Export Subsidies vs Refunds of Foreign Import Tariffs

This article is a follow up to my previous post entitled ‘Nissan, Felixstowe, Lettuces and Whisky’ in which I proposed a system of refunding foreign importers of British exports for the import tariffs they will pay to their own governments after Brexit, thereby allowing our exports to continue unaffected. If nothing is done about this our exports will suffer. Even though the economy overall will get a net boost from a No Deal Brexit, because the effect of import substitution will be so much greater than that of export substitution simply on account of the massive trade deficit we have with the other EU countries, and the Treasury will benefit from another £25 billion in revenues from the import tariffs, it is still a fly in the ointment and better to remove if we can.

The impact on our exports is the only logical element of Project Fear left that has any substance, given that all the remaining issues are being quietly dealt with through side agreements with those concerned. If we can deal with the export issue as well, that leaves the anti-No Deal brigade completely naked.

So I thought it prudent to check my interpretation of the WTO Rules with a leading QC. His reply was instant, unequivocal and offered no discussion of the rules themselves. He said my scheme is clearly prohibited! When I pressed him in reply I have not received any response. The good news was that he confirmed by default there is no other aspect of the Rules, other than than the Agreement on Subsidies and Countervailing Measures to which I referred in my previous post, that affect the decision, so I have not missed anything. The nature of his response left me suspicious that these lawyers will just play safe and protect their own backsides, especially if they are not being paid! So is he right?

You will find the critical articles at https://www.wto.org/english/docs_e/legal_e/24-scm.pdf.  Let’s look more closely at them:

Article 1 defines a subsidy in various ways none of which include payments to foreign importers. Indeed it specifically refers to payments or discounts within the territory of the Member government. It goes on to say that such subsidies will only be prohibited if they are ‘specific’ in accordance with Article 2.

Article 2 defines specificity as payments (etc. as above) to ‘an enterprise or industry or group of enterprises or industries within the jurisdiction of the granting authority’. My scheme is therefore clear on both counts, namely that it is general to all exports and countries, and that the recipients are not within the jurisdiction of the granting authority (UK government).

Article 3 deals with prohibition directly which it defines in three ways, namely (1)subsidies contingent on export performance, (2) subsidies contingent on the use of domestic over imported goods, as well as (3) the provisions of Articles 1 and 2 above. Quite clearly my scheme clears all of these hurdles.

Article 4 is even more fascinating. It deals with remedies for complaining members. It sets out procedures for complaint, arbitration and appeal, all of which are dealt with within the WTO itself. So suppose, despite all the above, a decision went against us; what is the worst that can happen? There are no provisions for fines or exclusion, only that the offended member can take its own countervailing measures against us, and then only if the WTO thinks they are appropriate.

So what countervailing measures could the EU take against us? The most obvious one is that they could do the same and start paying our importers for tariffs paid to us. But hang on a sec, isn’t that just a reversion to free trade anyway? Exactly what the numpties in Parliament want in the first place! We would still be faced with taking our own countervailing measures against all the barriers the EU has mounted against us over the past twenty years (the WTO may even support our own complaint against them!), but at least our exports would be protected and our consumers would be delirious.

Alternatively the EU could do something like double its own tariffs. In which case we do exactly the same to them. It would be a trade war (partly sanctioned by the WTO – we would then be contravening the most-favoured nation principle, but so what if the EU is allowed to do so), but one we would win easily on account the massive trade deficit we have with them.

So whichever way it goes there is nothing to fear. It’s win-win. So let’s just get on with it – leave the EU unilaterally and protect our exporters in this way at the same time. Publish and be damned!

Finally two further thoughts: 1). If I can be given wrong advice by a lawyer, what have government minsters and business leaders been getting?, and (2) the SCM Agreement is actually very cleverly written to give remedy to deficit countries but not to surplus ones, thereby creating an automatic stability mechanism. Unfortunately it is routinely misunderstood. The WTO should clarify and promote it to address the massive international trade imbalances that currently threaten the global economy.


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