The World Trade Organisation has not featured frequently in UK newspapers since its foundation in 1994. However since the Brexit vote, there has been increased interest in its role in regulating world trade since, if no agreement is reached, the UK might be falling back on WTO trade rules following departure from the EU. Its aim, when it replaced its predecessor, the General Agreement on Tariffs and Trade (GATT), was to act as a forum for negotiations to reduce tariff barriers, resolve trade disputes between members and provide technical assistance for developing countries.
GATT was established after the Second World War to ensure that there was no return to the protectionism which took place in the 1930s as countries tried to protect their economies from the effects of the Great Depression. The WTO replaced GATT because of developments in international trade since the Second World War, namely the rise of intra-firm trade where a company manufactures components in one country, assembles in a second and sells in a third, increased globalisation and the rise of trade blocs, such as the EU, and NAFTA. It can authorise sanctions if a country breaks its rules. For example, in 2015 it ruled that the USA had acted illegally in insisting that all beef and pork sold in the USA should have the country of origin labelled. Canada, which sells much meat in the USA, applied to the WTO to impose retaliatory tariffs which will hit many different parts of the US economy in order to persuade the USA to reverse its requirement.
As well as regulating international trade, the WTO attempts to promote free trade since it believes that freer trade provides benefits in the form of greater choice and lower prices, stimulates economic growth, raises incomes and promotes world peace. It does this via a series of meetings (or rounds) lasting many years, the latest being the Doha Round, which started in 2001, lapsed at the end of July, 2008 as trade fell due to recession, and has now been revived. But its success in reaching agreement is limited and has moved towards agreements covering specific products e.g. removing tariffs on high-end semi conductors rather than wide-ranging agreements which have been difficult to reach.
Anyone wishing to join must agree to accept all its rules, particularly the ‘Most Favoured Nation’ agreement whereby countries must apply the same tariff to similar goods, irrespective of the exporting country, unless there is a free trade agreement between the importing and exporting countries. Thus if we leave the EU without an agreement, the EU will apply the same 10% tariff on UK car exports into the EU as it does to those coming in from Malaysia.
Another concern is that WTO rules do not reduce regulatory barriers. At present, because of the Single Market, a UK car manufacturer can sell products as easily in Rome as Romford. This will cease if there is no agreement with the EU and therefore we would expect our lorries to be stopped when entering the EU and inspected, in the same way that British goods entering Japan are currently examined. This has the potential to hinder trade as lorries are inspected and goods checked to ensure that they meet EU standards. This might not seem a major problem but exporters fear that these delays will be significant, delaying drivers and lorries and therefore increasing costs.
A third concern is that WTO rules do not currently provide as much freedom for trade in services as they do for trade in goods. At present, for example, UK banks provide services for individuals, businesses and other banks across the EU without needing to duplicate all of their physical locations overseas. Leaving the EU will make trade in services, which make up 80% of the UK’s GDP, far more difficult and might require UK financial consultants, bankers, accountants, etc to have more physical locations overseas and also to re-qualify in the countries they export to.
It is difficult to predict what the effects on our trade will be until the Brexit agreement is reached. As part of the EU, we currently benefit from free trade treaties between the EU and other countries and we do not know whether we will be able to negotiate to keep these agreements. Equally, or possibly more importantly, we do not know what tariff and non-tariff arrangements will be in place between ourselves and the EU when we leave. Will UK consumers lose out because of higher priced imports from the EU or will these be outweighed by new trade deals negotiated by the UK with non-EU countries and will UK businesses see exports rise because of these new agreements or fall because of less trade with the EU?