A ‘WTO-deal’ Brexit? Video and text

I’d never heard of a ‘WTO-deal’ Brexit — until recently. What does it really mean? And does Brexit change it?

A 'WTO deal' Brexit?


video iconAvailable as a video (4’40”) on YouTube

By Peter Ungphakorn

“Mr Speaker, can I welcome the Prime Minister ruling out a second referendum, and ruling out revoking article 50 and leaving a WTO — whether managed or not — deal on the table.”

— Kate Hoey MP,
House of Commons, January 21, 2019

A “WTO deal”. The phrase is spin used to camouflage the negativity of calling it “no deal”. But that’s what it is: no deal between the UK and EU.

We can question if “WTO deal” actually means anything in terms of a relationship between the UK and EU.

Usually the phrase refers to deals struck in negotiations within the WTO, as we shall see. That’s why many claim that for Brexit, it’s nonsense. A “WTO-deal” Brexit doesn’t exist.

Let’s be charitable and assume it might exist. If so, what would it mean? Not much.

02 - intro bullets
Click the images to see the video from that point

For the UK, a “WTO-deal” Brexit would not be a new deal created by the UK leaving the EU without an agreement. If it’s “no deal”, there is no new deal.

Therefore, a “WTO deal” would be an old deal that the UK has signed on to since 1948. This is what has happened to it since then.

03 - GATT rounds

From 1948 to 1994, it was the General Agreement on Tariffs and Trade (GATT). In 1995 it became the World Trade Organization (WTO)

Successive rounds of negotiations from 1947 built up the body of agreements now known as the WTO agreements.

04 - UR upgrade deal

The WTO’s inter-governmental deals form the multilateral trading system. The last major reform was in 1995 at the end of the Uruguay Round (1986–94), which created the WTO.

There are two parts: the main agreements, which form the 500-page rule-book; and (at that time) over 20,000 pages of commitments made by each government on tariffs, tariff quotas, agricultural subsidies and opening up services markets.

Each member has a different set of commitments. Each can be more open or liberal than committed in the WTO, provided they do not discriminate between other WTO members, except in circumstances that comply with WTO rules — free trade agreements or special preferences for poorer countries.

For tariffs, the commitments are maximum duty-rates that WTO members agree to charge on imports from each other.

For UK-EU trade, without a deal, the tariff ceilings in their schedules will be the ones they apply to each other. The EU has said it will apply its present “scheduled” rates to imports from the UK. Britain has said it might lower or scrap import duties temporarily, but that would apply to imports from all WTO members under non-discrimination rules, not just from the EU.

Applying their WTO commitments on services means much less access to each other’s markets than currently within the EU Single Market. (Even a free trade deal improving on those commitments would achieve less access than the UK and other EU countries have to each other’s markets.)

05 - post-1995 Brexit changes none

Since 1995 a number of minor agreements have been added to the WTO package, including additional commitments on services, an amendment on pharmaceutical patents in intellectual property, and agreement to scrap export subsidies on agricultural products.

In 2014 WTO members agreed on a major deal to cut red tape at their borders, known as the Trade Facilitation Agreement.

Brexit changes none of this. It’s the same basic but updated “WTO deal” that applies to all WTO members, including the UK.

06 - EU under WTO rules

In 1973, the UK joined what was to become the European Union. The EU and its member states — including the UK — are all WTO members.

Their trading arrangements have to come under WTO rules. That applies to the old Common Market and the present customs union and Single Market. The Single Market is part of the present “WTO deal”

That’s what it means to be a WTO member. You have to comply with the rules — the WTO agreements.

07 - additional deals

The UK, through the EU, has negotiated scores of additional deals (* the one with Canada is provisionally applied).

Like the Single Market, those EU free trade agreements also build on WTO rules. This is sometimes called “WTO plus”. It’s more than the basic “WTO deal”.

08 - Brexit no effect on WTO

Brexit doesn’t change the underlying “WTO deal”. But it has a major impact, particularly for the UK, on those other “WTO plus” deals — the EU Single Market, and the EU’s free trade agreements with other countries.

Which raises the question of why people talk of “a WTO Brexit” at all? A Brexit that was not “WTO” would mean leaving the WTO too.

So a “no deal” Brexit would mean falling back on the underlying, baseline deal; not a new “WTO deal”, but a basic deal that’s always been there, and will continue to be.

The only deals that change are those add-on agreements, the Single Market and the EU’s free trade agreements.

09 - no deal tariffs

With “no deal”, the UK-EU trade relation drops down to the baseline and tariffs go up on trade between them. So do non-tariff barriers. Services trade between them becomes a lot more restricted.

And if the UK is to continue to enjoy those other EU deals, it will need to renegotiate with the countries concerned. This will take time, and the economic value to both sides is almost certainly going to be less than if the UK was an EU member, unless some complex technicalities can be sorted out, such as “rules of origin” (some lawyers argue that that they cannot without violating WTO rules.)

10 - recap

So, to sum up

A “WTO deal” is spin, to camouflage the negativity of calling it “no deal”

For the UK, a “WTO deal” is not a new deal. It’s been a baseline deal for the UK since 1948.

“No deal” means dropping from “WTO plus” to “WTO basic”. In other words, a “WTO deal” is “no deal” in disguise

Find out more

Updates: None so far

Author: Peter Ungphakorn

I used to work at the WTO Secretariat (1996–2015), and am now an occasional freelance journalist, focusing mainly on international trade rules, agreements and institutions. (Previously, analysis for AgraEurope.) Trade β Blog is for trialling ideas on trade and any other subject, hence “β”. You can respond by using the contact form on the blog or tweeting @CoppetainPU

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