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What would a 'clean break' with the EU mean for the economy?

ALEX GORDON looks at the nature of WTO rules and how trading on them would affect us

MARK CARNEY opined this week that the idea Britain could trade on WTO terms with zero tariffs after a no-deal Brexit was “absolute nonsense.” The man George Osborne recruited as Governor of the Bank of England is no Brexiteer. 

However, last month the UK government had already announced temporary tariff-free arrangements on 87 per cent of total imports (by value) to Britain in the event of a no-deal Brexit. Tariffs would still apply to 13 per cent of imported goods including beef, lamb, pork, poultry and some dairy products, which have historically been protected by high EU tariffs.

Some tariffs on finished vehicles in the automotive sector would continue, however, “car makers relying on EU supply chains would not face additional tariffs on car parts imported from the EU to prevent disruption to supply chains.”

Additionally, in sectors where UK producers face unfair global trading practices, such as dumping and state subsidies, tariffs would be retained for ceramics, fertiliser and bioethanol and preferential access to the UK market for developing countries will continue for imports, including bananas, raw cane sugar and certain kinds of fish. 

Mark Carney’s remarks contrast with those of his predecessor Mervyn King, who dismisses “wild, exaggerated” warnings of a no-deal Brexit causing economic damage and job losses. King predicts “short-run dislocation costs” if Britain leaves the EU without a deal.

Given the strong claims made by supporters and opponents of a no-deal Brexit and that the alternative to remaining under the EU Customs Union arrangements is to leave on World Trade Organisation rules, it is important to unpack what this means. 

The WTO as its name suggests is the global organisation of trade liberalisation. Established in 1995 under the General Agreement on Tariffs and Trade “Uruguay Round” of negotiations, WTO comprises 164 members (including the EU and three “customs territories” of China) representing 98 per cent of world trade. 

WTO decisions are taken collectively by its members. It acts as a forum for governments to negotiate trade agreements, settle trade disputes and operate a system of trade rules. However, the WTO does not operate a Supreme Court such as the EU’s European Court. 

Indeed, one of the reasons for President Donald Trump’s increasingly hysterical threats of trade war with China is that the US has been unable to force China to accept its trade demands made through the WTO. So, a critical difference between the WTO and the EU or neoliberal multilateral free trade agreements (FTAs) such as TTIP (the Transatlantic Trade and Investment Partnership) is that WTO mechanisms for dispute resolution and enforcement are slow and complex. 

In the absence of an agreed deal to leave the EU, WTO trading terms will apply. Britain would cease to be covered by existing FTAs between the EU and third countries, which principally affects trade in services, which are more restricted under WTO rules. Services (particularly financial services) are of course the largest economic interest represented by the Tory Party.

The WTO also embodies a non-discrimination principle, so-called “Most-favoured Nation” status (MFN) meaning reduced tariffs must be granted to all trading partners equally.

For the UK to remove tariffs and border checks on imports from the EU, it must do the same for all WTO members. Hence, a zero-tariff rate on imports of Irish beef for example must also apply to Argentinian beef under WTO rules. 

WTO members can offer more favourable terms to one country and not another through an FTA. The EU currently has a number of FTAs with states such as Singapore, Canada, South Korea and most recently with Japan. 

In practice however, WTO members rarely trade without additional bilateral agreements. All 164 WTO members have better access to at least one market either through a FTA or duty-free preferences often offered to developing countries. The US, Brazil, China and India all have trade agreements with their closest neighbours. 

UK trade with the US—the UK’s biggest non-EU trade partner— is regulated by over 100 sectoral agreements that go beyond WTO provisions. 

The Project Fear promoted by the Bank of England’s Mark Carney and the Treasury under Philip Hammond (and swallowed by so many Labour MPs) about a clean, or “no-deal Brexit” has been massively exaggerated, as have the benefits of EU single market and customs union membership.

The Treasury claim that EU membership has increased trade with member states by 68-85 per cent, or 115 per cent for goods and 24 per cent for services, is bogus. In reality, Britain’s exports of goods to the EU’s 11 founder members have grown by 2.65 per cent a year since 1973, while exports to the rest of the world went up by 2.35 per cent. 

From 1960 to 1972 (when Britain joined the European Common Market) UK exports to what would become the EU were growing strongly.

In 2005, the Treasury conducted early research on EU membership and trade, which was only released in December 2010 after a Freedom of Information request.

UK trade with the EEC grew significantly after we joined in 1973, but as the years went by the impact dimmed, especially after the EU single market came into force in 1992. The Treasury paper concludes that Britain’s trade with EU members increased by 7 per cent as a result of EU membership, but this came at the cost of reducing trade with non-EU countries by 4 per cent. 

Any Brexit withdrawal agreement negotiated between the EU and Theresa May is by definition not going to be acceptable to socialists. The EU wishes to tie Britain into its single market and customs union, which embeds austerity, cuts and privatisation, super-exploitation of migrant workers (and wage depression), a Fortress Europe, racism and a growing far-right across Europe as a consequence.

A “clean break,” managed no-deal Brexit on WTO terms will allow a future Labour government to challenge these policies. Labour’s current policy to embrace “a customs union” with the EU would prevent implementation of its 2017 general election For Many Not The Few manifesto and could lose them the next general election. 

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