The speech Liam Fox made at the WTO today is mostly waffle, but there is one section on Brexit towards the end which is worth paying particular attention to. It suggests that Fox does not understand the basic rules of the international trading system Britain may soon be falling into if it can’t secure a deal with the EU before the end of the Article 50 process.
“The UK is a full and founding member of the WTO,” the international trade secretary said. This part is true.
“We have our own schedules that we currently share with the rest of the EU. These set out our national commitments in the international trading system.” This part is not true.
“The UK will continue to uphold these commitments when we leave the European Union.” This part is potentially revealing.
“There will be no legal vacuum.” This part is false.
Let’s take them in turn.
“The UK is a full and founding member of the WTO.”
Fox is right about this. Some Remainers insist that technically the UK is not a member of the WTO on the basis that it does not currently have it's own schedules (we’ll get to those in a second). There’s a minority of legal opinion backing this up, but it’s unlikely anyone is going to question Britain’s membership itself. We were a founding member of the General Agreement on Tariffs and Trade (Gatt), the WTO’s predecessor, and we’re a founding member of the WTO.
“We have our own schedules that we currently share with the rest of the EU.”
Schedules are descriptions of a country’s tariff and subsidy arrangements with other countries in the WTO. They’re really long and very boring but a typical one would tell you what the country's tariffs are for wheat, say, or chicken. Sometimes that’s a set rate – like ten per cent on cars. Sometimes it varies. So you might have a tariff of four per cent on the first ten thousand tonnes of chickens you import and 15% on anything over that. That’s called a tariff rate quota.
Britain does not have its own schedules. We have EU schedules. Fox can say we have our own if he likes, but officials and lawyers at the WTO will disagree. We need to extract our schedules from the EU schedule, which is actually a horrifically difficult problem.
It’s not hard with tariffs, we can just replicate what the EU does there. But the tariff rate quotas are a nightmare, because they’re quantitative. The level set at one rate – the ten thousand tonnes of chicken – is shared across Europe. So we need to figure out how much of that chicken applies to us.
That’s something the EU and the UK need to figure out together. If we just unilaterally say it’s X amount, the EU, which is a member of the WTO in its own right, can trigger a dispute.
And that’s not all. Any WTO member state can trigger a dispute with us on the provisional schedule we lay down, if they feel their access to our market has been restricted or that they are on worse terms than they were when they made the original trading decisions. The WTO is minefield for British trade interests which will need a very experienced, very intelligent, very sensitive negotiating team to navigate. Fox’s speech does not suggest these things will be forthcoming.
“The UK will continue to uphold these commitments when we leave the European Union.”
This is potentially revealing. I say potentially because it's possible Fox simply has no idea what he's talking about and everything he says must be discounted.
The quickest and easiest way for us to write up some provisional schedules is to exactly replicate all the arrangements we have under the EU. That means that tariffs stay the same, the tariff rate quotas are worked out on the basis of the last three years’ trade flows and subsidies stay the same. This is invariably what we’ll do, because it’s the only way not to get into all sorts of complex wrangling with all the other member states.
But note what that means: Nothing changes. All that talk of taking back control during the referendum was illusionary. We will keep things exactly as they are, because that’s the only way to make the journey from the single market to WTO rules even vaguely doable. We're not taking back control. We are desperately trying to make a massive and perilous change in our economic arrangements without triggering huge job losses. And that means that we will copy whatever our EU arrangements were and paste them onto the WTO schedules.
But even that approach, which betrays all the rhetoric of the Brexit campaign, doesn't solve all the problems. Take rules against steel dumping, which protect our workers from competition from China. We’re obviously going to want to maintain those but the Chinese aren’t going to be having any of it. They’ll fight us on it, demanding that we demonstrate domestic injury and unfair trade. And at the moment we can’t fight back, because we don’t have an investigating authority capable of dealing with trade remedy measures. So even in this cheeriest of all possible worlds, we’ve got some major problems on our hands.
“There will be no legal vacuum.”
Fox is wrong here. It’s not that there’ll be a legal vacuum in the future. There’s a legal vacuum now. There are no WTO rules on what we’d be doing if we revert to their system.
There are rules on becoming a member, but we already are. There are rules on modifying a schedule, but we don’t have one. That’s why the WTO’s lawyers are bickering over what our status is and how to proceed.
The fact Fox makes these errors isn't really what's concerning about his speech. We’re used to that. This is a man who did his job as international trade secretary for a month before realising it was a legally and logically meaningless position to have been given.
What’s concerning is that Britain needs negotiators at the WTO doing the leg work now in order to prepare just in case we can’t get an EU deal and have to fall back on this system. We need relaxed informal talks with the Chinese and the Brazilians and everyone else to try to answer their initial concerns. That means that if we ever do have to put down provisional schedules, we’ll know where the problem areas are and can hopefully address them before it turns into a problem.
We urgently need smart ministers, clear-thinking and an army of trade experts and negotiators. Instead what we have is the international trade secretary talking nonsense.