Lib Dems vs Brexit: Vince Cable takes on the WTO Rules argument

We always like to record Lib Dem contributions to significant parliamentary debates when we can. There is no more significant debate than that going on over the future course of Brexit – or otherwise.

Vince spoke on the first day of the debate and he tackled the Brexiteers’ assertions that the WTO Rules are just fine if we have a no deal Brexit.And he should know, because he’s actually done trade negotiations. He totally demolishes the idea that WTO Rules a) mean much b) can be enforced and c) allow smaller countries to trade freely without being bullied by more powerful ones:

One problem of having extended debate and resumption of debate is that we are getting a lot of repetition and recycling of arguments that we have heard many times before. For that reason, I want to focus on one specific issue, which is the idea of World Trade Organisation rules and exactly what they mean. The term “WTO rules” is used casually in every pub, and in every radio interview I encounter, but I suspect that many of the people who use it are not at all clear what it means.

Before getting into the detail of that, I will make one general point about no deal, which was brought out rather brilliantly by the right hon. and learned Member for Holborn and St Pancras (Keir Starmer), who got to the heart of this very well. He exposed the fact that no deal is actually a choice. It is not just something that happens; it is the conscious choice of a Government who could choose to revoke article 50, as the Father of the House keeps reminding us. That may be a difficult ​decision and a very unpopular one, but article 50 could be revoked, and by choosing not to revoke it, the Government will be choosing to have no deal, with all its catastrophic—or so they tell us—consequences.

Let me narrow down to the specific issue of what the WTO rules would be if we found ourselves in a no-deal world. The basis on which I speak is that many years ago, long before I came into the House, I was part of a small community of international trade specialists and got involved in negotiating the so-called Uruguay round and then the Doha round as part of the World Trade Organisation—or, as it was then called, the general agreement on tariffs and trade. I saw at first hand the way in which the WTO system operates. I realise that there is no longer just a small community of anoraks, which is what we were. A large number of people now consider themselves experts on trade policy, but the glibness with which the term “WTO rules” is applied leads me to believe that there are probably not too many anoraks, because there are some very real difficulties in applying WTO rules.

The World Trade Organisation is to trade what the United Nations is to peace. It has some admirable principles, but I think most Members, and certainly those on the Government Benches, would consider it seriously negligent of us to make our national defence dependent solely on the rules of the United Nations. Rules have to be enforced, and they have to be effective.

We need to look back on what the World Trade Organisation is and what it is trying to achieve. In the post-war world, it has established one central principle, and actually it is not free trade; it is something called the most favoured nation—MFN—rule. It is about non-discrimination. It has one big waiver, which is to allow common markets and customs unions such as the European Union to function on the basis of total free trade within themselves, but its whole objective is to stop the proliferation of bilateral agreements.

Such agreements were common in the inter-war period, and they are becoming fashionable again. Many people who are in favour of Brexit say that they are the whole purpose of trade policy. Those people want deals with numerous countries, but the whole purpose of the WTO was to stop this happening. It was supposed to be a multilateral organisation. In that capacity, the WTO achieved a great deal. It cut tariffs to single digits on most manufactures except agriculture, and it got rid of quantitative restrictions, except for the quotas that still exist for agriculture and textiles. It also began to establish a set of rules around intellectual property and various other intangible non-tariff barriers regarding, for example, government procurement.

The problem is that the WTO reached the zenith of its authority about 10 years ago, when the Doha negotiations collapsed and multilateral trade negotiations ceased to make any progress. This was largely due to the obstruction of India, Brazil and, to some extent, the United States. The European Union was actually the main liberalising force, but anyway, the negotiations collapsed and the WTO’s authority is now much less strong. Where does that leave us in terms of what the WTO rules now mean? If they mean anything, it is the application of the rule of law. In the WTO, the rule of law operates through dispute panels, which in theory have the same force as the European Court of Justice in settling disputes. It baffles me that Conservative Members ​are so affronted by the intrusiveness of the European Court of Justice, because it was designed to achieve precisely what the dispute panels of the WTO were designed to do.

