By Rosa Crawford First published by the TUC, May 16th
Trading with the EU only on the WTO’s terms would have serious repercussions for the economy, public services and the Good Friday Agreement.
Brexiteers like to promote the idea that the UK leaving the EU single market and customs union, ditching any trade deals, and trading with the EU only on World Trade Organisation (WTO) terms would be a viable alternative to a Brexit deal with the EU.
But trading on these terms would pose serious risks to jobs, workers’ rights, state aid, public services and the Good Friday Agreement.
Threats to jobs
If the UK wants to trade independently outside of the EU customs union, it will be required to lay its own set of ‘schedules’ at the WTO. These schedules are a list of commitments setting the terms of the UK’s tariffs, quotas and limits on subsidies.
In February, the government announced plans to lay schedules that would mean that in a no deal situation, tariffs would be lowered to zero on many imports.
The plans would allow cheap imports of goodssuch as ceramics, cement, glass, tyres and steel to flood the market, particularly from countries such as China that are already overproducing goods and dumping them in the EU and UK markets at artificially low prices. Further dumping would decimate the UK’s manufacturing base, putting thousands of jobs at risk.
The TUC condemned these plans for zero tariffs with Unite, GMB, Community and a number of manufacturing employers in February.
Operating outside a customs union with the EU, and trading only on WTO terms, would also make things a lot trickier for UK companies exporting goods to the EU. Exporters would need to complete customs paperwork and undergo ‘rules of origin’ testing to establish where components in products were made. The Institute for Government estimates that custom checks would affect 180,000 traders, potentially imposing £4 billion in extra costs on businesses.
Dangers to jobs in services
Unlike the single market, WTO rules do not provide a guarantee that trading partners will have the same standards for trade in services (like banking, insurance and shipping) that are needed to allow barrier-free trade in services.
Given that services make up 80% of UK GDP and 37% of total UK exports of services go to the EU, barriers to trade in services would threaten millions of jobs across the country.
This risk is increased by the fact that in today’s integrated economy, it’s difficult to separate goods from services. For example, for every car manufactured in the UK there are a myriad of related services from logistics to sales.
Trading only on WTO terms would also severely threaten workers’ rights. Unlike the EU single market, which requires members to adhere to EU social and employment standards enforced by the European Court of Justice, there are no obligations for WTO members to respect labour standards. There are also no penalties if rights are abused. Thus, there have been no consequences when WTO members such as China or the Gulf States abuse workers’ rights.
Dangers to Good Friday Agreement
Leaving the EU customs union and trading only on WTO terms would require customs checks and collection of tariffs between Northern Ireland and the Republic of Ireland. Additionally, leaving the single market would require checks on regulatory standards of goods travelling between Northern Ireland and the Republic of Ireland.
The TUC has been clear that such a situation is unacceptable as it would mean the establishment of a border between Northern Ireland and the Republic of Ireland. This would violate the Good Friday agreement that is essential for peace and economic and stability.
Trade unions have long campaigned for WTO rules to be reformed to allow governments more policy space to provide financial support to key industries and agriculture.
WTO members are bound by the obligations in the WTO Agreement on Subsidies and Countervailing Measures. These rules also allow WTO members to challenge other members if they can demonstrate that a member’s financial support for certain sectors unfairly disadvantages them. This could limit the UK government’s ability to support, regulate or renationalise key industries.
Trading only on WTO terms would also expose public services in the UK to the threat of further privatisation. WTO rules contain an exemption that ‘services undertaken in the excise of government authority’ will not be bound by commitments members take to liberalise other sectors. However, legal experts have established that this exemption does not prevent part-privatised services such as the NHS being opened up to further privatisation through trade arrangements.
In a no deal scenario, the government has also signed up to follow the WTO’s General Procurement Agreement (GPA), the key aim of which is to open government procurement markets covering goods, services and workers to the bidder that can provide the cheapest services, regardless of the cost to workers or conditions. By contrast, EU single market public procurement rules allow for public procurement to promote social objectives such as decent jobs and living wages.
A good Brexit deal
Instead of trading on WTO terms that would be disastrous for workers, manufacturing and public services, the government must guarantee a Brexit deal that guarantees rights, jobs and upholds the Good Friday agreement. At this stage in negotiations, we believe that membership of the single market and a customs union is the best way to achieve this.