The road to the WTO: a Holey safety net

With no Brexit deal acceptable enough for the British parliament on the horizon, the road to a ‘no-deal’ exit from the European Union is merely two weeks away. Many commentators on Brexit have called the outcome of a no-deal the ‘cliff-edge’ in which the UK economy would throw itself off the white cliffs of Dover; a Quadrophenia style middle finger to Europe as we crash on the rocks below. In response to this, supporters of Brexit have stated that if they did jump off the cliff-edge, their fall would be broken by a pre-existing safety net, the World Trade Organisation (WTO).

Despite the WTO being frequently name dropped, the WTO and its implications upon Brexit are not fully understood. First of all, what is the WTO?

The WTO was founded in 1995 after almost half a century of attempts to reduce tariffs (taxes on imports) between countries following World War Two. The General Agreement on Trade and Tariffs (GATT) that was the norm in the second half of the 20th century was more contractual with states having more freedom to agree or not agree with certain rules. By the 1990’s, this was formed into the WTO, an international organisation that monitored international trade, with a special court of appeals in which states could launch cases against others if they don’t follow the rules they’ve signed up to.

The reason why the WTO is so central to Brexit is it provides both a legal framework and low tariff trade with the majority of the world if no deal has been concluded by the 29th March. Theoretically, this would avert disaster in which we would have to renegotiate hundreds of agreements with the rest of the world whilst possibly facing high tariff borders. The UK would thus maintain absolute sovereignty and be able to trade with the rest of the world. So why can’t Britain have their crumpets and eat them?

The WTO is a highly imperfect tool for several reasons:

Regulations. If the WTO is protecting us from tariffs, why do we need to be part of the EU?

Whilst tariffs were the weapon of choice of the 19th and 20th centuries in international trade, most states block trade via regulation. When a country wants to export products to another, it has to fulfil the regulations in the exporting country, or it most likely won’t be able to sell there. Many regulations do revolve around maintaining health and safety standards, but some are also designed with the idea of protecting markets from foreign trade. Within the EU, regulations are harmonised so a producer who (should) have followed EU regulation can export to the rest of the EU without a barrier. However, products that come from outside are liable to inspection, and could be rejected if they don’t meet European standards. Britain could be in a similar position after Brexit. This is where the WTO lacks bite, as regulations are impossible to globally harmonise, and where the UK would be most vulnerable.

Time. Well then, if we can’t sell curved cucumbers to the French, we will sell them to the Commonwealth!

Except the Commonwealth is not a market but a body of ex-colonial states. Each state would require a bilateral agreement (agreement between two states) with each negotiation requiring a substantial amount of time to outline, something that Britain no longer possesses. Many trade deals take years to negotiate, with some of the largest WTO agreements taking decades to conclude. Moreover, we already have many trade deals around the world via the EU. By leaving the EU, Britain actually foregoes many of these global trade agreements.

Power. Can’t we just copy the previous agreements line per line and recreate the same deal we had before?

Again, theoretically yes, but that assumes that the partner state wouldn’t want to change things. The EU represents one of the most powerful trading blocs in the world, and internationally wields tremendous power in negotiating agreements. Leaving the EU means that other states will almost certainly ask for more favourable terms that could involve wider agreements on immigration (India with visas) or safety standards (US chlorinated chicken). Moreover, British negotiators would be under substantial time pressure to conclude a deal, which other states would not, substantially weakening Britain’s bargaining position.

Fragility. Despite all this, the WTO will always be there to protect us, right?

It’s as if a perfect storm is brewing for Britain, with Brexit coinciding with one of the largest trade wars in recent history. President Trump’s assault against Chinese exports (as well as European ones) into the United States has paralysed the WTO by not appointing new judges to the WTO’s court of appeals (the Appellate body). This means that the WTO cannot effectively mediate trade cases and sets an isolated Britain to sail in a tempest between the three largest trading blocs in the world.

United States. Well the Americans might come and save us at the 11th hour like in 1941!

As stated above, Trump’s war with China has weakened the multilateral trade system. Nonetheless there is a desire on both sides of the Atlantic to strike a bilateral deal. The deal will likely be heavily one sided though, and one should ask whether America having a large role in controlling UK trade policy is really the type of sovereignty British people voted for. Moreover, most researchers of trade have concluded that geographic proximity is still a major factor in trade, making Europe Britain’s more natural partner in trade than the US or more distant lands.

Flexibility. Without these Walloon coal miners, or French farmers holding up trade talks, we can negotiate new deals faster!

This is theoretically correct. Though the European Union wields tremendous negotiating power, the process can also prove highly cumbersome as it must answer to interest groups across Europe. Brexited Britain would only have to answer from pressures inside the UK, allowing speed and flexibility in negotiations. An example of this is the way in which British negotiations are preparing a draft deal with Switzerland for once Britain leaves the EU. These bilateral agreements are not overseen by the WTO, and the issue comes back to power and time pressure which are both working against British negotiators.

In conclusion, the WTO will likely be more of a collapsed trampoline than a soft landing for Britain if a ‘no-deal’ is Brexit's final form. It would partially protect the UK from the worst of the tariffs but do little regarding regulations. This would leave Britain in the proverbial jungle, having to negotiate alone, and under the pressure of getting an agreement as fast as possible. In the long run, Britain will likely sign many bilateral agreements with other states, but the concessions for those agreements will make people ask: did we really take back control after all?