However, like the United Nations, the WTO is not a desperately effective body, and many of its rulings are not carried through. Because it is a weak organisation, it is possible for big countries to bully weak ones. A celebrated case some years ago involved a trade dispute between the United States and Costa Rica—over men’s underpants, as it happens—and Costa Rica won the dispute. The United States felt deeply humiliated and refused to comply. A face-saving compromise was eventually reached, but that dispute sowed the ill feeling that in due course led to President Trump, who has made it absolutely clear that he does not believe in the World Trade Organisation. He does not want it to work, and he is doing everything he possibly can to stop it working, including not sending judges to sit on the dispute panels. It is now a very weak organisation. If we were to crash out of the EU under WTO rules and found ourselves in a dispute with the United States—or, indeed, with the European Union, which we had left—we would not be able to rely on the WTO dispute panels to settle the dispute in an orderly manner.

That is one of the WTO’s central weaknesses. Another is that, throughout its history, it has been overwhelmingly concerned with getting rid of tariffs. The main problem in international trade these days is the divergence of standards, which is of course why we originally entered the single market under Lord Cockfield and Mrs Thatcher. That was perfectly logical. If we are trying to liberalise trade, we attack the non-tariff practices that obstruct trade, hence the harmonisation of rules on mutual recognition. However, the WTO does not do that. It has very weak rules covering government procurement and all the barriers that are dealt with in the European Union through the rules on state aid, competition and the like. That, in turn, means that there is very little in the WTO that covers the services sector, which, as we have been reminded, accounts for 80% of our economy. We have a fair degree of liberalisation in the services trade in the European Union, which benefits our high-tech industries, financial services and so on. No such arrangement exists in the WTO. Those sectors are completely unprotected.

Finally, and not least, the fact is that some tariffs remain, and they are on agriculture. We have the problem that if we leave the European Union with no deal, on WTO terms, the European Union’s tariffs on dairy products, lamb and various other items, which are quite high, immediately kick in. The problem with that, as we discovered when we had the foot and mouth epidemic, is that if we cannot export, prices crash. The only logical response from the farming industry, in order to maintain the value of the stock, is to slaughter large herds. This will happen. We know there is a paper at the moment in the agriculture Department—the Department for Environment, Food and Rural Affairs—setting out a plan for slaughtering a third of all British sheep in order to maintain the integrity of the market. That is an inevitable consequence of a high tariff obstructing British exports.​

That is not all; I had only 30 seconds in the House yesterday, but I mentioned the particular problem associated with exports through the port of Portsmouth. It is actually the lifeline to the Channel Islands; that is the main route. The Channel Islands are not otherwise affected by Brexit of course, but they will be in this case. If trade is obstructed at the port because of the need to comply with veterinary requirements, phytosanitary requirements and things of that kind, lorries will be obstructed and fresh produce will not be able to get through. Quite apart from the disruption to traffic, the whole system of agricultural trade and the supply of food to the Channel Islands will simply dry up. We have an enormous practical problem resulting from this.

At this point, Labour’s Chris Leslie intervened to back up Vince’s point, highlighting the knock-on effect of delays:

Yes. Indeed, if I have made a contribution to this argument, it is in pointing out that this is not just a problem in Dover; this problem exists in all the ports around the country. There is going to be serious disruption of supply chains—of the supply of fresh food and many other items. Those people who trivialise the issue by simply saying, “WTO rules—nothing to worry about”, are completely disregarding these consequences.

The conclusion I come to—I think many Conservative Members share it, publicly or privately—is that no deal is just not a viable, acceptable option under any circumstances. We will therefore, within the next few weeks, be brought to the point at which the Government will have to revoke article 50. That would be a major step; it would be overturning the result of the referendum. I feel uncomfortable about Parliament, through Government, doing that. That is why I and other people who are not enthusiasts for referendums believe that the only way of dealing with this properly and of reasserting democratic legitimacy is to go back to the public and seek their approval for doing just that.

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22 Comments

  • It is good to see the leader of the Liberal Democrats criticise international organisations and point out their weaknesses. We all should take this message to heart. However, I was disappointed with the lack of details about what WTO rules means in terms of tariff rates. Personally I would like the price of lamb and beef to fall to that of pork.

  • Malcolm Todd 13th Jan '19 - 4:18pm

    “a Government who could choose to revoke article 50”

    It occurs to me that there’s a hurdle in the way even of this. (And I say this with concern, not with glee.) The Gina Miller case established 2 years ago that the government couldn’t give notice under Article 50 without parliamentary approval because it would involve unilaterally changing the legal framework of the UK. Surely the same applies to revoking A50? In other words, whilst the CJEU has ruled that the UK can unilaterally revoke, Britain’s own constitutional position is that the government can’t just do it unilaterally; it would need parliamentary approval, possibly (given the 2017 precedent) in the form of another Act of Parliament.

