Are WTO rules benign and easy to live with?

Question

About 60% of Britain's export trade is with the EU (including those countries with whom the EU has trade agreements such as Japan, South Korea etc). It is frequently claimed by Brexiteers that we would have no problem trading on WTO terms with the EU etc, as the USA, China and other countries do at the moment. WTO rules, some say, are entirely benign.

However the same Brexiteers maintain that we must leave the Customs Union, in order that we can establish trade deals with such countries as the USA, China, India etc, with whom we currently trade on WTO terms.

How can both of these ideas, at the same time be valid? Are WTO rules benign, or are they an impediment?

Answer 1

WTO rules are WTO rules and trade rules within EU are trade rules within the EU. UK is a member of WTO so a no-deal Brexit would probably mean they would have to rely on the basic set of WTO rules.

Now, what does it mean for the UK? EU currently uses WTO rules to trade with 3rd party countries like Australia or US... But they aren't trading with these countries only based on WTO rules. They have many more bilateral agreements with each 3rd country to further specify the trade rules between them, for example, EU has additional 20 trade agreements with the US to additionally specify trade rules between each other on top of the WTO rules.

The basic set of WTO rules is however far from being as beneficial for the UK as being in the EU. There are much higher direct tariffs on different kinds of goods and also non - tariff barriers, mostly increasing bureaucratic complexity in doing business, which costs a lot of additional time and is damaging especially to the services business, which is very important for the UK.

Other common critiques of WTO rules are the facts that they are much harder to enforce legally and also are not very effective in dealing with reducing the time of border controls, which can also cost a lot of money to the UK after leaving the EU. Also, some experts say they are meant only as a basic set of rules, you can build on. They have a lot of focus on trading with developing countries so they wouldn't be discriminated on by the developed ones.

So to answer your question exactly, the set of WTO rules is better than having no rules at all but it's going to be very important for the UK to make new 3rd countries bilateral agreements to optimize both direct barriers and non-tariff barriers as well as they can.

If you want to read more, here are some interesting articles I based my findings on:

BBC

The Guardian

Factors againts the WTO

Answer 2

Part of the confusion is because there exists a split between goods and services. The UK has a very large services sector, especially financial services in London. Goods on the other hand are imported far more than they're exported. WTO trade rules predominantly cover goods, not services. The EU on the other hand also has a Single Market for services.

So the UK will indeed need additional treaties to protect London's financial services. Under WTO rules, the EU can ban British banks outright.

Answer 3

Trading on WTO rules has one really important implication from which every other problem stems: You have to treat everyone the same.

All countries you trade with on WTO terms have to be treated equally. Same tariffs, same customs checks. That would mean that the UK faces a choice: either apply tariffs and border checks to trade with the EU, or don't have any tariffs or border checks for anyone. In the former case it damages the UK's biggest and most important trading relationship, in the latter it allows the US and China to flood the UK market with cheap, low quality goods.

WTO is not meant to be a good basis for trade, it's a minimum set of rules to keep everything fair. That's why countries want to do trade deals with each other where possible.

Answer 4

Am I not going to argue that the WTO rules aren't benign. However, just saying "we now trading under WTO rules" doesn't mean anything yet. You actually have to do some work.

In essence, you have to set schedules: you have to set

• tariffs
• quotas
• subsidies

That is, you have to define what percentage must be paid on imports (tariffs); you have to define how much you are allowing into the country (quotas); and you have to define how much you want to spend on subsidies. And you have to define this for each type of product.

Before you think "how hard can that be?", you have to realize two things. First, you cannot pay favourites. These schedules apply to any country you don't have a trade deal with (trade deals usually take years to negotiate). You cannot apply a different tariff for the USA than you can have for Russia (not until you have a trade deal with one of them). Second, every country who is a WTO member (so, essentially, every country) can object to the schedules. Which will lead to disputes which can take years to settle.

One may think "the UK can just copy the EU schedules", there are problems with that. First, its the quotas. The UK certainly doesn't want to allow as many products into the UK each year as are now allowed into the EU. Second, it won't have the capital to hand out the same number of subsidies as the EU does now. The UK is just so much smaller than the EU.

And the UK being smaller than the EU is the real stinger. The EU as a whole has huge bargaining power. It has high tariffs on agricultural goods. It gets away it. Would the UK set the same tariffs, countries like the USA, Brazil and Russia will object. It's in their interest to have much lower tariffs.

The UK certainly doesn't want to trade under WTO rules with their biggest trading partners. They want to strike trade deals. Brexiteers think they can make better trade deals than the EU currently has.

And we've all seen in the past two years how good the UK is in negotiating deals.

Here is a video explaining WTO rules.

Answer 5

The question of the "benignity" of WTO rules can only be asked (or answered) if the values and viewpoint are made clear first. Do you ask if they are "benign" for the individual citizen who engages in international commerce, "benign" for the national economy, or "benign" for the voter who expects national representatives to act according to his or her wishes?

The WTO rules are basic rules for the international trade between independent, sovereign nations. The WTO rules are much easier to comprehend and implement for nations, because they have a much narrower scope. They are harder to apply for the citizens and companies who want to trade and travel, because they don't give free trade and travel.

The EU are comprehensive rules for couple of nations seeking an ever closer union. (They started out as trade rules, but they go far beyond that.) The EU rules are much easier to apply for citizens who want to trade and travel within the EU, because in many cases the answer is the rules which apply at home also apply abroad. They are harder to implement for nations, because they encompass so much.