ben Bradley has recently suggested that “Article 24 of the World Trade Organisation treaty allows us to continue to trade with Europe on zero tariffs while we negotiate a free trade arrangement.” One of the motivating factors behind Bradley’s misplaced enthusiasm is the thought that we will be able to exercise our sovereignty fully under a no-deal scenario, without the encumbrances of the EU.

This is incorrect and rests upon a misunderstanding of what sovereignty is — the same misunderstanding of sovereignty that is implicit in contemporary political discourse that we can cut and run and from there exercise our will in any way we see fit. For one, we currently have veto powers over certain major decisions, as a member of the European Union, and so if there is a proposal to, say, allow Turkey to join or form a European army, our 73 democratically elected European representatives or, more simply and definitively, our Westminster Government (represented on the EU Council) could unilaterally refuse and that would be the end of the matter.

At the moment, as a member of the EU, the Government procurement agreement (GPA) allows British companies to bid for a part in American contracts. That market alone is worth 1.7 trillion dollars and allows our companies to stake claims for involvement in massive infrastructural projects. Upon defaulting to WTO terms, our re-entry to the GPA has to be ratified by all other members. Currently, Moldova has used its veto to refuse our re-entry.

Connectedly, arguably, what makes genuine political choice possible in a global economy is the pooling of sovereignty amongst member states of a customs union.. (For a good discussion of this, see Will Hutton and Andrew Adonis, Saving Britain: How We Must Change To Prosper In Europe, pp.103-123). And even if what Bradley says were true there would be little cause for celebration as the article makes no provisions for environmental protection and the WTO itself is toothless when it comes to the enforcement of its own non-tariff measures (NTMs).

Accordingly, there is no reasonable case to be made for a withdrawal from the customs union on the basis of the claim that our ‘sovereignty’ will now be assured. And what is clear is the choices we will be left with upon withdrawal are: (1) sign up for whatever global markets demand, or (2) systematically withdraw from global markets and grow insular and poor. (Unless possibly we are able to take up a 3rd possibility set out in a previous publication by one of us: the possibility of Britain becoming genuinely more self-sufficient, and ‘prosperous’ not in terms of GDP but in a greener way). Going on the evidence of the last two years, and more especially of the last couple of months, a no-deal Brexit is looking more and more likely. So it is important to get clearer upon where we would then stand in the global markets:

The default tariffs would apply at the highest set rate. For instance, 9.8% tariff on cars or car parts that other countries are going to have to pay if they buy from British manufacturers. Currently, we have a 0% tariff on car parts exported to members of the EU. It is going to cost our trading partners much more to trade with us in future. The outcome of this is clear to see: our current customers will buy different cars from suppliers within the customs union. Entire industries will be subject to extra layers of taxation. This will destroy British industries. We’re effectively in the position of putting trade sanctions upon ourselves and calling it an act of sovereignty.

The upshot of this is that it will leave us in a situation when selling our exports of saying, “we want to sell you these products, but how about this: we charge you 9.8% more than you’re currently paying?”

There is no way that this makes any sense or is viable for us, unless possibly, again, we actually want to get serious about being a far more self-reliant nation. But that can’t be done overnight! And there are now barely 40 days and nights before we are supposed to leave the EU…

Under WTO rules we will be faced with scenario with two important factors. There will be liberalised trading stipulations; and there will be no legal bite when it comes to enforcing its standards. For now, this is working in our favour. As Lord Adonis has recently noted, ‘by refusing to import chlorinated chicken, genetically modified organisms, and beef stuffed with hormones from the US, we are in breach of WTO rules’ health standards’.

With the EU, we have trade deals spanning 168 non-EU countries and if we exit we will have renegotiate ‘at least 759 treaties’. Currently, the only two deals Liam Fox has managed to get are with Switzerland and the Faroe Islands (fine if you like chocolate and cuckoo clocks; we honestly don’t know what we will be trading with the Faroes but one can be confident that it will be virtually nothing, as their population is under 50,000). Japan (population 127 million) has just signed a huge trade deal with EU, and Fox’s answer to this is a copy and paste job.

It is not without cause that Andrew Adonis has labelled this the “wrecked trade option”.

As it currently stands, we will quite possibly simply not be able to continue trading. There is a cargo ship currently on the way to South America and due to arrive after the 29th of March. It is uncertain whether the goods will be impounded or whether they will be able to leave the ship, and there is further uncertainty about the paper work required after the 29th. Another cargo ship is due to leave to India this week. You could say that these two ships are in the same boat.

Meanwhile: In a move that simultaneously condemns his own moral standing and provides support to exactly the system he wants to avoid, Sir Jim Ratcliffe has reportedly planned a move to Monaco to avoid £4 billion in Green tax. These should be indicators that Brexit is being led by the super-rich seeking further exemption from the taxes that they reluctantly pay — in this particular instance, on vital climate policy measures. If we have any hope of reducing our emissions, cynical moves such as this should be met with stern approbation.

