BREXIT | WTO = ARMAGEDDON (AGAIN)


armageddon-2

The World Trade Organisation (WTO) is an inter-governmental organisation based in Geneva with about 600 staff which regulates international trade. It is a negotiating forum for its members to create international trade rules, and an organisation to oversee how they put the rules into practice. For example, WTO agreements place limits on tariffs (which tax imports) and prevent the spread of disease by establishing sanitary standards on agricultural products. Studies over time have shown that the WTO has boosted trade around the world and that in the absence of the WTO, the average country would have faced a 32% increase in export tariffs. Currently, 164 countries are members of the WTO which embraces about 95% of global trade. The UK is already a member of the WTO in its own right, having co-founded the General Agreement on Tariffs and Trade (GATT), the WTO’s predecessor, with 22 other countries in 1948.

Another Referendum

In my previous post I appealed to people who voted Remain in the EU Referendum to give serious consideration to voting for the UK to leave the European Union should there be another referendum on this topic – which is looking increasingly likely. Another referendum relating to the UK’s membership, or not, of the EU would be a betrayal of democracy, of course; our politicians haven’t honoured the EU Referendum yet. On what basis would one believe that the result of another EU referendum would be honoured? But set that to one side for a moment. I said in my last post that in my next post, this one, I’d take a look at what leaving the European Union under WTO rules would really mean.

You Can’t Agree to Agree

With chaos remaining the norm in Westminster, the UK’s departure from the EU is now just weeks away. The legal clause of the Treaty on European Union by which the UK will exit that Treaty is Article 50. Article 50 expects the EU and the departing nation to agree a Withdrawal Agreement as the basis for divorcing. In fact, as any lawyer will tell you, you can’t make potential parties to a contract agree to agree. If counterparties agree then they have a deal (the Withdrawal Agreement in this case). However, if counterparties can’t and don’t agree then, obviously, there is no deal. So, what if there is no deal between the UK and the EU as to how the divorce will be agreed?

No Deal

Well, first we need to acknowledge that it would appear the majority of our MPs don’t understand contracts and negotiations generally; hence the dog’s breakfast that is Parliament at the moment. We’re told that the majority of our MPs are against no deal. This means that the House of Commons expects the British government to enter into a Withdrawal Agreement with the EU regardless of how bad the deal is – because no deal should not be an option. It’s like you walking into a car showroom and saying to the salesman, ‘I’m interested in buying a new car, but I want you to know that for me, no deal is not an option’. Guess what? Correct: the car salesman will be flogging you a car entirely on his own terms. Why would he not do that?

Imagine the car salesman is the EU’s Chief Negotiator, Monsieur Michel Barnier. In 2016, Mr Barnier said to Le Point, a French weekly news and political magazine, ‘I shall have succeeded in my task if the final deal is so hard on the British that they’ll end up preferring to stay’. Mr Barnier was as good as his word and has done an outstanding job. The deal he forced onto the hapless British negotiators (collaborators more like) was so good for the EU and so bad for the UK that it resulted in the greatest defeat of a government by the House of Commons in modern history, if not all time. The problem is that having declared the Withdrawal Agreement the mother-of-all bad deals, the House of Commons says that no deal is off the table. What MPs can’t get their heads around is that no deal is the table. If there is no deal, then no deal is the deal. Come on, keep up at the back there.

Having thus tied themselves in knots, our illustrious political elite is now thrashing about looking for ways to kick Brexit into the long grass: seek to extend the Article 50 timetable perhaps; ditch Article 50 altogether, maybe (ie cancel Brexit); call a General Election; have another referendum; you name it, anything to untie the rope with which slowly, but surely the British political class is hanging itself. It’s the most unedifying spectacle, isn’t it?

The World Trade Organisation

Notwithstanding, all the time the clock is ticking towards 29 March 2019, the date on which by law the UK must leave the EU. Assume for the moment that Parliament remains paralysed, then on 30 March the UK will default to trading with EU nations on the basis of World Trade Organisation (WTO) rules. Again, our politicians, the establishment, the BBC and much of the mainstream media including Sky News and Channel 4 News, ‘big business’, Uncle Tom Cobley and all are screaming at us that leaving under WTO rules will result in Armageddon; just like voting to leave the EU was going to result in Armageddon the morning after the EU Referendum. Remind me, how did that go, guys?

So, we’re told that the UK leaving the EU under WTO rules will result in Armageddon. Well, brace yourself, but the UK leaving the EU and shifting its trading relationship with EU nations to WTO rules will not trigger Armageddon. Here’s why.

