Brexit - WTO Rules No deal - a Great Option?
Great WTO summary lifted from Twitter:
'Debunking WTO and what “trading on WTO terms” really means...'
As EU members, we participate in over 750 international treaties.
Many relate to trade, enabling us to trade freely with the EU, the EEA,
and 40+ other countries.
Other treaties cover non-trade issues, from air worthiness certificates
to drivers licenses, UK and EU citizens’ rights, food safety,
environmental protections, workers rights, etc.
On Brexit Day, we leave the EU. That means we lose all the benefits
of its treaties. Those treaties are gone in a flash, as if we’d fed them into a
shredder. (That’s not the EU being vindictive, it’s just how the Article 50
process works.)
Even IF we have a transition period, the treaties will already be
gone, but we will be shielded from the immediate shock by the transition
arrangement.
Right now, we share in trade deals with 78 countries (22 more
pending). These deals cover 60.7% of all our of all our goods imports,
and 66.9% of our exports. Overnight, we will lose them all, wave
goodbye to the painstaking gains of over forty years of trade negotiations.
In the absence of trade deals, we will be reduced to trading on
WTO terms. WTO is a complicated system of tariffs and quotas, plus a
baseline set of rules designed to make trade a little less painful and a little
smoother than it otherwise would be.
WTO provides a baseline for trade, but it is the absolute minimum
that all rational countries seek to improve on. That's why everyone's
trying to sign trade deals all the time. The whole point of trade deals is to
improve on the basic terms offered by WTO.
In trade terms, WTO can be likened to fourth division football: it's
definitely a step up from a kick-around in the park using jerseys as
goalposts, but it's by no means a high standard.
Let's talk about tariffs. WTO has an immensely complex schedule of
tariffs, running into thousands of categories. Different products attract
different tariffs. For example, under WTO, cars are subject to tariffs of
10%.
As EU members, we participate in over 750 international treaties.
Many relate to trade, enabling us to trade freely with the EU, the EEA,
and 40+ other countries.
Other treaties cover non-trade issues, from air worthiness certificates
to drivers licenses, UK and EU citizens’ rights, food safety,
environmental protections, workers rights, etc.
On Brexit Day, we leave the EU. That means we lose all the benefits
of its treaties. Those treaties are gone in a flash, as if we’d fed them into a
shredder. (That’s not the EU being vindictive, it’s just how the Article 50
process works.)
Even IF we have a transition period, the treaties will already be
gone, but we will be shielded from the immediate shock by the transition
arrangement.
Right now, we share in trade deals with 78 countries (22 more
pending). These deals cover 60.7% of all our of all our goods imports,
and 66.9% of our exports. Overnight, we will lose them all, wave
goodbye to the painstaking gains of over forty years of trade negotiations.
In the absence of trade deals, we will be reduced to trading on
WTO terms. WTO is a complicated system of tariffs and quotas, plus a
baseline set of rules designed to make trade a little less painful and a little
smoother than it otherwise would be.
WTO provides a baseline for trade, but it is the absolute minimum
that all rational countries seek to improve on. That's why everyone's
trying to sign trade deals all the time. The whole point of trade deals is to
improve on the basic terms offered by WTO.
In trade terms, WTO can be likened to fourth division football: it's
definitely a step up from a kick-around in the park using jerseys as
goalposts, but it's by no means a high standard.
Let's talk about tariffs. WTO has an immensely complex schedule of
tariffs, running into thousands of categories. Different products attract
different tariffs. For example, under WTO, cars are subject to tariffs of
10%.
Tariffs are paid by importers, but of course they then turn around
and pass those extra costs onto the consumer.
Right now, UK manufacturers can sell cars to the EU tariff free. But
under WTO, those cars will be subject to 10% tariffs, effectively making
UK-made cars 10% more expensive for EU consumers.
But all the major car manufacturers have manufacturing facilities
elsewhere, including other EU countries. So if we're reduced to trading on
WTO terms, they'll just shift production to the EU and avoid the 10%
tariffs.
WTO gives us the right to control the tariffs on our imports, even
reduce them to zero if we want to.
But that's when the WTO most favoured nation rule kicks in.
"Most favoured nation" is possibly the most misleading expression ever
invented, because what it really means is that we are not allowed to
favour one nation over another in our WTO dealings.
So if for example if we are desperate for cabbages, we can set a
tariff of 0% on them. That makes them cheaper, which stimulates demand
and encourages more producers to send us their cabbages.
But we can't set a tariff of 0% for just one country. If we decide to
drop the tariff on cabbages to 0%, that becomes our new tariff for every
country in the world. So we get flooded with cabbages from the cheapest
producers on the planet.
That's great if you love cabbages, but absolutely devastating if
you're a UK cabbage farmer.
You can't have it both ways. Either you shelter behind tariffs to
protect domestic producers, or you reduce them or cut them to zero
to encourage cheap imports - and destroy your local industry in the
process. The rules of WTO force that tradeoff for every product sector.
But that’s only half the picture. We have no control over other
countries’ import tariffs, i.e. the tariffs imposed on the things UK-based
producers export to them. If we’re trading with them on WTO terms, both
the EU non-EU countries will impose whatever tariffs the WTO
demands.
Overnight, our exports will be more expensive. That, combined
with the fact that we will no longer share common standards with the
markets we export to (also covered by the treaties we will have lost) will
make products manufactured in the UK significantly less competitive in
the global market.
and pass those extra costs onto the consumer.
Right now, UK manufacturers can sell cars to the EU tariff free. But
under WTO, those cars will be subject to 10% tariffs, effectively making
UK-made cars 10% more expensive for EU consumers.
But all the major car manufacturers have manufacturing facilities
elsewhere, including other EU countries. So if we're reduced to trading on
WTO terms, they'll just shift production to the EU and avoid the 10%
tariffs.
