Trading on WTO terms would be no panacea for global Britain

Since its creation in 1994, the WTO has not concluded a single trade round (Source: Getty)

Despite the series of votes this week, a no-deal Brexit remains a real possibility.

In fact, it is still the legal default unless a deal is struck or the EU agrees to extend Article 50.

Many Brexiteers – 308 MPs, in fact – appear to think that this is the best Brexit option. Their assumption seems to be that the UK could trade easily and effectively with the EU and the rest of the world on so-called World Trade Organisation (WTO) terms.

While there has been much commentary as to whether the UK is ready to trade on this basis, the WTO itself has come under minimal scrutiny.

As an organisation that faces challenges on a number of fronts and is often undermined by its own members, the WTO offers little comfort to UK businesses looking to trade internationally for three reasons.

First, the WTO has ceased to be effective in liberalising trade at a multilateral level. Between 1947 and 1994, eight substantial trade rounds were completed under its predecessor organisation, facilitating an enormous expansion of international commerce.

But since its creation in 1994, the WTO has not successfully concluded a single trade round. Talks on the “Doha round” launched in 2001 have been stalled for a number of years.

In response, WTO members have sought agreements with a narrower scope. They have directed their energies towards establishing regional free trade areas – of which the EU is the most comprehensive example – and agreeing bilateral deals, albeit within the framework of WTO rules.

Little attention has been paid to the status of those 40 or so free trade agreements between the EU and over 70 third countries. The UK government has conceded that only a handful of these agreements will be “rolled over” in time to take effect on 29 March.

Ironically, a number of those countries now playing hardball are the very partners identified as crucial to the UK’s future economic success, such as Japan and Canada. Trading on so-called WTO terms means a loss of preferential access to those markets, as well as to the EU, in addition to increased costs for UK importers of certain goods.

Second, the WTO has made slow progress in liberalising trade in services between its members. Despite the radical shift towards services in industrialised economies, the WTO as an institution has struggled to keep pace.

This is highly significant for the UK, where 40 per cent of exports are in services rather than goods.

WTO members are also yet to agree a set of international rules for e-commerce and digital trade. These gaps in the rule book present significant issues for the future economic success of a UK economy solely reliant on WTO terms as the basis of its trade with the EU and the rest of the world.

Finally, while many have agonised over the role of the European Court of Justice in the UK legal system, the WTO’s own dispute resolution mechanisms is beset by significant issues.

The principle of multilateral dispute resolution under the WTO faces particular pressure from the US at the moment. Just this week, the US trade representative criticised the WTO’s Appellate Body for treating America like “the world’s greatest outlaw”. The US has also been blocking new appointments to the Appellate Body.

Resolving disputes via the WTO remains a lengthy process. On average, it takes around two years to settle a dispute and even then the level of non-compliance remains high. In contrast, the EU free trade agreement with Canada includes a mechanism for the two parties to have disputes settled within 180 days of an arbitration panel being established.

We should acknowledge that UK businesses benefit from a number of trade deals via the EU that both improve market access and regulate a wide range of issues vital for trade in the modern international economy.

For those championing Brexit to set their level of ambition, even in the short term, at trading with the world on WTO terms is inconsistent with their aspirations for global Britain.

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