2010s >> 2019 >> no-1376-april-2019

Cooking the Books: WTO rules, ok?

The World Trade Organisation, of which nearly all states are members, regulates trade between them. Its basic rule is the ‘Most Favoured Nation’ clause which lays down that, if a state grants favourable terms to another state, say, by reducing tariffs on imports from it, it has to apply the same terms to all other WTO member-states. This applies to customs unions as well as states.

Tariffs are a tax on imports which increase the price of the imported product. This ‘protects’ the home industry producing the same product from competition from cheaper imports. The EU, as a customs union, has to follow WTO rules when it imposes tariffs, as it does to protect agriculture, the car industry and much more. If Britain leaves the EU trading bloc it would have to ‘trade on WTO terms’ but this is merely stating the obvious; it says nothing about what the trade and tariff policy conforming to these terms is going to be.

Some Brexiteers think Britain should abolish all tariffs. ‘Liam Fox, the international trade secretary, wants a move to zero tariffs in as many areas as possible’, while for Jacob Rees-Mogg ‘cutting import tariffs would lead to cheaper food, clothes and shoes’ (Times, 18 February). Tim Martin, owner of the Wetherspoon pub chain, wants to ‘abolish all the taxes (tariffs) on non-EU imports, like oranges, rice, coffee, Aussie wines and a total 12,651 products. This will reduce prices in the shops, making for a better-off public’ (Wetherspoon News, Winter 2018/19).

But would workers be better off if the prices of everyday products fell? This is a claim made by free-traders since the time of Richard Cobden who campaigned successfully to get the Corn Laws repealed in 1846. These had been introduced after the Napoleonic Wars to maintain the high war-time prices of wheat, barley and rye and so protect the rents of landlords whose tenants grew these. Industrial capitalists resented this as the artificially high food prices meant they had to pay more as wages.

Cobden’s Anti-Corn Law League sought working class support by claiming that cheaper bread would make them better off. Engels, who had been working in his father’s factory in Manchester at the time of the repeal campaign, recalled that its aim had been ‘to reduce the price of bread and thereby the money rate of wages’ which ‘would enable British manufacturers to defy all and every competition with which wicked or ignorant foreigners threatened them’ (Labour Standard, 18 June 1881).  Challenged by a Cobdenite, he explained why the League’s theory that ‘dear bread meant low wages and cheap bread high wages’ was wrong:

‘The average price of a commodity is equal to its cost of production; the action of supply and demand consists in bringing it back to that standard around which it oscillates. If this be true of all commodities, it is true also of the commodity Labour (or more strictly speaking, Labour-force). Then the rate of wages is determined by the price of those commodities which enter into the habitual and necessary consumption of the labourer. In other words, all other things remaining unchanged, wages rise and fall with the price of the necessaries of life.’

So, insofar as abolishing or reducing tariffs on items of popular consumption reduced the cost of living this would exert a downward pressure on wages. Fox, Rees-Mogg, Tim Martin and other modern-day Cobdenites are wrong when they claim that the end result  of cheaper food, clothes, shoes, oranges, rice, coffee and Aussie wine would be that we would have more to spend.