WTO gives us the right to control the tariffs on our imports, even
reduce them to zero if we want to.
But that's when the WTO most favoured nation rule kicks in.
"Most favoured nation" is possibly the most misleading expression ever
invented, because what it really means is that we are not allowed to
favour one nation over another in our WTO dealings.
So if for example if we are desperate for cabbages, we can set a
tariff of 0% on them. That makes them cheaper, which stimulates demand
and encourages more producers to send us their cabbages.
But we can't set a tariff of 0% for just one country. If we decide to
drop the tariff on cabbages to 0%, that becomes our new tariff for every
country in the world. So we get flooded with cabbages from the cheapest
producers on the planet.
That's great if you love cabbages, but absolutely devastating if
you're a UK cabbage farmer.
You can't have it both ways. Either you shelter behind tariffs to
protect domestic producers, or you reduce them or cut them to zero
to encourage cheap imports - and destroy your local industry in the
process. The rules of WTO force that tradeoff for every product sector.
But that’s only half the picture. We have no control over other
countries’ import tariffs, i.e. the tariffs imposed on the things UK-based
producers export to them. If we’re trading with them on WTO terms, both
the EU non-EU countries will impose whatever tariffs the WTO
demands.
Overnight, our exports will be more expensive. That, combined
with the fact that we will no longer share common standards with the
markets we export to (also covered by the treaties we will have lost) will
make products manufactured in the UK significantly less competitive in
the global market.
For instance, why would any overseas consumer buy a UK-made car
if they can get exactly the same car from the EU or elsewhere at a lower
cost?
Short answer: they won't.
But what if the EU were to drop their tariff on cars to 0%? That
would help our car producers, because our cars would no longer incur
tariffs.
However, "most favoured nation" would kick in. The EU would be
forced to offer every country in the world 0% tariffs on cars.
The mere notion is absurd. After all, the EU aren't going to leave
their domestic market unprotected just to help the UK. It would be
completely irrational to expect them to.
So, in practice, trading on WTO terms will mean that everything
we make in the UK will be more expensive for overseas consumers at
a stroke. Some industries may be able to reduce their production costs to
offset the tariffs; most will collapse.
And we will be faced with the impossible task of choosing product
by product, industry by industry, which producers to protect by
maintaining our own tariffs, and which to throw to the wolves by cutting
or eliminating our tariffs.
If all of the above sounds grim, that's because it is. There are no
countries in the world that trade exclusively on WTO terms with
other nations. None whatsoever.
Even North Korea has a couple of trade facilitation arrangements.
We will have none. Nothing at all. No country has ever torn up all
its international arrangements before (quite frankly, none have been
crazy enough to). So we will be in a very lonely, exclusive club.
So if somebody tells you the UK will be OK trading on WTO terms,
they either:
A) Don't understand what that means
or
B) Are lying to you
For example, Patrick Minford (of Economists for Brexit) is on
record as stating that WTO would destroy the UK car industry, but that t
would be a price worth paying for the freedom afforded by Brexit.
In other words, Brexiters see manufacturers as collateral damage,
to be swept aside in pursuit of Brexit.
if they can get exactly the same car from the EU or elsewhere at a lower
cost?
Short answer: they won't.
But what if the EU were to drop their tariff on cars to 0%? That
would help our car producers, because our cars would no longer incur
tariffs.
However, "most favoured nation" would kick in. The EU would be
forced to offer every country in the world 0% tariffs on cars.
The mere notion is absurd. After all, the EU aren't going to leave
their domestic market unprotected just to help the UK. It would be
completely irrational to expect them to.
So, in practice, trading on WTO terms will mean that everything
we make in the UK will be more expensive for overseas consumers at
a stroke. Some industries may be able to reduce their production costs to
offset the tariffs; most will collapse.
And we will be faced with the impossible task of choosing product
by product, industry by industry, which producers to protect by
maintaining our own tariffs, and which to throw to the wolves by cutting
or eliminating our tariffs.
If all of the above sounds grim, that's because it is. There are no
countries in the world that trade exclusively on WTO terms with
other nations. None whatsoever.
Even North Korea has a couple of trade facilitation arrangements.
We will have none. Nothing at all. No country has ever torn up all
its international arrangements before (quite frankly, none have been
crazy enough to). So we will be in a very lonely, exclusive club.
So if somebody tells you the UK will be OK trading on WTO terms,
they either:
A) Don't understand what that means
or
B) Are lying to you
For example, Patrick Minford (of Economists for Brexit) is on
record as stating that WTO would destroy the UK car industry, but that t
would be a price worth paying for the freedom afforded by Brexit.
In other words, Brexiters see manufacturers as collateral damage,
to be swept aside in pursuit of Brexit.
Perhaps you're not so sanguine? Perhaps you would quite like the
UK to keep manufacturing things?
In which case, you need to take heed of just how destructive, how
damaging, trading on WTO terms would be. Estimates for the likely
damage range from 7%-10% of GDP. Even at the low end, that's worse
than the 2008 financial crash.
But unlike the crash, we'd be deliberately, willingly inflicting the
pain on ourselves. Incredible, but true.
And the result would be the return of austerity, not for a few years,
but for decades or generations to come.
WTO: just say no!
UK to keep manufacturing things?
In which case, you need to take heed of just how destructive, how
damaging, trading on WTO terms would be. Estimates for the likely
damage range from 7%-10% of GDP. Even at the low end, that's worse
than the 2008 financial crash.
But unlike the crash, we'd be deliberately, willingly inflicting the
pain on ourselves. Incredible, but true.
And the result would be the return of austerity, not for a few years,
but for decades or generations to come.
WTO: just say no!
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