Trading Under WTO Rules | The Good News for the UK

Bear in mind that, unlike the majority of the British electorate, the majority of our Parliament would prefer that the UK remained a member of the European Union. Bear in mind too that the majority of our Parliament is against the UK leaving the EU without a deal. In other words, our politicians are against the UK shifting its trading relationship with the countries of the European Union to WTO rules.

Now, the EU was never, ever going to give the UK a ‘good deal’ to leave the EU (that would mean the EU signing its own death warrant). Instead, our politicians were offered a ‘bad deal’ by Mrs May (a deal written for her by Michel Barnier, not surprisingly) but they rejected that. Meantime, our politicians – who, as you know, are not the sharpest knives in the cutlery drawer – won’t accept ‘no deal’. So, whilst Parliament spins itself around in ever-decreasing circles before disappearing up its own exhaust pipe, here is a quick, non-exhaustive list of the benefits of having the UK deal with the EU under WTO rules that you are unlikely to learn from your MP or the BBC:

  • Big price reductions in food and consumer goods such as clothing and footwear: EU tariffs and other trade barriers raise clothing prices by up to 8%, and food prices by around 5%.
  • The ability to reorient our future trade towards the most dynamic areas of global growth, eg Asia, South America and Africa. The EU’s own analysis suggests a network of such deals could add 2% to UK GDP in the longer-term.
  • Large competitive advantages in reducing damaging and unnecessary restrictions, which the EU itself estimates costs 4 – 6% of UK GDP.
  • No longer paying £10 billion a year to the EU in membership fees – which are equivalent to a ‘tariff’ of 6% on our exports to the EU.
  • Taking full control of the UK’s fishing grounds – worth up to £3 billion a year in the medium-term.
  • Having a tailored, skills-based immigration policy without EU preferences, which could cut the benefit bill by £1.6 billion per year.

These benefits alone would constitute in total a major spending boost: just the tariff cuts could boost consumer incomes by £15 billion per annum, equivalent to around £800 per family per year.

The point is this: from my own research I could write several pages explaining to you why the UK leaving the EU and migrating to WTO rules would not be Armageddon; it would not be the end of the Earth; indeed, we, the British people would be much better off trading with the nations of the world under WTO rules than remaining shackled to a doomed politico-economic construct, the European Union.

May I suggest that if you’d like to read chapter-and-verse on why the UK migrating to WTO rules on leaving the EU would not only constitute nothing to fear, but would in fact be highly beneficial to this country in the medium- to longer-term then you start by reading this analysis and then perhaps this one and then take it from there.

Big Cheer

It’s difficult to exaggerate the extent to which pro-European Union voices in our society dominate the agenda; dominate what is and isn’t explained and discussed, particularly through our mainstream media outlets. Personally, for example, I only listen to, and look at BBC news and current affairs these days primarily out of curiosity, not to be informed or educated. Some of the BBC’s analysis and reporting merits attention, of course; however, for me it’s not the go-to source of knowledge. At the risk of offending, more fool anyone who believes seriously these days that the BBC offers unbiased reporting and comment on Brexit or anything else for that matter (but that’s a subject for another day).

All that BBC-bashing aside, did you watch the BBC’s Question Time programme on 17 January? Not surprisingly, the Panel comprised four Remain-voting guests and one Leave-voting guest, the formidable Isabel Oakeshott, a political journalist and broadcaster – who attended the same school as my daughters as it happens, Gordonstoun, but that’s by-the-by. At some point in the programme, the issue of how the UK should leave the European Union was discussed. Now, bearing in mind we’re being told that for the UK to leave the EU under WTO rules, ie with no deal, the result would be the collapse of the British economy, check out how the audience reacted to this horrifying prospect:

So, there you have it. You could be forgiven for thinking that most of us were scared fartless at the prospect of the UK leaving the EU under WTO rules; like most of us were supposed to have been scared fartless of the UK leaving the EU at all. However, bearing in mind that the Question Time audience is always carefully selected by the BBC (you have to complete a questionnaire to get a seat in the audience), it is interesting if not comforting to note that perhaps many of us would be happy just to see the UK leave the EU, full-stop. To hell with having a deal. Let’s just do it and get out.

I suppose the question is, does leaving the EU and having our country trade with the nations of the European Union under WTO rules, certainly initially on departure, bother you? In the fullness of time, the UK might choose to try and develop certain special trading arrangements with the EU, but my guess is that the EU wouldn’t be too interested. After all, they’re doing their damnedest to screw us over now, so why would they want to offer us a ‘good deal’ in the future?

