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Brexit: WTO, No

Theresa May’s Tories reported an impressive series of wins in British local elections on Thursday, helped both by voters’ distaste for the Labour party’s hard left leadership and the collapse of the UKIP vote. Much of the explanation for the latter is the belief amongst many (former) UKIP voters that with Brexit underway, the euroskeptic party should declare victory and shut up shop.

All this bodes well for the Conservatives in next month’s general election, but May is still left with the problem of agreeing the terms of the UK’s departure from the EU. For now Brussels and its proxies are taking a vindictively hard line, leading some Brits to ask why there should be a negotiated deal at all. Why not just opt for the hardest of Brexits of all (the so-called WTO option) by simply walking away from the EU? The UK could then trade with the EU on the same basis (allegedly) as everyone else. May herself has said that no deal is better than a bad deal.

The problem is that the WTO option is a bad deal. A month or so back, Leave HQ explained why. It’s technical but the key issue is this:

[T]he WTO rules only afford very limited protection against discrimination, and then only in respect of tariffs – which are no longer central to trade matters…

Tariffs do not prevent access to a market. They simply impose a tax on entry. The actual barrier is the regulatory conformity,  what is known generally as a non-tariff barrier (NTB) or, sometimes, as technical barrier to trade (TBT).

Nevertheless, it is generally recognised that, in order to access the Single Market, goods must comply with EU rules. Conformity is the way of overcoming the NTB. But what advocates of the WTO option have not realised is that there is more to it than that . Much more. Potential exporters not only have to ensure their goods conform, they must provide evidence of their so doing. This requires putting the goods through a recognised system of what is known as “conformity assessment”…..

The point about the Single Market is that border checks have been eliminated. The common rules are monitored by relevant national authorities and there is mutual recognition of standards. Thus, if you so desire, you can load a truck with grommets in Glasgow and ship them all the way to Alexandroupoli on the Turkish border, with just the occasional document check.

But the moment [the UK leaves] the EU, this stops. Your component manufacturer may still comply with exactly the same standards, but if the product requires independent testing , any testing houses and the regulatory agencies are no longer recognised. The consignment has no valid paperwork. And, without it, it must be subject to border checks, visual inspection and physical testing.

That means delay, and that means cost.

The WTO Option advocates will tell you that countries such as China, the United States and Australia all trade with the EU without formal trade agreements, and therefore operate under WTO rules. They don’t have these problems so why would the UK? The answer, however, is remarkably simple. These countries don’t rely solely on WTO rules.

What the WTO Option advocates have done is make a very basic but fatal mistake. They’re so obsessed with tariffs, they haven’t begun to focus on non-tariff barriers. Thus, by and large, they are only looking at trade agreements dealing with tariffs — a sub-set of international agreements which are registered with the WTO. But there are many different types of agreement and many which involve trade, either directly or indirectly, which are not registered with the WTO. These, for our WTO Option advocates, remain under the radar. To them, they are invisible.

Yet one of the most important types of trade agreement is the Mutual Recognition Agreement (MRA) on conformity assessment. This gets round the problem of border checks, as the EU will then recognise the paperwork on product testing and conformity certification. Throw in an agreement on Customs cooperation — to ensure that official paperwork and systems mesh — and you are on your way to trouble-free border crossings.

China has a Mutual Recognition Agreement on Economic Operators, signed in May 2014, the United States has one on conformity assessment which runs to 81 pages, agreed in 1999. Australia has one on conformity assessment.

Oh.

Writing in the London Evening Standard, Simon Jenkins discusses the potential implications for the UK’s vital financial sector of a hard Brexit (not great) and then adds this:

The best way through this mess was always a table d’hôte package, and the most sensible was to leave the EU but adopt the Norwegian option, of remaining with Europe’s free trade economic area (EEA). It is the softest of Brexits and far from perfect. May would have to fight her Right wing over immigration and respecting the European court. But it would work.

It would, and contrary to what Jenkins claims, the Norway option would return a degree of control over EU immigration into the UK to London. What’s more, it would free large areas of UK law from the supervision from the EU’s notorious court of ‘justice’ and hand over most of what’s left to the EFTA court, a non-EU court. Admittedly, the latter generally follows the lead of the ECJ, but it is, nevertheless, not quite the same.

Not bad, you might think. We don’t, of course, know whether the EU is prepared to offer the UK the Norway option (my guess is that, with some additional wrinkles, it would), but we do know that it is not an option that Theresa May is interested in pursuing.

That’s not something for which British voters will be thanking the Tories in the general election that follows this one.

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