  • @Malcolm – I’m not holding my breath, but if Parliament votes against T.May’d Deal, on Tuesday and T.May fails to put forward an acceptable alternative by Friday, I would hope that Parliament also had enough sense to instruct T.May to revoke our A50 notice of intent. I think that more than satisfies the Gina Miller verdict, but even if it doesn’t, Parliament is sovereign and can, as John Berrow noted, ignore precedent.

    Obviously, the nutters will paint this as going against “the will of the people” etc., but to a sane person it is just the nail in the coffin of T.May’s government’s particular approach to Brexit that leaves the Conservative party in a nice big mess of it’s own making…

  • @Malcolm Todd

    IANAL but I am not sure that an EXTENSION of leaving would. It is often said that the exit day is written into legislation – which it is in the European Withdrawal Act. But this does not have to be changed by a full blown parliamentary procedure. Instead it can be amended by ministerial regulation. AIUI this is a statutory instrument (SI) the most usual of which do not get much debate and get passed if not voted against within 40 days. Although it is likely that such a politically sensitive SI would get more scrutiny.

    Equally it is difficult to see that asking for an extension from EU27 would need parliamentary approval for the asking. Law is not essentially changed until exit day (whenever that is) so we would not be changing it back.

    It is probably academic as the Government if it was minded to want an extension would probably want a positive resolution of Parliament. And it is more likely that we will get Parliament asking/demanding the Government to extend exit day.

    http://www.legislation.gov.uk/ukpga/2018/16/section/20/enacted#section-20-1
    https://en.wikipedia.org/wiki/Statutory_instrument_(UK)

  • Malcolm Todd 13th Jan '19 - 9:50pm

    Michael 1
    Yes, I agree about extension. There’s provision in the legislation to change the date of departure (though even that does require at least passive parliamentary approval, as you note); but of course for that we need the consent of all 27 remaining EU members! So neither delay nor revocation is actually within the government’s gift as such.

    Roland
    You may well hope, and so might I; but I have seen little sense of sanity prevailing yet. It is a coalition of Remainers, hard Brexiteers and Labour opportunism that is going to vote down May’s deal. It’s going to take more than hope to build a majority for withdrawing Article 50 out of that!

  • There is also now a suggestion that the legislation needed to leave the EU on 29th March can’t now be passed in time. So we may be unable to change the leaving date – and unable to pass the laws needed to leave.

    Which is probably an apporpriate ending point!

  • Malcolm Todd 14th Jan '19 - 1:10am

    OnceALibDem 13th Jan ’19 – 11:02pm
    “There is also now a suggestion that the legislation needed to leave the EU on 29th March can’t now be passed in time.”

    I don’t understand. What legislation needs to be passed for that that hasn’t already been passed? Of course, we barely have time to prepare for the regulatory chaos that will result if we don’t have a transitional agreement with the EU in place – but that won’t stop us leaving the EU, it will just make it even more chaotic than it needs to be.

  • According to http://beefandlamb.ahdb.org.uk/markets/industry-reports/uk-statistics/ (UK beef trade) we import roughly three times as much beef from the EU as we export to it. The imports from the EU for 2018 up to and including October being 223,894 tonnes (170,359 tonnes from Ireland alone) and our exports to the EU being 79,764 tonnes. If our exports to the EU were no longer competitive because of the tariffs then presumably neither would the EU imports be competitive (because of the tariffs), so there would be a strong domestic demand for the UK farmers’ produce. So I am not clear why it would be logical for the UK farmers to reduce their stock. If anything it seems like they would want to increase their stock to take advantage of the market opportunity provided to them by the tariffs on EU beef.

  • Glenn,
    So there would be a shortage of beef and prices would increase. Now why don’t you Google lamb. Just for intrest even your take on beef is simplistic
    British consumers tend to eat a limited range of meat cuts (for example, chops and steaks). When producers process a carcase, they have excess meat, which can’t be sold in the UK market and needs to be exported. However, popular cuts of meat still need to be imported to meet the UK’s needs. Meat processing companies rely on imports for 26% of their supply, with the rest coming from UK farms…… Beef accounts for the largest share of export revenue at 40%, followed closely by lamb and sheep at around 36%, with pork bringing in around 20%. The remaining revenue comes from the sale of other animal products (the less popular meat products that attract a low price here but a much higher price in other countries).
    http://britishmeatindustry.org/industry/imports-exports/
    Bless who was to know meat importing and exporting was so complicated, bless who was to know Brexiteers didn’t realise that.