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Postscript

A couple of afterthoughts. If the UK leaves the EU under WTO rules, we save ourselves £39 billion; that’s an awful lot of public services that could benefit. Furthemore, if our politicians delay or stop Brexit altogether, we really do enter the proverbial ‘uncharted territory’ as far as our democracy is concerned. Oh, and the Conservative Party would, quite rightly, be despatched to oblivion.

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18 comments

  1. Some other interesting facts at the link below.

    In 2017, whilst 48% of the UK’s exports went to the EU, then 40% of that trade was with just 7 EU member states whom we have a long culture and history of trading with. Sweden, Poland and Denmark accounted for another 4% in the top 10 EU partners but the other 17 EU member states accounted for a minuscule 4% of UK exports put together.

    To put that in perspective $24.9 billion or 5.7% of our global exports went to our close neighbour Ireland with a population of just 4.84 million people at an astonishing rate of $5,146 per capita which is roughly 10X the amount shipped to France or Germany per capita. Exports to China were lower than Ireland with $21.45 billion or 4.9% of the global total. At 4%, the other 17 EU member states might just as well not exist as they could all leave the EU tomorrow and it would have zero impact on the UK’s trade. A number of countries may have joined the single market but that hasn’t led to the UK exporting or importing with them in any significant manner as there is a lot more to business and trade than mere technical and custom barriers but rather depend more on trading culture, history, local knowledge and trust etc.

    https://tradingeconomics.com/united-kingdom/exports-by-country

    Liked by 1 person

  2. Re: 30 truths about leaving the EU on WTO terms. That article cites a Civitas Michael Burrage report. If you have not read it I think it is required reading as it goes deeply into the trading statistics comparing how the UK has fared exporting to the EU with other countries trading under WTO terms.

    The IMF Direction of Trade Statistics database show that the real growth of UK exports of goods to other EU nations over the course of the Single Market has seen a calculated annual growth rate (CAGR) for these years of just 0.98%. In direct contrast: Australia, Canada the United States and Japan, trading under WTO rules grew exports at 1.16% CAGR.

    Analysis of the years 1973-2015, from the UK’s entry shows that Australia, Canada the United States and Japan recorded growth of 3.80% CAGR on exports to the EU whilst in contrast the UK only managed 2.5%.

    All these figures obviously exclude the lost opportunity costs of being able to have made FTAs with other countries throughout our period of membership and also excludes consideration of the real costs of membership dues.

    There are 40 countries trading with the EU under WTO rules whose annual exports exceeded $1 billion in 2015. It is a sad indictment that 36 of the 40 have a higher rate of export growth with the EU than the UK achieved. Claims by the treasury that EU membership has boosted UK exports in comparison to what we would have achieved trading under WTO rules are complete fiction
    The EU’s own analysis have consistently shown that the single market has not delivered the growth in trade that was promised. All of this absolutely vital information has been withheld from the British public by the Regime in Westminster and the main stream media have also marginalised it.

    Links to the two reports are below. There is much to be gleaned from them.

    http://www.civitas.org.uk/content/files/mythandparadox.pdf

    http://civitas.org.uk/content/files/itsquiteoktowalkaway.pdf

    Liked by 1 person

    1. moraymint · ·

      Excellent, thanks Simon …

      Like

  3. arfurbryant · ·

    An excellent post, MM.
    As the Question Time audience showed (and I bet the BBC hated them for it…), the gulf between Parliament and the proletariat is growing wider. I know quite a few people and with one exception, none of them talk about no-deal Armageddon. The exception is my neighbour (and friend) – and he gets ALL his information from the BBC and the Guardian!
    My wife thinks the Remainer politicians should have the courage of their convictions and form a separate party and then see how they fare in a general election. She may have a point… How can they morally accept their salary from taxpayers when they can’t bring themselves to serve the wishes of the taxpayers?

    Liked by 1 person

  4. reallyoldbill · ·

    Despite all the media coverage being so inclined to describe a WTO exit as a cliff edge, a disaster or chaotic, there really is no evidence in the public domain that this would be the case, and more than a little, including a reassuring leak in the Telegraph by a senior civil servant on preparations for it, that it wouldn’t (won’t) be. Although Remainers talk about the difficulties of untangling 40 years of membership, in historical terms that really is the blink of an eye. Furthermore, much of the serious integration has only happened since the signing of the Maastricht Treaty in 1992/3 and much of it considerably more recently than that. There is no doubt that the speed of integration, as evidenced by moves to harmonise taxation and the military across the EU, is speeding up, and if we don’t achieve a clean break now it really will get increasingly difficult to do later. So that brings us to now.

