Prospect published an article in July which was deeply shocking to someone like myself, who has spent the whole of his career in the international trade world. It was deemed necessary to put a series of fundamental questions to prominent experts, and this suggested that a distressing level of ignorance exists in Westminster about international trade, despite the historical record of the UK as a central pillar of the GATT (General Agreement on Tariffs and Trade) and World Trade Organisation over the last 70 years.
The tragedy is that Britain has been throughout its history a proud trading nation. And after World War II, together with the United States, set up the global institutions which still serve us today.
Later, its membership of the European Union helped to reduce barriers to trade with neighbours, through negotiation over time.
If you believe the UK government, you would assume that Britain aspires to play a leading role in the trade world after Brexit. However, it may be at risk of throwing its achievements away. A no-deal, WTO outcome in particular would inflict immense damage. Having contributed to the development of the World Trade Organisation, there now seems to be no understanding in Britain of how it actually works.
The desire to exit from free trade with the EU, the UK’s major market for goods and services, defies all rational explanation. You would also lose the benefit of free trade with other third countries under existing EU agreements. Three years after the referendum, there are fewer people who still believe in the revival of Britain’s historic greatness—and many more who see a decline in their living standards.
Comments by leading politicians in the UK trade debate reveal a picture riddled with confusion and fantasy. Michael Gove’s belief in 2016 that “all European nations have access to a free trade zone stretching from Iceland to Turkey” is an early and notable example of a fake fact; and his point that “after we vote to Leave we will remain in this zone” is also untrue, one of the myths that have become ingrained in the minds of political figures.
Others assert that the EU will want to negotiate a new deal with the UK because, in the words of Boris Johnson, “they’ve got the incentive of the money” (the divorce bill),and know that the UK is ready to leave with no deal and come out on WTO terms. These statements convey a basic misunderstanding of what the EU’s interests are, and of its reaction to negotiating tactics which are not credible.
Even worse was Johnson’s recent reference to “GATT 24, or whatever it happens to be,” saving Britain from tariffs in the event that talks collapse. This may go down well with the party faithful, but does suggest no more than a passing acquaintance with WTO rules. One has to believe that Johnson does in fact know what this clause means and is simply affecting vagueness as part of his wooly-headed style of presentation. Since he is the person who will attempt to negotiate an exit deal in the coming months, one hopes this is the case.
There are hard truths inherent in Brexit and GATT Article XXIV is an important example. The WTO system is centered on the concept of non-discrimination, in the sense that each WTO member grants the same treatment to all imports from all other members.
Article XXIV is the key provision which provides for both customs unions and free trade areas as exceptions to that general rule. In both instances the GATT allows parties to treat each other differently from how they treat other countries. Members agree to eliminate customs duties on “substantially all” of each other’s trade—either with immediate effect when the agreement is signed, or phased in by stages over a limited number of years.
The implication is that, while transitional possibilities are permitted as parties adjust to duty-free trade, they are only permissible when a formal agreement has been signed and is being implemented. This is the sense of Article XXIV, para 5 (b) and (c) and of the reference to the existence of an “interim agreement.” This must incorporate a “plan and schedule” which sets out the intentions of the parties to implement the rules.
There is no way that this can mean continued free trade while the parties are still discussing what the future trade regime between them should be, and when no deal has been struck. Furthermore, Article XXIV does not even guarantee continued free trade with the EU when a deal has been made. What is required is that the Withdrawal Agreement is ratified and approved by parliament, after which the parties can move on to the agreed transitional period and to further negotiations. During that time free trade will continue as now.
Within the EU, concepts of free trade are of major importance because the EU’s original structure was designed to be compliant with GATT rules, and free trade agreements became a main plank in its trade policy in later years. The UK also subscribed to the GATT free trade principles, and in the Brexit context has set itself the objective of maintaining current duty-free trade as far as possible after it leaves the EU. The continuing search for “seamless and frictionless trade arrangements” with the EU proves the point.
