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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?

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    The WTO rules are the default. Trade deals such as intra-EU trade (which is broadly speaking a massive trade deal) and individual trade agreements are done strictly to the benefit of both partners. So yeah, WTO rules aren't draconian or anything, but they're mostly going to be a strict downgrade over having a dedicated trade deal (after all, states make trade deals to advantage themselves over default WTO rules). – Magisch Jan 31 at 10:37
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    I don't know if many 'Brexiteers' have claimed 'we would have no problems'. I think what they are claiming is that the influx of EU immigrants that has stressed the infrastructure and culture, the behavior of the EU leadership on certain humanitarian issues, and the perception that the net balance of expenditures to the EU exceeds that which would be the case if the UK could simply negotiate its own trade deals, along with other issues such as accountability of the leadership (no direct election), have led Brexiteers to believe that falling back on WTO trade rules are overall worth it. – ouflak Jan 31 at 12:28
  • I also don't think it is a binary paradox as you state it. It is far more complex, for Brexiteers and us Remainers. – ouflak Jan 31 at 12:31
  • @ouflak I have heard lots of Brexiteers say that WTO rules would be nothing to worry about, so far as intra-Eu trade was concerned. Indeed the point I am raising was used on Any Questions by David Gauke (Cabinet Remainer) last Friday in response to this very point by Sir Rocco Forte. I feel sure that "Leave Means Leave" has a poster that says just that. It certainly has one which says "No Deal, No Problem" on the M25. Why then do they want to strike a trade agreement with the USA, if it is "no problem" dealing on WTO rules? – WS2 Jan 31 at 13:30
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    @WS2 The majority would also intend to strike a trade deal with the EU, eventually. In that viewpoint, trading under WTO rules for the 2 to 10 years it might take to arrange a deal is an acceptable loss for perceived longer term gains from the ability to arrange other deal to match only UK rather than EU interests. – origimbo Jan 31 at 13:49
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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

  • But I do take it you broadly agree that a paradox exists. Brexiteers are comfortable accepting WTO for the 60% of our trade that goes to the EU + the EU's trade partners, whilst keeping it as a central plank of the Brexit argument that we must have trade deals with the rest of the world. – WS2 Jan 31 at 13:40
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    I think a problem, in this case, is time once the UK leave EU without any kind of deal and get into chaotic waters, it's going to take some time to negotiate new bilateral deals with many 3rd countries. – Patrick Jan 31 at 13:56
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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.

  • Yes. Good point. I am also puzzled as to why some people think that membership of the EU inhibits our ability to sell to the rest of the world. Germany somehow manages to sell about six times as much as us in dollar value. France, Italy and the Netherlands also sell more than us outside Europe. We sell about the same as Belgium, a country one-fifth our size. – WS2 Feb 1 at 12:16
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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.

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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.

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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.

  • I am not clear as to how this answers the question i.e the question I asked. – WS2 Jan 31 at 16:51
  • This is a question and answer site. You should answer the question asked, not a different one of your own choosing. – Paul Johnson Jan 31 at 17:20
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    @PaulJohnson, the question was summarized as are WTO rules benign? My answer is for some purposes, yes, for other purposes, no. There can be no universal yes-or-no answer. – o.m. Jan 31 at 17:49
  • @o.m. Your edited answer is much better, thanks. – Paul Johnson Feb 1 at 12:05

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