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Brexit Cheat Sheet

Brexit Explained: What Does 'Moving to WTO Rules' Actually Mean?

Would a no-deal Brexit be or a triumph or a disaster? We spoke to some economists to find out.

by Gavin Haynes
28 January 2019, 1:39pm

A pro-Brexit protester wears a hi-vis top advocating WTO rules. Photo: Jake Lewis

If nothing else changes, World Trade Organisation Rules is the plunge-pool into which we take a high dive on the 29th of March. Only, no one seems clear on whether this pool is full of delicious global trading jelly we can bounce right off, or nation-evaporating carbolic acid.

With May’s Draft Agreement dying on its arse, more and more voices from the Eurosceptic side are asserting that we should sod 'em, go straight to WTO Rules and see how Johnny Eurocrat likes it up him. Problem is, some of these prophets of a bold new dawn have only read the the first half of the WTO's Wikipedia entry.

See: former UK Breitbart editor James Delingpole, who turned up on BBC's This Week to give his Hard Brexit views an airing, and took a cringe-max sphincter-inhaling pasting for his troubles, when it turned out he didn't really know what "WTO Rules" means.

For the benefit of anyone else reckless enough to share a sofa with Andrew Neil, I phoned up some rival trade economists to ask what does happen if we wake up, on the 30th of March, in the WTO Rules universe.

EXPECT DELAYS TO YOUR JOURNEY

Bureaucracy, in short, is what happens. We become a Third Country in the EU's eyes, and in an unplanned scenario that means inspections and form-filling. "The big problem you have with, for example, [the port at] Dover," says Sam Lowe, a senior research fellow at the Centre For European Reform, "is that you can't differentiate between those who have done everything right, who have all the paperwork, and those who don't… They both sit in the same queue." That queue quickly knocks-on to other queues, we silt up in a thousand small ways, and that becomes one big problem.

FARMING TAKES A KICKING

"EU laws on hygiene are very strict," explains Lowe. "Agricultural goods coming in from [a different] country have to be inspected, 100 percent are subject to document checks, 50 percent are subject to physical checks. Inside the EU, those are virtually nil. So that’s a big change that I don’t see the EU backing down on."

But Shanker Singham takes a different view. He's an economist with the pro-Brexit Institute of Economic Affairs, a man who has been called "the Brexiteers' brain". He sees a way out: "Right now, their agricultural standards and ours are identical. So we could easily just accept EU standards and have no checks. Then, so long as they don't change their standards, and we don't, there's no need for checks."

DAY THREE: WE HAVE TO EAT TWICE AS MUCH STEAK

Right now, the UK negotiates as part of the EU in the WTO. That means there is an EU-wide quota for the amount of beef, lamb, butter – and a range of other farm products – we have to accept from outside the EU. Leaving means we need to negotiate to take our own share of that EU quota. The Brazilians, and the Americans, have already rejected our initial split, and they want us to duplicate the EU's beef quota. In other words: to take as much as the entire EU. Disentangling isn't impossible, but it means negotiating on the back foot.

WE'LL HAVE TO DUPLICATE 60 TREATIES OVERNIGHT

"The WTO option means renegotiating the Free Trade Agreements the EU has with many other countries," says Dr Stephen Woolcock of the London School of Economics. "The emphasis here being on re-negotiation. In other words, they depend on the other party." There are six big ones: Switzerland, Korea, Mexico, Japan, South Africa and Israel. Switzerland and Israel have already agreed to roll over. Japan and Korea will take some proper renegotiation.

Shanker Singham again sees a temporary fix: "You'll get out on day one and you’ll negotiate. But the easiest way would be to take a pool of regulations and deem them equivalent." In other words, simply act as though you had a treaty in place, until you do.

INCREDIBLY, TARIFFS THEMSELVES AREN'T A HUGE PROBLEM (ON AVERAGE)

These days, WTO tariffs average about 2 to 3 percent. In some industries – for example, in civil aviation – they’re already zero.

BUT FARMING TARIFFS ARE A HUGE PROBLEM

Dairy products: 54 percent. Sugar: 31 percent. Cereals: 22 percent. We send half our lamb to France, which would now have a 45 percent tariff. The Irish would be hit harder – their farmers account for 79 percent of our beef imports. So, Shanker Singham suggests, we're starting to see movement from the nations who'd be hit – especially the Irish. "[Last] week, there [was] a whole spat between Ireland and the EU… I think they’re starting to get nervous."

AT LEAST THE CITY BOYS WILL BE ALRIGHT

The financial services industry has been ruthless in not sitting back and waiting for government to solve their problems – the big players have all set up small satellite offices inside the EU, which allow them to continue on as though nothing had happened.

OVERALL, IT WILL PROBABLY LOOK MORE LIKE A STEEP HILL THAN THE PROPHESIED 'CLIFF EDGE'

When you get down to it, international trade law is built on anarchy. There is no global policeman who comes round and bashes you on the head if you enforce its laws immediately. The worst that can happen is another country takes you to the WTO's court, and that process can take years to complete. In the meantime, we could gradually adjust.

"Greg Hands, the Business Secretary, has floated this idea recently," says Sam Lowe. "WTO Rules gives you the right to discriminate favourably for a short time if it is an emergency. We could discriminate favourably – probably for quite a while – to continue to grant EU imports preferential access. We could legitimately say it was an emergency."

Of course, at the end of that emergency period, we'd still be left back where we started.

WHO YOU BELIEVE DEPENDS MORE ON YOUR VIEW OF HUMAN NATURE THAN YOUR VIEW OF TRADE LAW

The question of what happens on the 30th of March is both pretty simple and infinitely complex, because it's what the rules say, plus what the humans do – and those don’t have to match.

The negotiators swear blind that all rules must be obeyed to the letter… but the head of the port at Calais has already announced he won’t permit any delays – making predications of lengthy lorry-jams less likely.

When it all comes down to it, will the EU cut off their nose to spite their face? Maybe not… but if being too "nice" means they’ll be back to negotiate a GREXIT or a FREXIT in five years? Therein lies the gulf between the predictions.

Jelly or acid? Jacid.

@gavhaynes