Friday, 30 September 2016

No, Dr Fox, that WTO dog won't hunt

"Who does it harm more if we end up in a new tariff environment?

"Does it harm more those who sell more to the UK, or the UK? It's in everybody's interests that, as we move forward, that we have at least as free a trading environment as we have today." - Dr Liam Fox

There's nothing wrong with ambition. But at some point it becomes impossible to defy facts and reality. Liam Fox needs some education about how global trade works, or if he already knows then he needs to indulge in a bit of honesty and stop deluding himself that his vision for trade after Brexit is achievable.

The UK is currently a participant in the European Single Market and enjoys preferential trade benefits from that participation, such as tariff-free movement of goods and removal of non-tariff barriers to trade. Dr Fox has made clear he wants the UK to leave the single market and trade under WTO rules. That is a perfectly acceptable view even though it would mean negative economic and commercial impacts for the UK.

Countries that are not participants in the single market and who trade with it under WTO most favoured nation (MFN) status rules do not enjoy free or preferential trade with single market members. They have to impose tariffs when importing from the single market, are subject to tariffs when exporting to it, and are also subject to a variety of non-tariff barriers (NTB) to trade that are costly or time consuming or both. The tariffs are equal for every WTO MFN status country. Sure, goods can flow in either direction, but the terms are subject to hard and fast rules.

The only way countries can avoid the WTO MFN rules, that require them to set tariffs on imports and have them applied on exports, be that with other countries or blocs such as the EU, is to complete a bilateral free trade agreement (FTA) with them, or become a participant in a regional trade agreement (RTA). The European single market is an RTA and Fox's wish is that we leave it in addition to leaving the political entity that is the European Union.

So while it may be, as Liam Fox puts it, "in everybody's interests that, as we move forward, that we have at least as free a trading environment as we have today", by being a mere WTO MFN country that is an impossible dream under global trading rules.

The only way the UK can have as free a trading environment with the EU as we do today is to be a participant in the European single market. Full stop.

It is an impossibility, logical or legal, that any country that is not part of the single market can have equal preferential, or better, terms for trade than the RTA's own internal members have between each other. It cannot be achieved even with a supposedly comprehensive free trade agreement such as the EU-Canada deal - and especially not under WTO MFN status.

The sooner Liam Fox grasps this, and stops wasting our time with his flights of fancy, the better.

Update: New Westphalian takes on Fox's speech here.