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This is what Brexiteers get badly wrong when they talk about the World Trade Organisation

It is only by claiming that trading 'on WTO terms' would be fine that Brexiters manage to be so relaxed about the UK leaving the EU without a deal, but the WTO does not ensure the removal of all barriers to trade

Anand Menon
Wednesday 05 December 2018 13:17 GMT
Theresa May dodges question on economic impact of leaving EU on WTO rules

Something strange happened to me the other week.

I was heading to work on 20 November, listening, as I sometimes do, to the Today programme. It was all going swimmingly. Then, Peter Lilley came on and was a tad misleading about the consequences of a post-Brexit UK trading with the EU “on WTO terms”.

So far, so absolutely normal. It’s not the first time I’ve been irritated by something I’ve heard on the radio, and I’m pretty sure it won’t be the last. So I tweeted my irritation and forgot about it. Until, that is, I got a call asking if I’d go on the BBC’s PM programme that day to discuss my reservations about what Lord Lilley had said.

The response, all too characteristically, I’m afraid, was an attempt to play the man not the ball.

On PM a few days later, Lord Lilley’s response was that “the Professor is not a professor of trade or economics … he’s a Remain campaigner effectively”.

Well, he deserves points for being half-right – I’m a mere political scientist – but should be penalised for evading the substance.

And so to the point at issue in the original tweet. Lord Lilley claimed that “we trade with America and many other countries” on WTO terms. But we don’t. Our trade with the US is currently regulated by over 100 sectoral agreements that go well beyond WTO provisions.

Of course, there are some non-WTO member states (such as Azerbaijan and Serbia) with which the UK enjoys pretty good trading relations as well. But - and it’s a big but - these states have signed agreements with the EU covering largely the same areas as WTO arrangements. Without these, our trade with them would be on worse terms even than those laid down by the WTO.

What the WTO does is lay down a baseline for trade between member states. However, no member trades on “WTO terms” alone. All 164 of them have negotiated better access to at least one market through some kind of bilateral agreement in addition to their WTO relationship.

This is because the WTO does not ensure the removal of all barriers to trade. Lord Lilley seems to give the impression he doesn’t understand this.

Later in his interview, he claimed that, because the European Union has signed up to the WTO sanitary and phytosanitary (SPS) agreement (relating to measures intended to protect humans, animals and plants from diseases, pests or contaminants), it would not be able to impose border checks.

In actual fact, the only non-EU countries that export to the EU without the need for checks at veterinary border inspection posts are Switzerland, Norway, Iceland and Liechtenstein. How have they managed this? Simple. By harmonising their SPS regimes with that of the EU. Meaning if the EU changes its rules, they must do likewise.

The simple reason why goods from one part of the UK can be freely traded in another is because the transaction takes place within the UK’s own internal market.

Similarly, transactions within the EU’s single market are not normally checked because they are assumed to comply with EU rules that all member states have accepted.

WTO rules provide only a pale imitation of this system. The WTO “Trade Facilitation Agreement” is intended, as its name implies, to make trade easier, but has taken only small steps in that direction.

So, its provisions on streamlining processes at borders merely require that states do their best, rather than insisting on compliance.

And of course, all this applies to trade in goods. Yet more than 80 per cent of UK economic output, and 45 per cent of our exports, come from services such as finance, law, catering and telecommunications. And yes, the WTO does have provisions that cover services. However, they are even less developed than those for goods.

Because the main barriers to trade in services are domestic laws (on qualifications, the right to set up a business and so on), they are hard to remove because doing so generates often fractious political arguments. Given this, for all the fact that it is incomplete, the EU’s internal market for services is remarkably well developed.

Take one simple comparison. Under WTO rules, members are free to discriminate against foreign services and prevent them from accessing their market (they are not free to do the same for goods).

In the EU, by contrast, equal treatment is the norm, and there is a wide-ranging system of mutual recognition of qualifications allowing service provides with qualifications earned in one member state to offer those services in another.

I’m not generally all that bothered about the arguments I get into, even the one with Lord Lilley. But I am bothered about this debate because it matters.

Myths about the World trade Organisation loom large in the debate about Brexit. It is only by claiming that trading “on WTO terms” would be fine that Brexiters manage to be so relaxed about the UK leaving the EU without a deal.

But, as parliament begins perhaps its most important peace-time deliberation, the least our MPs and the public deserve are some facts to base their choices on.

To this end - and I’d welcome Lord Lilley’s comments on it - we have produced a short report outlining what “trading on WTO terms” would really mean. I commend it to all those who are interested in informed debate.

Anand Menon is director The UK in a Changing Europe and professor or European politics and foreign affairs King’s College London

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