Those things are possible to achieve. But for Brexit to be anything but calamitous, British politicians would do well to study the rule book and brush up on the basics. For there remains an alarming degree of ignorance about the trade-offs involved in the project.
The tragedy is that Britain has been throughout its history a proud trading nation. And after World War II, together with the United States, set up the global institutions which still serve us today.
Later, its membership of the European Union helped to reduce barriers to trade with neighbours, through negotiation over time.
If you believe the UK government, you would assume that Britain aspires to play a leading role in the trade world after Brexit. However, it may be at risk of throwing its achievements away. A no-deal, WTO outcome in particular would inflict immense damage. Having contributed to the development of the World Trade Organisation, there now seems to be no understanding in Britain of how it actually works.
The desire to exit from free trade with the EU, the UK’s major market for goods and services, defies all rational explanation. You would also lose the benefit of free trade with other third countries under existing EU agreements. Three years after the referendum, there are fewer people who still believe in the revival of Britain’s historic greatness—and many more who see a decline in their living standards.
Comments by leading politicians in the UK trade debate reveal a picture riddled with confusion and fantasy. Michael Gove’s belief in 2016 that “all European nations have access to a free trade zone stretching from Iceland to Turkey” is an early and notable example of a fake fact; and his point that “after we vote to Leave we will remain in this zone” is also untrue, one of the myths that have become ingrained in the minds of political figures.
Others assert that the EU will want to negotiate a new deal with the UK because, in the words of Boris Johnson, “they’ve got the incentive of the money” (the divorce bill),and know that the UK is ready to leave with no deal and come out on WTO terms. These statements convey a basic misunderstanding of what the EU’s interests are, and of its reaction to negotiating tactics which are not credible.
Even worse was Johnson’s recent reference to “GATT 24, or whatever it happens to be,” saving Britain from tariffs in the event that talks collapse. This may go down well with the party faithful, but does suggest no more than a passing acquaintance with WTO rules. One has to believe that Johnson does in fact know what this clause means and is simply affecting vagueness as part of his wooly-headed style of presentation. Since he is the person who will attempt to negotiate an exit deal in the coming months, one hopes this is the case.
There are hard truths inherent in Brexit and GATT Article XXIV is an important example. The WTO system is centered on the concept of non-discrimination, in the sense that each WTO member grants the same treatment to all imports from all other members.
Article XXIV is the key provision which provides for both customs unions and free trade areas as exceptions to that general rule. In both instances the GATT allows parties to treat each other differently from how they treat other countries. Members agree to eliminate customs duties on “substantially all” of each other’s trade—either with immediate effect when the agreement is signed, or phased in by stages over a limited number of years.
The implication is that, while transitional possibilities are permitted as parties adjust to duty-free trade, they are only permissible when a formal agreement has been signed and is being implemented. This is the sense of Article XXIV, para 5 (b) and (c) and of the reference to the existence of an “interim agreement.” This must incorporate a “plan and schedule” which sets out the intentions of the parties to implement the rules.
There is no way that this can mean continued free trade while the parties are still discussing what the future trade regime between them should be, and when no deal has been struck. Furthermore, Article XXIV does not even guarantee continued free trade with the EU when a deal has been made. What is required is that the Withdrawal Agreement is ratified and approved by parliament, after which the parties can move on to the agreed transitional period and to further negotiations. During that time free trade will continue as now.
Within the EU, concepts of free trade are of major importance because the EU’s original structure was designed to be compliant with GATT rules, and free trade agreements became a main plank in its trade policy in later years. The UK also subscribed to the GATT free trade principles, and in the Brexit context has set itself the objective of maintaining current duty-free trade as far as possible after it leaves the EU. The continuing search for “seamless and frictionless trade arrangements” with the EU proves the point.
Those things are possible to achieve. But for Brexit to be anything but calamitous, British politicians would do well to study the rule book and brush up on the basics. For there remains an alarming degree of ignorance about the trade-offs involved in the project.
