[5th Allotted Day]

Part of European Union (Withdrawal) Act – in the House of Commons at 5:26 pm on 9th January 2019.

Alert me about debates like this

Photo of Vincent Cable Vincent Cable Leader of the Liberal Democrats 5:26 pm, 9th January 2019

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 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.