    Of course a WTO exit will involve some adjustment, a small amount might even be painful in the short term, but I am confident that things will very quickly be resolved because it is in no one’s interest not to allow efficient trade. The reality is that Article 50 stipulates that we leave even if no deal is agreed after 2 years. Given the rightful opposition to May’s unacceptable agreement which would honour Brexit in name only, and actually put us in a worse position than staying as full members, the choices now appear to be no deal (WTO) or no Brexit. The former is not only manageable but offers distinct benefits – no transition period which would just prolong the agony for everybody, immediate ability to sign up to free trade deals around the world, and end to freedom of movement, and no legal reason to part with £39 Billion, although knowing May I suspect she would still agree to part with a large chunk of that. The latter, however, offers the real possibility of major social unrest, the destruction of what is left of faith in democracy and the shredding of our international reputation. For MPs to demand that a WTO exit is taken off the table, when they overwhelmingly voted for that default position by agreeing to trigger Article 50 and the subsequent act of parliament, is not only absurd, self-defeating if they wish a better deal, and in indication of how little our poor quality MPs understand what they are doing, it will also make the UK an international laughing stock.

    It appears, however, that some parliamentarians who really should know better, are preparing to tear up long established conventions and protocols which have evolved over time to protect our democracy from an over-mighty executive. Replacing them with an over-mighty Commons, however, would be a disaster of historical proportions with very unpredictable consequences. If parliament is happy to disregard rules and the established order why would an outraged citizenry not decide to do the same and simply disregard parliament. It is, after all, not the plaything of politicians but the political representation of the sovereignty of the population, a majority of whom are now seeing it disregard their clearly expressed wishes in answer to the question how and by whom do they wish to be governed The answer was not the EU, but neither was it a cabal of backbenchers who usurped the rights, powers and privileges of government. It seems that in their single-minded pursuit of remaining in, or as close as possible to, the political European Union in defiance of the majority, these lacklustre, uninspiring and anti-democratic MPs are willing to destroy the whole delicate basis of our constitutional democracy. I think they will live to regret that even if their attempts fail.

    Liked by 2 people

    1. moraymint · ·

      Excellent stuff as usual bill …

      Like

  5. Roy Crisp · ·

    re MM Postscript
    Since the Government appears to have a spare £39 billion in hand may I suggest that each and every taxpayer is given a tax credit of £1,000 as a form of quantitative easing to tide them over any little local difficulties that may occur with “no deal”, not that I anticipate any insurmountable difficulties. I think that should do the trick.

    Liked by 1 person

  6. Douglas Brodie · ·

    For diehard Remainers it’s not about trade or WTO technicalities. Keir Starmer gave the game away in his recent Fabian Society speech when he proclaimed that “internationalism, collaboration and cooperation with our European partners” is deeply embedded in Labour values. In other words it’s all about stopping Brexit at all costs so that Starmer and his chums can continue with their cosy political clique. Strange how the Labour Party (the hint is in the name) are no longer as interested in labour (i.e. the workers) as they were in the old days of Benn the elder and young Corbyn who were vehemently opposed to the “capitalist, oppressive” EU.

    As economist Liam Halligan points out, how could trading on WTO terms cause a disaster when our total EU exports amount to just 11% of GDP? When fewer than one in 12 UK firms sell goods and services to the EU? When the relatively minor friction of trading with the EU on WTO terms, which is what we do profitably with the rest of the world, will be mitigated by the many advantages of making a clean break with the EU?

    As Lord Lilley points out, tariffs on UK exports to the EU (4% on average) will amount to £5-6 billion. This is half the UK’s net contribution to the EU of £10-12 billion. Paying £10 billion to avoid £5 billion has not been a good deal! Conversely EU exports to the UK would bear tariffs of £13 billion (if we retained the EU external tariff). It the EU has any sense they will eventually agree a mutually beneficial trade deal.

    Liked by 1 person

  7. Roy Crisp · ·

    re Thomas Taylor
    Hostility from the EU and its member states should be welcomed because it will give us the opportunity in the national interest to requisition and take back control at no cost all of our strategic transport and utility infrastructure, viz. airports, railway companies, electricity, gas and water utilities currently operated or owned by state owned entities from Germany, France, Spain and the Netherlands.

    Liked by 1 person

  8. For my sins I have in the past worked for both Customs and Immigration. I used to work import/export for Customs in the early days of computerisation. (think 80 286) In those days all goods were required to have a form called a C88 (as its was introduced in 1988) also known appropriately as a SAD (single administrative document) It was an eight part form which would accompany the goods. Various bits of the SAD would be retained by the exporter, exporting Customs and importers. The idea being that the importing country would ultimately return a copy to confirm the goods had been entered correctly and any taxes paid.

