What a no deal Brexit really means for trade

Whatever one’s view on us relying on the WTO in the event of a no deal Brexit, there is a lot of misinformation in the media and public sphere on what the WTO is and isn’t in terms of trade, and how it works, particularly in relation to non-tariff barriers (NTBs) and SPS barriers.

A couple of years ago I wrote a report on NTBs in the EU internal market, which are substantial and changing all the time, but they are still usually less than barriers imposed at WTO-only trade level, particularly in sensitive areas such as agriculture.

That is true even between western pro-trade nations, for example the US bans EU poultry and the EU bans US poultry. British beef is banned in the US and most American beef is banned in EU. This is all due to phytosanitary reasons that are perfectly permissible under WTO rules. The EU can easily ban UK meat under WTO rules in future due to level of animal diseases in UK and as the French approach to British beef in the past has shown, it is quite likely to use any excuse to put in place commercially advantageous trade restrictions.

The WTO does make significant efforts to overcome technical barriers to trade, WTO guidelines help streamline customs procedures in developing countries but they are not a common customs code, nor do they offer an expedited way to check that imports meet the right standards (which are different in every jurisdiction). 

There are still too many NTBs in the world to count, but if we look just at the US, traditionally one of the worlds more open economies, there are many barriers designed to keep foreign imports out. most famous of all perhaps is the US Jones Act, which blocks all non-US built ships or personnel from travelling between US ports. Another example is that cars have different brake wire colours in the US and EU, whilst crash test dummies are different in the US and EU, therefore tests have to be duplicated before vehicles are able to be sold either side of the Atlantic. The Buy America act restricts public procurement contracts to American suppliers only, regardless of how good alternative foreign products may be.

These barriers to trade are not easily solved, even in trade deals, let alone by WTO rules. Many NTBs can be justified under health and safety interests but still act as barriers to trade.

wto map

Even in the EU there are many problems. UK furniture fire safety rules seen as an NTB by many other countries, as are Danish paint rules. The French blocked non-French built cable cars until recently forced to end that particular protectionism. Ski instructors in France and hairdressers in Germany are two classic industries with stringent requirements that block international workers from joining their professions, even if they are qualified and have been practicing for many years in other countries. 

So, given the barriers within trade blocs that still exist it is wishful thinking to imagine that WTO membership alone means countries have an obligation not to block trade.

NTBs are the hardest thing to solve as it needs a change in attitude in each individual government department of a country. No matter what the international rules are countries will look for ways to keep other products out, and many legislate on standards without thinking about the impact on trade, meaning thousands of non-intentional barriers to trade in addition to deliberate blocks.

That’s why virtually all WTO members have sought bilateral trade deals to deal with these issues on a country to country basis. The WTO Doha round aimed at further enhancing WTO trade has been blocked for years by disagreements so many countries have lost patience in the organisation dealing with any of these issues effectively, and certainly not quickly.

All of that was before the new attitude to trade shown by the Trump administration and the US used national security justifications to impose tariffs on steel, aluminium and possibly cars. These actions threaten to justify all manner of trade barriers if governments see fit (and many like the idea of blocking imports), and risk a new era of protectionism within the WTO.

So, it is possible the UK will end up with WTO rules by default if there is no deal with the EU on a future trading relationship, but no one should pretend that is an ideal place to start from. The WTO has many benefits but is not a free trade panacea and would see significantly greater limitations on UK-EU trade in the years to come.