Kevin Dowd 25 June 2019
Governor Carney is up to his old tricks again. To quote Friday’s Financial Times:
Mark Carney, the Bank of England governor, has dismissed Boris Johnson’s claim that Britain’s exporters would avoid facing EU tariffs after a no-deal Brexit.
In an interview with the BBC’s Today programme on Friday, Mr Carney said tariffs would be applied “automatically” if there was no agreement with the bloc because the EU would need to follow World Trade Organization rules. These require that all members apply the same tariffs to all of their trading partners with whom they do not have a free trade agreement
We need to understand that there are two different ‘deals’ (or no-deals?) being discussed here. The first is Theresa May’s dreadful Withdrawal Agreement that sought to reduce the UK to the status of a vassal state taking orders from the EU and paying tribute to it. The other is a GATT24 trade agreement, a kind of standstill arrangement under Article XXIV of the General Agreement on Tariffs and Trade (GATT) which is the predecessor of the World Trade Organisation (WTO). Tariffs would be kept at zero whilst the two parties seek to negotiate a comprehensive Free Trade Agreement (FTA). As Iain Duncan Smith and David Campbell Bannerman point out in an excellent article in BrexitCentral, such an agreement
could be written on the back of an envelope. Lorand Bartels has helpfully written a one-page FTA properly that is sufficient to allow Article 24 to apply. This is a ‘basic deal’ or a ‘temporary FTA’. But it is entirely manageable and legally sound.
Here is my take. The Governor’s comments are not so much misleading, as just plain wrong. The fact is that the UK does not even need a ‘deal’ of any sort to continue trading on zero-tariff terms with the EU. Post-Brexit and absent any trade deal, the EU and the UK would default to trading under WTO rules. He is right on that bit. These rules do not require that countries impose tariffs on each other, however; instead, they focus on issues of non-discrimination and how high the maximum permitted tariffs might be. So the EU could, if it wished, simply refrain from imposing tariffs on the UK.
The same applies to the UK, which could and I believe should, refrain from imposing tariffs on imports from the EU, deal or no deal.
I would go further and say that it is in no country’s own national self-interest to impose tariffs on any of its imports from anywhere, period. As Sir Robert Peel put it in a Commons Debate in 1843: “I am bound to say that it is our interest to buy cheap, whether other countries will buy cheap or no.” Tariffs are self-harm.
Nonetheless, if the EU wishes to harm its importers by making their imports from the UK more expensive, then that is up to them. Contrary to what you often hear from the Project Fear merchants, that is no big deal, however. The maximum permitted tariffs would be low for most goods and WTO rules prohibit discriminatory tariffs. Punitive tariffs – another Project Fear bugaboo – are out of the question.
So maybe the EU will impose tariffs on imports from the UK and maybe it won’t. The truth is that we don’t yet know, although we can say that it would be in the interests of both the EU and the UK to avoid tariffs. But it is wrong for Governor Carney to assert that tariffs would be applied automatically because that is what WTO rules require, even without any deal of any sort. WTO rules require no such thing.
[Contact box open as always – DB]