Of most importance in this regard is the weak standards of the WTO when it comes to enforcing its NTMs, which include baggy stipulations for environmental protection, stipulations of such generality that they are dangerously open for interpretation. And the mandate and powers of the WTO are far more modest and narrow than the hard-line Brexiteers in the European Research Group make out. Beyond the rates at which tariffs are set, it tries to ensure they are non-discriminatory so countries apply the same tariffs to all importers. But crucially, unlike the EU, the WTO has, as we have already flagged, in effect no powers of enforcement meaning it is only as the willingness of its members to abide by the limited scope of trade it oversees.

This would therefore imply a reckless disregard of the precautionary principle as the WTO itself, unlike the EU, has no specific agreement dealing with the environment. This is why “falling back” onto WTO rules is a misnomer: it suggests that there is something like a viable safety-net in place. What this scenario actually presents us with is a case of backsliding on our environmental commitments at a time when we are in desperate need of stronger, not weaker measures.

The need for stronger environmental assurances enshrined in law has been the source of a recent debate in the upper House which led to a historic defeat on the Government’s Trade Bill in part by Baroness Jones of the Green Party.

Some useful amendments to that bill to put flesh on its skeleton and get it passed before we’re left at the mercy of Trump and Xi et al would include some of the following:

  • The phasing out the routine use of antibiotics in farming and a regulation compatible with the principle of non-regression in UK food safety and public health standards.This would ensure that chlorinated chickens and other frankenfoods would never reach our plates.
  • A law compatible with the principle of non-regression in UK environmental protection. This would be in line with the precautionary principle to guard against the possibility of backsliding on our environmental commitments — notably our commitment in the Paris agreement to limit global temperature to 1.5C.
  • It should be an objective of UK representatives in meetings of the World Trade Organisation to ensure that the World Trade Organisation modifies its procedures in a way which secures the supremacy of international treaties arrived at under the auspices of the United Nations over trade agreements not arrived at under the auspices of the United Nations.
  • However, and perhaps this will help shed further light on the reality of crashing out on WTO terms, the UK cannot require the WTO to modify its procedures in a way that secures the supremacy of international treaties that were arrived at under the auspices of the UN over trade agreements that were not. The WTO and the UN are two distinct independent organisations, with two distinct bodies of international law. The WTO is not part of the UN system and exists independently in international law. That position is combined with the fact that there is an established principle of international law that there is no hierarchy of sources of international law. Reform of the WTO therefore requires reform of the WTO’s own treaties, which has nothing to do with UN law, nor can it. Trade agreements, too, whether they seek to reform the WTO, or are secured bilaterally, must comply with the relevant law, which is WTO law. They exist outside UN law.

    Importantly, this issue is not solely a matter of securing “free trade” — a desperately difficult thing to negotiate in itself and usually imposed by the strong on the weak — and should not solely be framed in this way. It is now a matter of protecting our planet’s very future — something almost entirely omitted from every discussion of this topic in the media. Given the situation we’re in and the pleas from an extreme pro-Brexit clique to sever all ties, no matter the cost, there is a high possibility that we will be left without the strong measures needed to stop our carbon budget careening. Whereas: Our situation is one that actually calls for extreme precaution and legal measures to shore up our environmental commitments.

    Instead of crashing out with no deal, or accepting May’s deeply flawed deal, some would humbly suggest that we currently have the best deal it is possible to have with the largest single market on the planet. As well as that, as a member of the EU we have 34 different trade agreements with other countries and trade-blocks. So, we have another 60 countries we can export to — including the USA — freely and much more easily.

    Under the WTO, everything we export around the world will have the highest tariff it is possible to apply. 5.4 million small to medium enterprises in the UK who will have to figure out how to ship their now less than attractive product to others. On top of that, we will be a single country against 163 others wielding less influence than we currently do as the third largest member of the EU28. We are currently represented in this capacity. Outside of the EU, we will become a ‘third country’ with no trade deals, applying a pre-agreed set of tariffs that we have at this moment in time had no say on.

    Does this sound like taking back control?

    We now have a far clearer picture of what we are letting ourselves in for. And with a Government reduced to a mad balancing act between factionalism and self-preservation, and Labour now at open war with itself, it is looking likely that, unless something radical is initiated, and fast, we are going to deadlock until we default.

    It is surely therefore clear that there needs to be a delay and that this issue needs to go back to the people for a vote on the final terms / and on whether to leave at all, given we now know what they are. The politicians in the main two parties have shown themselves incapable. The least they can do is hand over back to the people to sort this mess out.

    Acknowledgments

    Thank you to Ian Woods for his great help in pointing out some important issues in the developments in current negotiations. Thanks also to Baroness Jenny Jones and to Victor Anderson for comments on an earlier version. None of these people should be assumed to agree with the substance of what we say here!

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