Why Brexit Under WTO Rules May Not Be a Better Solution
There are arguments that Brexit, under the World Trade Organization (WTO) rules, would be a better option. However, such an approach would come with significant challenges and consequences. This article explores the reasons why WTO rules are not a viable solution for the UK, focusing on the impact on trade, services, and the broader economic landscape.
Non-Tariff Barriers and Their Impact
The WTO rules, while crucial for global trade, are not effective at preventing non-tariff barriers. These barriers can significantly impact trade, and the UK would face similar challenges to those currently experienced by the US. For instance, when working in a US bank, setting up an office in the EEA to lend to companies there was necessary due to EU laws. This is not because US regulations differ; rather, it's a result of EU regulations and the inability to lend directly. The UK would face the same barriers.
Non-tariff barriers can create substantial difficulties, especially for service industries. The UK is the world's leading exporter of services, and the EU is a major market for these services. The EU's efforts to establish free trade in services, such as bank passporting, would be significantly impacted under WTO terms. As a result, EU-related services, particularly finance and insurance, would move to EU locations either legally or operationally.
Demographic and Political Implications
The argument that WTO terms would simply add tariffs and be fine overlooks the broader political and social implications. The UK would need to revisit its manifesto promises and hold a new election to justify a WTO solution. This change in policy would likely alienate a significant portion of the Conservative party's voter base, potentially leading to a Labour government.
Public opinion would need to shift significantly for this to be a viable option. Currently, the political landscape is such that a Conservative government proposing WTO rules would face even more opposition than the "no deal is better than a bad deal" stance lost them in 2017. This indicates that a WTO solution would be a challenging political sell.
Impact on Trade Costs and Services
The WTO rules would lead to increased trade friction, resulting in the UK doing less trade with the EU and a range of other countries with EU trade agreements. For instance, HMRC estimates that every shipment of goods to the EU would require a SAD41 document, with additional costs for SMEs estimated at ￡17–￡20 billion. Delays for inspections would also increase costs.
The UK's position as a leading service exporter would be severely hampered under WTO terms. Data protection and IT development for data centers would be disrupted, and the ability to transfer data to the EU would be severely limited. This would negatively affect the UK's role in the global service market.
Lorry drivers would also face significant challenges. The ability to drive to and from the EU under the current rules would be severely limited, with only a few hundred British lorry drivers able to make the journey. This would double transport costs and severely impact trade flows.
The emotional and intellectual horizons provided by the EU are often overlooked. The EU has been crucial in fostering peace, cooperation, and economic prosperity. Brexiteers often overlook these broader benefits, focusing instead on the potential economic advantages. However, a crash to WTO terms would significantly undermine these gains.
Concluding Thoughts
The move to trade in services is leading countries to seek new regional trade deals, as the WTO is proving inadequate for these sectors. The net effect of leaving the EU and adopting WTO rules would be a substantial loss of GDP and tax revenue. This is a high price to pay for the UK government's failure to use existing powers to control EU immigration.
In conclusion, while there are arguments for a future relationship with the EU, the option of WTO rules is not a viable solution. The UK would face significant challenges and consequences, and a move to WTO terms would be a substantial gamble on the political and economic landscape.