  • @Malcolm Todd

    This is a fairly theoretical discussion! But I actually disagree with you SOMEWHAT (but not completely!) that probably both extension and withdrawal could be in the Government’s gift but I am very far from being an expert. Of course in one sense nothing is within the Government’s gift as everything is subject to the laws of Parliament. And it cannot now go to war or make treaties without Parliament’s (at least passive) approval. And of course any Government has to keep the confidence of Parliament. And only Parliament can pass laws even if it can’t initiate substantial legislation themselves. It is also unlikely that a substantive motion passed by Parliament to initiate legislation would be ignored by Government. And the most likely result of tomorrow is an amendment is passed asking/demanding that we don’t crash out without a deal.

    Extension

    UK law: It needs to amend the “exit” date. I am not sure exactly what sort of SI is required but I don’t think it is particularly onerous. Wikipedia states that: “Many statutory instruments (indeed, the largest group after those subject to the negative resolution procedure) are not required to be laid before Parliament at all, and are therefore not subject to any Parliamentary control.”

    And a SI comes into force when it is laid before Parliament – even if it is subsequently voted down.

    In practice in this Parliament there is as far as one can tell a big majority against crashing out without a deal so this would not be voted down.

    The EU27: If the EU27 do not agree then as far as I can see the British Government can write a letter withdrawing from Article 50 and then one minute later write one invoking Article 50. I don’t know but I don’t think the Gina Miller case prevents May from writing these two letters.

    In practice the EU27 is likely to agree to an extension – I believe so long as it is not “ratified” by the British Parliament. I think that democratic countries are not going to force on other democratic countries an agreement that is against their will. And, of course, the EU27 want to keep Britain in the EU.

    Timing: As far as I can see both this things could be done up until 10.59pm on March 29th. In practice a few days before that.

  • @Malcolm Todd

    2/2

    . Withdrawal from Article 50 (i.e. remaining in the EU):

    That is easy! May writes a letter and amends the exit date to say the year 2200! There is an interesting question if with the EU we remain within the EU and in domestic law we have exited. I think on that basis we would essentially remain in. We would still be part of the EU treaties and on “exit day” have exactly the same EU law as before.

    (Although we have a “dualist” (as supposed to “monist”) approach to international treaties. That is they have to be enacted in domestic law to be effective – treaties cannot of themselves override British law.)

    Perhaps that is the solution like Schrondinger’s cat – be in a “superposition” of both in and out of the EU at the same time!!!!

    The reason for going through this is in detail is that May goes around saying that we will crash out without a deal. Especially with the current Parliament (and EU27) in practice we will only crash out if she allows it.

  • Frankie
    That’s a different Glenn. I have no interest in Beef. I’m a vegetarian. I don’t know who it is., but there is someone who keeps using other people’s names on this site.

  • Frankie,

    From http://beefandlamb.ahdb.org.uk/markets/industry-reports/uk-statistics/ (UK Sheep Meat Trade) it can be seen that in 2018 up to October we exported 62,422 tonnes to the EU and only imported 12,409 from the EU. So with sheep meat the argument seems slightly different. So would we be stuck with all that lamb? Possibly not as we do import 53,194 tonnes of sheep meat from outside the EU. Overall we import about as much as we export. The farmers could sell the sheep meat they exported to the EU in the UK (with a reduction in imports), or possibly go over to beef farming to meet the demand previously mentioned. If there was a cull of sheep while farmers switched over, then presumably the price of sheep meat would decline during that period.

    Regarding the cuts of meat that you mentioned, the carcass would not simply be discarded if it could not be exported to the EU. It would go into things like beef burgers and sausages, and pet food etc., and maybe some less popular cuts would become available for cheaper in the domestic market helping those less well off. The site you referenced does make a good point though, a balance would need to be reached, and a way of doing that would be setting the tariffs to a level which suited the UK. Tariffs that provide the UK farmers a slight competitive edge over the foreign competition, but not enough that they could significantly raise their prices. It might be that the main competition might come from outside the EU with the EU being unable to compete with them once they are all subject to tariffs. Beef from Brazil perhaps (which already supplies the majority of corned beef) and lamb from New Zealand (which already supplies most of our imported lamb). The tariff revenue could be spent as the government sees fit.

