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Brexit 'blow' to economy - ex-WTO boss

Do Not UseDo Not Use 30/05/2016 By Harry Kretchmer
The flag of the European Union and the Union flag sit on top of a sand castle on a beach © Getty Images The flag of the European Union and the Union flag sit on top of a sand castle on a beach

The World Trade Organisation's former director-general has warned that the UK economy risks a "huge blow" if it relies on the agency's global trading rules in the case of an EU leave vote.

Woman drinking coffee in Trafford Centre: The performance of the service sector is important for the UK as it accounts for more than three-quarters of the UK economy. © Getty Images The performance of the service sector is important for the UK as it accounts for more than three-quarters of the UK economy.

The UK's services would be particularly vulnerable, while manufacturers would face "appalling complexity", Peter Sutherland told BBC Radio 5 Live.

Two workers weld vehicle panels in Nissan's Sunderland factory in north east England, 12 Nov 2014: Manufacturing accounts for about 10% of the output of the UK economy © Getty Images Manufacturing accounts for about 10% of the output of the UK economy

Vote Leave campaigners argue the UK can rely on WTO rules in a Brexit vote.

A high-profile campaigner said Mr Sutherland's fears were misplaced.

Economists for Brexit group member Gerard Lyons, told the BBC Mr Sutherland was just "drawing his own conclusions".

"The reality is that the UK can leave the European Union and trade freely under World Trade Organisation rules," said Mr Lyons.

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'Huge blow'

As a European Commissioner during the 1980s, Mr Sutherland helped lay the groundwork for the EU Single Market free trade area in goods and services.

He was director-general of the World Trade Organisation (WTO) between 1993-1995.

Mr Sutherland told Wake Up to Money the WTO could not be depended upon by those who favoured leaving the EU.

"The WTO would not give the right to provide services," he warned.

"At the moment the banking system of Britain provides services all over Europe because by being part of the European Union they have what's called a single passport and they can operate everywhere.

"If Britain left the European Union it would not have a single passport and many financial services companies might say 'we can't have our headquarters in a country that is outside the European Union' and they might well move.

"This would be a huge blow to the British economy," he told Wake Up to Money.

The World Trade Organisation told the BBC: "the WTO does have financial services agreements but not all members are party to it and it is not a case of uniform commitments."

But Mr Lyons, former chief economist at Standard Chartered and a member of Economists for Brexit, a group of eight independent economists that favour leaving the EU, said Mr Sutherland needed to "look at the reality."

"Some people fear, and it's a misplaced fear, that if London were outside the European Union the City would somehow be affected," said Mr Lyons.

"London has continued to adapt and change and so too has the financial sector. Increasingly financial regulation is set at a global level."

'Appalling complexity'

Mr Sutherland has also warned that manufacturers could be hit if the UK votes to leave the EU, saying they will face more regulation than currently.

"If you sell manufactured goods into the European Union under WTO rules, you have to be able to prove - and this means inspections at borders - that the component parts are from Britain.

"If, for example, you are exporting cars and the engines are made in another country, that will all have to be checked and different tariff rates might be applicable to some of the components.

"You're in a new ball game of appalling complexity and the prospect of that should be extremely worrying to everyone in Britain."

'Under EU regulations, goods imported from outside the EU may be subject to tariffs.

However, Mr Lyons says the prospect should not fill UK exporters with dread.

"There are countries from all over the globe who are not in the Single Market who export into the EU.

"And the other 85% of the UK economy which is domestically focused won't need those rules and regulations."

'Destabilising effect'

Mr Sutherland also warned that a vote to leave the EU could be dangerous for the global economy and for European politics.

"I think it would have a traumatic effect which would roll way beyond Britain's shores.

"One of those consequences could be a destabilising effect on the European Union itself.

"If Britain leaves it will provide oxygen for the nationalism the European Union was created to compete with."

But Mr Lyons dismissed the concerns.

"There is considerable uncertainty for the UK if we tie ourselves to this slow growth region of the world economy and to the instability of the eurozone.

"The problems in the European Union are self made."

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