Sunday, June 12, 2016

What's Really Going Down: Free Trade, Brexit, and the WTO

By Carmen Elena Dorobăț
The debate surrounding the EU referendum in Britain, scheduled in two weeks, and the fate of the UK outside of the EU, is now in full swing. Unsurprisingly, little of substance has been said so far on the issue. One would expect that both sides would be better prepared with arguments to support their cause, but many aspects discussed have not only been erroneous, but have appealed to people’s fear rather than their intelligence. Both the Remain and the Leave camps have failed to show how either decision would enhance economic and political freedom; instead, they have tried to one-up each other in the preservation and growth of the existing welfare state, military complex, and bureaucratic apparatus.
Setting aside the disappointing democratic discourse within the UK, an even more irritating factor have been the pronouncements of international organizations regarding the effects of a possible Brexit. As if economic progress were impossible before the creation of European inter-governmental institutions, the IMF has repeatedly warned that a Leave vote would “precipitate a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output.” The latest to join in this is the World Trade Organization, arguably the least entitled to display self-righteousness given its track record. Roberto Azevedo, WTO’s director general, has declared that in the event of a Brexit, he doesn’t “know exactly how members are going to behave [toward the UK] and what kind of engagement there will be. [Negotiations might take] two, three, four years. It can take a decade or more. It depends on the complexities of the negotiations and the appetite for members to do it quickly… [but] there would be a vacuum. The UK would be the only WTO member without a list of its commitments… it's a legal uncertainty. I don't have a crystal ball and the message I am bringing to you is that nobody has that crystal ball.”
Azevedo is unwittingly right on two counts: the WTO, in its 20 years of existence, has managed to erect a quagmire of regulations and agreements that have not only not promoted free trade, but have actually hampered it, and have increased the volatility and uncertainty of global trade. Secondly, any international trade negotiations now last decades—unsurprisingly since multilateral trade treaties do not seek trade liberalization, but the subtle introduction of additional hidden barriers to international economic freedom.
One does not need a crystal ball to point out that in the case of the United Kingdom, if sincerely interested, the benefits of EU membership for trade could be easily outperformed outside the Union and outside any other international agreement through unilateral liberalization. There is in fact no need for bilateral agreements—or for multilateral agreements—among countries, as the elimination of trade tariffs and barriers need not be reciprocal in order for a country to reap the full benefits of free trade. If the UK finds itself outside the EU common market and the WTO’s forum of multilateral negotiations, all it is needed for a real free trade agreement—as Richard Ebeling points out—is to pass “a short piece of legislation stating something to the effect: “The [UK] government herewith eliminates all existing barriers, restrictions, and prohibitions on the free and unrestricted importing and exporting, buying and selling of all goods and services between the [United Kingdom] and any and all nations in the world. The [UK] government declares that all forms of peaceful and non-fraudulent trade, commerce and exchange is the private matter of the individual citizens of the [United Kingdom] and any and all others situated in another country. This law takes effect immediately upon passage.” 
If this were to happen, chances are importers and exporters around the world would happily engage with the UK—as they currently do with Hong Kong, which has no import barriers. The WTO has conveniently branded the Asian powerhouse an ‘unusual’ case—but as unusual as it is today, it is one of the more successful, in a sea of otherwise heavily protectionist partner countries. And even if other countries might retaliate or simply not reciprocate, the UK would yet again be better off. Mises summed this up perfectly: “Even if all other countries cling to protection, every nation best serves its own interests by free trade.”
It is true that unilateral liberalization is impossible to accomplish when political interests are exactly opposite. As Mises argued, “if people regard imports as an injury, they will not stop anywhere on the way toward autarky” (1944, 250). Nevertheless, protectionism flourishes inside the EU or the WTO, where political interests detrimental to free trade not only find confirmation and support among other member countries, but also larger economic levers to push for further trade intervention. Again, Mises explained that governmental trade treaties are sought after only “as long as they hinder the other nation’s export trade and seem to encourage one’s own” (Mises 1944, 250).
In other words, the WTO and the EU common market amount to little else than well-organized cliques of protectionist policy makers labeling themselves as free traders. There is, without doubt, a better way for free trade outside both of these organizations.
The above originally appeared at

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