We hear all the time that ‘no deal Brexit’ means we will ‘trade on WTO rules’ but, often, little more is explained.
So, here’s some stuff about the World Trade Organisation. It has 164 members – that’s almost everyone - and it’s really where countries negotiate global trade rules.
Every member of the WTO, including the UK, has a list of ‘tariffs’, or taxes on the imports of goods and, in some cases, the amount of goods that can be imported for free before tariffs are applied (so called Tariff Rate Quotas). In technical terms, these lists are called WTO schedules. Because we’ve been under the EU umbrella for 40 years, we’ve had to register new schedules at the WTO. The work to get them accepted by all other members is underway, but we still can trade on the terms we’ve outlined.
The most important WTO rule is called the ‘most favoured nation’ agreement. This says that a country cannot have different rates of duty for different countries, it has to treat every other WTO member around the world the same.
To avoid this rule countries or blocks of countries can agree a Free Trade Agreement (FTA). The catch here is that the agreements have to cover almost all trade between the parties. It’s not possible to pick and choose small areas to agree on.
One of the issues the UK faces is that the EU has trade agreements with other countries which we now benefit from. We are working hard with those countries to agree to transition these agreements so the UK can use them after we leave the EU.
In the future, we might seek FTAs with countries the EU does not have an agreement with and this is a great opportunity. The US is the prime example.
Now, for the geek in us all there’s a whole world beyond tariffs called "non-tariff barriers". These are rules about product standards, safety regulations, customs procedures etc and they will also need to be negotiated for trade to work smoothly. Despite all the media and political noise about tariffs, this area is where the majority of costs lie.
I’m sure it’s now quite obvious it will require time and negotiation to achieve all the UK wants as an independent trading nation after we leave the EU. There is certainly a case that a gradual move to WTO rules, alongside FTAs, in a transition period is better than a sudden reliance.
This is why I support the Prime Minister’s EU withdrawal deal because it takes away much uncertainty and it protects jobs and the economy while these issues are sorted out.
Of course, we already trade on WTO rules as a member of the EU, with the US China, Australia and Brazil, for example and it’s a success. The US is the biggest single country export market for the UK although, as usual, it’s a little more complicated than that because ‘further agreements’ help regulate trade under WTO rules that we will also need to agree in some form.
Will sudden WTO trade rules cause the UK problems? Well yes, I believe it will be harder and I don’t think it’s a good idea when there is an alternative. Will it halt trade? No, it won’t. Can the UK meet the challenge of a sudden reversion to WTO rules and prosper? Yes, it can but, for the reasons I have mentioned, it will take time.