The Telegraph: Is trading under WTO terms after Brexit a pipe dream or a panacea?

No Deal has had a bad press. No, strike that out, No Deal has had an appalling press. It has been the target of the most vicious propaganda campaign imaginable, perpetrated by a Government intent on terrifying its MPs into backing a Brexit in Name Only (Brino) withdrawal agreement.

The message is unambiguous. Only dogmatists and idiots think that Britain can leave the EU under No Deal (far more accurately described as a World Trade Deal under World Trade Organisation rules) without suffering a catastrophic blow to its living standards.

According to the latest Treasury forecasts, dating from late November, the UK economy would be as much as 9.3 per cent smaller over the next 15 years if we exited the EU on March 29 this year under a World Trade Deal – equivalent to the nation being nearly £200 billion worse off than if we have stayed in the EU. This is particularly rich, as our entire goods trade with the EU amounts to only 5 per cent of GDP.

Even leaving on the terms of Mrs May’s much derided Withdrawal Agreement would leave us around £100 billion worse off, says Mr Hammond and his friends.

To which I say, garbage in, garbage out.

On one thing we are now agreed.  The Treasury has changed its tune, having based its earlier calculations on so-called gravity models of the economy, which insist that trade flows are greatest and most valuable when geographical near neighbours are involved – a medieval notion that went out of date with the steamship.  Now, like me and my colleagues, the Treasury accepts that in a globalised, mass transit world, proximity is not all. Yes, we can profitably trade with countries like the US, India and China, which, you may have noticed, are not just across the Channel.

But this change of heart is far from enough. The Treasury, and its allies in the Bank of England, still insists that a World Trade Deal would be an economic disaster – broadly because scrapping the current free trade arrangements with the EU would usher in all manner of new obstacles to UK trade with its Continental neighbours.

This is nonsense. Most countries in the world (take the US, India and China) are not in the EU. They trade highly successfully with one another – and with Europe (including the UK).  The UK’s single biggest national overseas market is America – and we trade with it on WTO terms – a set of globally enforceable rules that outlaw protectionist tricks such as discriminatory tariffs or bureaucratic hurdles limiting the flow of goods. All of this kind of monkey business is outlawed by the WTO and is policed by independent tribunals.

To cut a long – and technical – story short, WTO rules have not stopped non-EU countries trading with the Continent.  In fact, bizarrely, such countries (outside the Single Market) have increased their exports faster than Britain (inside the Single Market) has to the EU over the last 30 years.

British exports to WTO countries have grown three times faster than those to Europe’s Single Market since the mid-1980s.

Economists for Free Trade calculates that a No Deal exit would produce a 7 per cent GDP boost to the UK economy over the next 15 years – worth about £140 billion – in contrast to the Treasury’s forecast of a £200 billion loss.

A clean Brexit produces long-run gains from four main sources:

  1. Moving to free trade with non-EU countries that currently face high EU protection in goods trade
  2. Substituting EU-based Single Market regulation for UK-based regulation
  3. Ending the large subsidy the ‘four freedoms’ forces the UK to give to EU unskilled immigrants
  4. Ending our annual Budget contribution to the EU – saving £39 billion immediately

In combination, these effects would add about 7 per cent to UK GDP.

And, a No Deal exit would save £39 billion immediately and would accelerate the benefits from leaving compared to the long, if not permanent, purgatory of Mrs May’s deal.

So, blow a large raspberry the next time you hear Remain propaganda about crashing out and falling off cliffs.  If WTO is good enough for major exporters such as China, India and Japan, it is good enough for Britain.

Click here to read the piece in full.

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