WHAT DO ‘NO-DEAL’ AND ‘WTO’ MEAN?

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The UK is a member of the World Trade Organisation (WTO)

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  • Member countries that do not have a (tariff) free trade agreement (FTA) must trade under “WTO rules”.
  • If the UK does not reach an agreement with the EU on a future trading relationship after Brexit, ie no-deal, the default position is that WTO rules would apply on trade between the UK and the EU, and between the UK and third countries (including over 70 countries with which the EU has trade deals).
  • To re-establish WTO UK’s autonomy from the rest of the EU, the UK has to agree to a ‘schedule’ of tariffs on goods
  • Problems include: agreeing quotas and renegotiating trade agreements with other countries the EU has FTAs with
  • Under WTO rules each member must grant the same ‘most favoured nation’ market access to all other WTO members
  • Exports to the EU and other WTO members would also be subject to the importing countries’ ‘most favoured nation’ tariffs
  • Under WTO rules, the UK could alleviate the impact on consumers by reducing or eliminating tariffs unilaterally – as long as this is done in a non-discriminatory way
  • Under a hard Brexit “WTO rules” scenario, without mutual recognition agreements for product standards,
    it is unlikely that UK products could enter the EU without further checks at the border

Potential consequences

  • If there is divergence between UK and EU standards, UK businesses would need to produce two different product
    lines – one for the UK and one for the EU – which would increase costs and reduce competitiveness
  • Increased costs for importers and exporters (and consumers): these vary e.g. cars and car parts tariff rate is 10%, the average though is around 1.5%. Tariffs on agriculture are high (varies according to product)
  • Access to the single EU aviation market requires headquarters and majority shareholdings to be
    located within the EU so that it can have regulatory oversight on safety
  • The Centre for Economic Performance estimates that a “No Deal WTO rules only” scenario would reduce
    the UK’s trade with the EU by 40% over ten years
  • Adopting a policy of unilateral free trade would mitigate part of these costs. But the savings from
    unilateral tariff cuts are estimated to be just 0.35% of GDP
  • The US wants to pull out the WTO: “Powered by a rise in economic nationalism, growing concern about China, and frustration with two decades of paralysis at the WTO—the knives on Capitol Hill are out, to the delight of some of the trade hard-liners in the White House.” SOURCE: U.S. Effort to Depart WTO Gathers Momentum, FP (Foreign Policy) 27 May 2020

FURTHER READING

2017 September – No Deal: The WTO Option, Fact sheet, The UK in a changing Europe

 

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