World Trade Deal can break Brexit deadlock, say top economists

  • Co-Chair of Government Brexit Customs Group backs plan for demonstrating a clear statement of intent
  • Former cabinet minister urges PM to put this “straightforward solution” to Brussels

The UK could still move to a World Trade Deal without disruption at ports, according to a major new report from a team of leading economists.

They say that the spectre of a “cliff edge” whereby the country crashes out of the EU is ill-founded because of the legal framework and institutions of the World Trade Organisation, which is not widely understood or appreciated.

The paper produced by Economists for Free Trade (EFT) argues that a World Trade Deal – under WTO rules that govern the vast bulk of global trade – is the best bet for the UK with Brexit talks bogged down and little sign of progress with a hostile and intransigent EU.

The paper by the 18 strong EFT group argues that a World Trade Deal would provide a major boost for the UK economy. It has been sent to the Prime Minister, Theresa May, and Cabinet ministers involved in the Brexit negotiations.

The group of economists say in a covering letter to the Government: “We have to recognise that the EU shows no sign of quickly wanting to agree with a free trade deal that would eliminate the imposition of tariffs and the need for new customs procedures. So we need to prepare to go our own way on trade.

“We propose that Britain should switch its focus from securing a trade deal with the EU at almost any cost toward implementing a World Trade Deal under WTO rules that focuses on the rapidly growing non-EU world, where our trade is already larger than that of the EU and is growing much more rapidly.

“The report explains how we can do this by taking advantage of the legal framework and institutions provided by the World Trade Organisation, which is often poorly understood.

“Economists for Free Trade urges the Government to pursue this option with urgency. The danger is that we face the worst of all worlds – trapped in a twilight world where we are denied the huge economic benefits of again becoming free to strike our own trade deals with the rest of the world, while taking orders from Brussels. Such an outcome would be a national disaster.”

Commenting on the report, Peter MacSwiney, Co-Chair of the Government’s Brexit Customs Group said:

“Britain is leaving the EU and whatever deal is reached, companies will realign their storage and manufacturing processes and locations regardless. It is a fact that companies will adapt.

“That said, the best scenario is to have a defined regulatory infrastructure which is as simple as possible for everyone to have access to and the one set out by the Economists for Free Trade in this report is the only one I’ve seen that would achieve that.

“Whatever deal is reached, some people will like it, some people will hate it.

“The Prime Minister should set out this proposal to the EU in the June summit. It would demonstrate a clear statement of intent from the UK.”

The EFT paper rejects the Civil Service Cross-Whitehall report predicting slower growth unless the UK remains in the Customs Union and the Single Market; these predictions come from their use of indefensible assumptions. EFT predicts that the country would be better off by £140 billion (7 per cent of national output) under a World Trade Deal governed by WTO rules.

The danger, warns EFT, is that Britain succumbs to EU bullying and opts for the worst case scenario – Brexit in Name Only (BRINO).

The report, What if We Can’t Agree? – Why a World Free Trade Deal Exit from the EU will be Best for the UK, says:  “BRINO would lock the UK into current EU arrangements for an indeterminate number of years. “It would also prolong the ability of unskilled workers from the poorer countries of the EU to enter the UK labour market freely with full access to taxpayer-funded benefits. On our calculations it loses the UK 7 per cent of GDP (£140 billion), or around 0.5 per cent growth over the next decade and a half.”

The report highlights the rules-based nature of the WTO, enforced by its courts, which prohibits countries from discriminating against others by unilaterally imposing special standards on imports. Equally, it mandates that border procedures must be seamless and use the latest technology. Discriminatory non-tariff barriers to trade, such as bureaucratic and complex customs checks, are not permitted.

“Figures from the World Bank’s Logistics Report confirm that these directions have taken effect in a big way. The median developed country lets 98 per cent of border traffic go through unchecked (because already cleared via the computerised system) and the remaining 2 per cent checked is cleared within a day. For this reason best-practice customs are extremely low-cost: for example the highly efficient Swiss border service has estimated its border cost on EU-Swiss borders to be only 0.1 per cent of traded value.”

The report goes on to condemn “loose talk” from Remainers and Civil Service leaks that a UK departure under WTO rules would cause “chaos in the short run”, the so-called ‘cliff edge’.

It accepts that there will be “glitches” initially, not because of WTO rules but because of the fact that under any arrangements there will be changes to trading procedures.  However, the report points out that, under the World Trade Deal, there would be no requirement for business to complete rules-of-origin certificates, which traders find to be one of the most onerous aspects of border procedures.

Former Cabinet minister, Rt Hon Owen Paterson MP said:

“This report proposes a straightforward World Trade Deal solution to break the deadlock in the negotiations with the EU.

“The report dispels the myth of ports closing down and no food in the shops.

“At the same time, a World Trade Deal would mean that the UK can negotiate free trade deals with the rest of the world and truly benefit from the economic opportunities Brexit offers us.”

ENDS

Click here to read a copy of What if We Can’t Agree? – Why a World Free Trade Deal Exit from the EU will be Best for the UK in full.

Click here to read a full copy of our letter to the Prime Minister.

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