  • Peter Martin 14th Jan '19 - 9:20am

    no deal is just not a viable, acceptable option under any circumstances.

    If this is the case why did nearly all Lib Dem MPs vote for the referendum to take place in early 2016?

    There was always a strong possibility that Leave would win and we’d end up negotiating some sort of leaving deal with the EU. It’s just game theory 101 that there has to be the option of ‘no-deal’. If you don’t believe that try it out for yourself next time you are negotiating a pay level, or a house or car sale. If you say in advance that you won’t accept no-deal you’ll definitely get a bad deal.

    The honest thing to have said at the time was that Britain was stuck in its arrangements with the EU and there wasn’t anything that could be done to change that. Therefore there was no point having the referendum.

  • @Peter Martin

    I think the point is what failure to agree a deal means. If you fail to agree to buy a new house then you can stay in your current house – you don’t have to move out!

  • Peter Martin 14th Jan '19 - 9:59am

    @Micheal1,

    That’s missing the point. If the negotiation is about the level of rent you will have to move out if there’s no deal.

    The question is why didn’t Remainers admit what they were really feeling before the referendum? Some like Kenneth Clarke were opposed to the referendum, but most were happy to see it go ahead on the assumption that Remain would win. The answer to that is they didn’t want to admit the truth about our supposed ‘voluntary membership’ of the EU. They didn’t want to say that was just a convenient fiction.

    I don’t believe they are right. No-deal has to be an option. Its not an easy option but if we crawl back into the EU now with our tail between our legs the future will be far worse. We won’t be easily forgiven for the trouble we’ve caused!

  • J George SMID 14th Jan '19 - 10:34am

    I wonder why Vince Cable did not mention one obvious condition why trading under WTO would be difficult for UK. One of the basic conditions of WTO is that the country/custom union/common market do have defined and controled area. (Borders to you and me). The UK is pretty much well defined, no disputes there. But how do you control the area AND keep Irish border open? It is either WTO or Good Friday Agreement. You can’t have both

  • @Peter Martin

    I don’t think so. We have a choice between our current house, a new house (May’s Deal) or being on the streets (crashing out without a deal). There are also a number of other different houses – EFTA/Norway which May ruled out moving too.

    It is also wrong to see this as a zero-sum game as between a buyer and seller where one gets more money or pays less – there are massive areas that are in both the EU and our interests. The EU27 want as close an arrangement as the UK will agree which is IMHO the UK’s best interests.

  • J George SMID

    What part of the GFA would be broken if companies just made their tariff tax declarations as they do their vat declarations and if any spot checks on lorries were done away from the border?

  • @Peter “We won’t be easily forgiven for the trouble we’ve caused!”
    I doubt the UK will be easily forgiven full-stop for the last two years. There are still people (mainly in France) who think it was a mistake to allow the UK to join the EEC…

    The question is really what will be the “course of treatment” and it’s duration if the UK actually leaves the EU or remains in the EU.

    I suggest by remaining, the EU27 still have to work within the constraints of the EU28, so whilst people (within the EU) will complain and make comment, ultimately the EU27 benefit more by having a strong UK that contributes to the EU (as it does now) rather than requiring payouts. With respect to the RoW, people will point and make comment, but we will have the EU to help protect the UK’s interests.

    Outside of the EU/EEA; the EU27 can totally ignore the UK to the extent that it can adopt policies that are actually damaging to UK interests, the RoW can also put their self-interests first in their dealings with the UK, in part because there will be no one standing behind the UK and thus no comeback…

  • Peter Martin,

    for once, I completely agree with you. It was cowardly for remain MPs to vote for the referendum, rather than at least abstaining. This then forced them to approve the Art. 50 notification, an even bigger, but at that point unavoidable mistake, and made them also unable to remove the leave-date from the bill. All this makes the rejection of both, May’s deal and no deal so awkward for them. But it must be done. This happens if unprincipled convenience reigns supreme; it will always haunt you.

    If those spineless remainers truly acknowledged this, they would push for outright revocation of Art. 50, instead of a new referendum, which is, again, choosing the path of lesser resistance over their true conviction.

  • Richard Underhill 22nd Feb '19 - 7:57pm

    Vince Cable has the front page of the I newspaper today. The headline says
    Lib Dems
    offer pact to
    breakaway
    MPs group
    The offer is actually limited to not contesting parliamentary bye-elections if any of The Independent Group are forced to defend their seats.
    He firmly ruled out any attempt at a merger [page 9]

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