Britain would be better off trading with the European Union under World Trade Organisation rules, according to a major new academic study of the likely impact of the failure of the UK and the EU to conclude a free trade agreement by the Brexit date of March 29th next year.
A world trade deal under WTO rules would boost the UK’s trade with the rest of the world including Europe, lower domestic prices and boost inward investment, says the report produced by Economists for Free Trade (EFT).
It would also provide a significant uplift in UK economic growth over the next 15 years, raising Treasury revenues by £80 billion, enabling a combination of higher public spending and lower taxes.
In addition, if the EU insisted on slapping WTO tariffs on British exports and Britain responded in kind, because of the large EU trade surplus with the UK, the overall effect would amount to a staggering £13 billion a year boost to UK revenues.
The EFT report, A World Trade Deal: The Complete Guide, is backed by Jacob Rees-Mogg, chairman of the 60-strong European Research Group of Brexit-supporting Conservative Mps. Mr Rees-Mogg, who will launch the report in the Commons on Tuesday alongside EFT chairman Professor Patrick Minford and senior lawyer Martin Howe QC, said:
“Over the last 25 years exports to the EU from the four leading non-EU states have grown four times faster than exports from the UK under the single market. This fact alone shows why we have nothing to fear from trading on WTO terms. It has succeeded in the past and offers exciting opportunities for the future. Let Brexit mean Brexit and let us flourish under the auspices of the WTO.”
The report also dismisses “hysteria” over alleged shortages of food and medicine under a world trade deal, pointing out that imposing non-tariff barriers to trade are illegal under WTO rules.
“Armageddon-style predictions that the EU would freeze out British goods by refusing to recognise them as complying with EU standards in breach of WTO rules and in a worse way than it treats any other non-EU country are simply not realistic,” it warns. Commission statements contain large amounts of political posturing and should not be taken seriously.
The EFT report points out that the Government’s preferred solution, the Chequers proposals, have encountered widespread domestic political opposition and are opposed by the EU. It concludes that the best way of delivering a “Clean Brexit” is to leave under a World Trade Deal covered by WTO rules.
A key part of the report explodes the widespread assumption that membership of the EU’s single market has been especially good for Britain. Over the past 25 years, the top four exporters to the EU, including the USA and China, have all conducted their trade under WTO rules.
“The aggregate growth of exports from the ‘WTO countries’ has been almost twice that of exports of the 11 non-UK EEC founding members among themselves, and four times larger than the growth of UK exports into the single market,” the report says.
In other words, since the UK joined the EU single market 25 years, it has been heavily outperformed in trade terms by countries outside the EU and the single market who have operated successfully under a WTO regime, demonstrating that it is not necessary to be in the Single Market or the Customs Union to trade successfully with the EU.
UK exports to WTO countries (the rest of the world bar the EU) have grown over 25 years more than three times faster than our exports to the EU, even though we have been a member of its single market.
The EFT report goes on to highlight a little known EU Commission report identifying major defects in the single market explaining its sluggish performance and hence the failure of the UK to make much headway in trade terms. These include a lack of business dynamism, heavy regulation and curbs on expansion of productive sectors of the EU economy.
The report dismisses a string of scare stories about Britain “crashing” out of the EU without a deal or going over a “cliff edge”.
First, it points out that “No Deal” is a misnomer because other aspects of a new EU-UK relationship such as airline landing rights and electricity supply to Northern Ireland will have to be worked out if the UK government and the EU Commission are to act responsibly and fulfil their duties.
No Deal refers simply to the UK leaving the EU without a free trade deal in place. But switching to a World Trade Deal under WTO rules is no step in the dark because the UK already conducts about half of its trade under WTO rules and six out of ten of the EU’s main trading partners – including China, India, the USA and Japan – trade with it under a WTO regime.
The report says that under a World Trade Deal Britain would be free to set its own tariffs on EU imports – and these could be cut to zero if the Government so wishes. The effect would be to lower prices for UK consumers, by as much as 8 per cent. “So, under a rational policy, food prices – as well as prices for other basics – will go down, not up.”
Prices for the poorest would fall even more than 8 per cent because basic items like food and footwear form a bigger part of their weekly budget than wealthier people.
The economists advocate a Clean Brexit under WTO rules next March, to be followed later by negotiations over a Canada-style free trade deal. “An advantage of negotiating a Canada + FTA with the EU after leaving the EU is that we would have greater leverage than we currently have under the Article 50 negotiations. There would be no time constraints, the EU would have new (non-politically inspired) negotiating guidelines, and the benefits of a Clean Brexit would be coming apparent.”