    The imported goods would be either T1 status (ie outside the EU) or T2 meaning they were in “free circulation” in the EU having paid all import duties. Some goods would have an accompanying EFTA certificate to show there was no duty liable. The goods would then be entered in the Customs system by agents. Once in the system they would be assigned a routing. Route 1 was a document check, Route 2 was a doc check plus physical exam (usually revenue goods like alcohol) Route 3 was a random paperwork check.

    Post Maastricht this pretty much ended for T2 and goods were able to be imported with the paperwork generated either end by computer. T1 goods still required an agent. If we leave on WTO terms the all imports from the EU would in effect become T1 status and would need to be input via an agent into Customs. However the technology now has moved on substantially since 1988 and there is no reason that the exporter could not do as they do now. Simply enter it into the Customs system and have any tax due collected automatically. My understanding is that under WTO there can be a suspension of tariffs for new entrants and ultimately we dont have to levy tariffs until we can reach an agreement.

    As you rightly say the remainiacs dont want this to be known simply because their house of cards will collapse when its shown that all the scare stories are largely nonsense. Ultimately as batsoupdragon points out the EU is doomed and we need to be outside of this mess when it falls apart.

    Liked by 1 person

    1. moraymint · ·

      Useful comment; many thanks …

      Like

  9. Batsoupdragon · ·

    my analogy re staying in the EU is that of being in a safe, watertight lifeboat and voting to turn it round and row back to a sinking ship.

    The EU will not last much longer (possibly not much past May) in its present form. Up to 40% of the seats could go to “populist” MEPs which could make them the second biggest voting bloc in the EU.

    Despite the various continental Sir Humphreys, the centre of gravity of the EU MEPS and indeed the populations of the constituent countries is moving inexorably towards a nationalist stance. If this is becoming clear despite the massive pro-EU bias in the media including online, the groundswell is really starting to show.

    Voting to stay in the EU is every bit a step into the unknown as voting to leave.

    Liked by 2 people

    1. moraymint · ·

      I share your view that ultimately, like all empires, the European Union is doomed in the longer-term. On current form, the EU is likely doomed in the medium-term, if not even the short-term! The arrogance and hubris of its unelected oligarch-masters appear to expand by the day …

      Like

  10. Martin Cannon · ·

    It has to be remembered that our elected representatives are fighting for the one ideal they all truly believe in: self-interest. Cynic, moi?

    Liked by 1 person

  11. Martin Cannon · ·

    I have to disagree with you on one point, Mr Mint. It is my belief that those self-interested MPs in The Commons DO understand the negotiating process, and are using it to overturn the will of the people and cancel Brexit. If a no deal is ruled out, then it will only ever be the existing deal (which they’ve already massively voted down) or remain in the EU. So remain we will.

    Liked by 1 person

    1. moraymint · ·

      Fair point. Yes, we’ve miles to go yet before really knowing how this mess will be cleared up. Some days I think we’ll get out of the burning building alive (we’ll leave the EU cleanly). Other days I conclude that this time next year, or in 5 years time, we’ll still be in the EU – either as a member nation or a vassal state (same difference, really) …

      Liked by 1 person

      1. Thomas Taylor · ·

        What nobody seems to know though is what happens if we don’t pay the divorce bill and the gloves come off. What if they then choose to inspect every lorry and impose prohibitive tariffs on all our exports. A recent article by Liam Halligan on the Telegraph says that shouldn’t be such a big problem because it is only 12 or 13 percent of GDP but this is a core part of our GDP and not (effectively) supporting roles like hairdressing or worse just the increasing house prices or credit card fuelled purchases and so on. If anyone (on the Internet) has any idea it is possibly you and it wouldn’t just help me to know what your opinion is on this. Thanks for the really good articles!

        Liked by 1 person

        1. reallyoldbill · ·

          There is an obvious benefit (to both parties) in having efficient and friendly trading relations with your closest neighbour, but if we leave on WTO terms and the EU decides to get awkward, can anybody give me examples of products that we actually NEED that we can’t sourced elsewhere, and in may cases cheaper and of better quality (yes, I’m looking at you French vintners). German cars are overpriced and under equipped (at standard prices) when compared with Japanese; clothing increasingly comes from the far east or Philippines; food comes from everywhere. The world is shrinking, and despite the shrieks from the Green lobby over air miles will continue to do so. We should, even in the event of harmonious relations with the EU, make a determined national effort to substitute European produce with that of the commonwealth; that should be the single market of the future. I know that is an over simplification, and industries like Airbus may experience difficulties in any erection of barriers by the EU, but for the most part my attitude on a personal level is: stuff ’em.

          Like

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