Sir Vince Cable: A no-deal Brexit trade-off is price not worth paying '“ why we will be worse off under WTO terms

ONE problem of having extended debate, and resumption of debate, is that we are getting a lot of repetition and recycling of Brexit arguments that we have heard many times before.

By The Newsroom Friday, 11th January 2019, 12:58 am

Sir Vince Cable is the leader of the Liberal Democrats. He has warned against a no-deal Brexit.

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.

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Long before I became a MP, 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.

Vince Cable, left, during a visit to Huddersfield when he was Business Secretary.

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 the WTO achieved a great deal. It cut tariffs to single digits on most manufacturers except agriculture, and it got rid of quantitative restrictions, except for the quotas that still exist for agriculture and textiles.

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.

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 MPs ​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.

Furthermore 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 EU’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 Defra 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.

The conclusion I come to – I think many Conservative MPs share it, publicly or privately – is that no-deal is just not a viable, acceptable option under any circumstances. We will therefore 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.