Brexiteer arguments on free trade are riddled with basic misunderstandingsby Guy de Jonquières / June 28, 2018 / Leave a comment
As the faltering progress of the UK’s negotiations with Brussels increases the risk of a disorderly “no deal” Brexit next March, Leave politicians such as Jacob Rees-Mogg, Peter Lilley and Nigel Lawson insist there is no need to worry. If Britain crashes out of the European Union, they say, it can trade perfectly well by falling back on the World Trade Organisation.
Their argument was summed up recently by John Longworth, Co-Chairman of Leave Means Leave and former head of the British Chambers of Commerce. He told the BBC: “Don’t forget, World Trade Organisation rules are the rules upon which most British exports take place and most trade around the world with the EU takes place.”
Remarkably, most of this sentence—like much else that Brexiteers say about trade—is misleading or plain wrong. While Britain does trade under “WTO rules,” these are the basic laws governing the rights and obligations of membership, to which all the WTO’s 164 members have to sign up in order to belong to the organisation. They do not, on their own, determine how much or how little access countries provide to exporters elsewhere.
What Brexiteers apparently mean is “WTO terms,” which are rather different. These stipulate exactly how far and in what ways each member guarantees to keep its market open to trade with all the others. The arrangements, rather confusingly called Most Favoured Nation commitments, cover everything from national tariffs on imports to government procurement tendering and their provisions differ widely between countries.
In reality, Least Favoured Nation would be a more accurate name because no country trades just on WTO terms. All belong to least one, and in some cases many, free trade agreements (FTAs) or preferential trade arrangements (PTAs) with others that reduce trade barriers below the level set in the WTO. If Britain traded solely on WTO terms, it would deprive its exporters of advantages that foreign competitors enjoy.
It is equally wrong to say that most British exports are on WTO terms: 60 per cent of UK exports are to the EU and to the more than 60 countries with which the EU has FTAs. Some FTAs are with small economies and free relatively little trade. But others, particularly the one with South Korea and those signed recently with Japan, Canada and Singapore, provide for…