Brexit Explained | World Trade Organisation and WTO Rules
You hear a lot about the Wold Trade Organisation in relation to Brexit – falling back on WTO rules or crashing out on them as it is sometimes referred to. Some would argue that WTO rules will be perfectly fine for the UK and the starting point of a prosperous future.
Six million people have signed a petition to revoke article 50 and remain in the EU. Over a million people marched in London in the name of a People’s Vote. Unfortunately for its supporters, the People’s Vote was blocked again in Parliament by 40 Labour MP’s who did not vote in favour of the public vote, with 24 voting with the government to prevent it and 16 abstaining or not casting a vote either way. This meant that the choice of a public vote lost by twelve with 292 MP’s voting against and only 280 MP’s voting in favour of the People’s Vote.
With this and all other options being voted down, including the Norway model and Customs Union, this means that the default legal position is exiting the EU with no deal and automatically falling under WTO rules.
What are WTO rules and where did the World Trade Organisation come from?
Something to do with trade you would think.
Surprisingly, the main motivation for creating the first world trade organisation was not, in fact, trade. All the things we associate with trade deals – tariffs, quotas, job losses or gains – it was nothing to do with those either. To understand this we need to go back to Breton Woods, New Hampshire in 1944. This was when the idea of the WTO (or GATT as it was then known) was first thought up.
The date is significant and of course the advancement of trading relations is not the first thing that comes to mind when you think about that particular moment in time.
With World War 2 still raging on in the background, all the top liberal economic thinkers from 44 countries got together in Breton Woods and tried to come up with a different system for the world economy. In the 1940’s trading tariffs were high and the protectionist attitudes adopted by countries was arguably a precursor to the war itself.
So when these 44 countries got together, getting a good price for their steel was not at the forefront of their minds. They wanted to bring about world peace – making some extra money all round would be a handy bonus.
The idea they came up with was economic interdependence – everybody depends on each other, basically. So if all the different countries needed each other for various items then they couldn’t go to war with each other or their supply chains would be completely screwed up.
For example, if Germany needed France for coal and France needs Germany for steel, then an armed conflict would not be in their best interests.
This basic idea evolved into what was called GATT or the General Agreement on Trade and Tariffs. This rather boring sounding document created the world as we know it today and the modern era of trade. Globalisation, outsourcing and multinational corporations were all made possible by this agreement. The barriers to international trade were removed and the world got richer – global GDP increased by 7% each year up until the late 70’s.
By 1995 the General Agreement on Trade and Tariffs was replaced with the World Trade Organisation – an international body with 95 member states that set the rules on global trade for countries that are not within a customs union or part of a specific trade deal.
At this point in time the representatives of the member nations had a slightly less noble agenda when compared with their 1940’s counterparts. Rather than trying to prevent any world wars, their main intentions were focused on global efficiency, or making lots of money via tinkering with domestic policies would be another way to describe it.
It started to become apparent that even though most tariffs were now pretty low compared to what they used to be like, this didn’t help much if your products still couldn’t compete when it got into the country you were selling to.
This is the idea behind the phrase “non-tariff barriers”, which simply means things that get in the way of trading that are not tariffs. This could be anything from government subsidies giving their own products a helping hand or differences in rules and regulations between countries.
Replacing one bureaucracy with another
Ironically, exiting the EU is not so much a breaking away from bureaucracy as people may have hoped but instead replacing a bureaucracy that mostly has our best interests at heart, with a larger bureaucracy that probably doesn’t.
So it is not as if we can suddenly break off and start writing our own rules, or even want to. After coming out of the EU we would be subject to a different set of rules governed by the WTO, and not necessarily preferable to the current setup we have in the EU.
We would be freed from the decisions of the 28 member states of the EU to be then governed by the collective decisions of 164 members of the WTO, including USA, Russia and China.
This would mean prices of food, clothing and cars among other products would automatically rise here in the UK as we were forced to impose the extra tariffs, also meaning that the marketplace becomes less competitive and attractive for companies looking to sell their products here. The sensible option in business would be to just stop doing it, if you can generate better profits elsewhere.
What other options are being put on the table?
Apart from leaving with no deal and going to WTO rules, the other options being looked at are the Single Market, Customs Union, Noway and Swiss models of Brexit, Theresa May’s deal and revoking article 50 altogether and remaining as a member of the EU as if none of this had ever happened. Follow the links to find out more on the different options being talked about.
If you think the government should revoke article 50 and go back to being a member of the EU you can sign the petition yourself here.