What are the World Trade Organisation (WTO) rules?
The main WTO rules are
- that nations should not discriminate between trading partners (the ‘most favoured nation’ rule), and
- that specifically agreed tariff rates (the tariff schedules) should not be exceeded.
These set a baseline for trade; but most nations have negotiated preferential deals with other nations, at least with their closest neighbours, to gain better access to markets. Trading on WTO terms alone is not ideal. The EU, for example, has free trade agreements with over 70 countries.
Can we get free trade agreements with other nations?
Currently, the UK benefits from the EU’s free trade agreements with over 70 countries, and this accounts for around 12% of the UK’s trade. Post a “No Deal WTO Only” scenario, it will need to negotiate its own free trade agreements. This is likely to take time. Most countries will wait to see what the UK manages to negotiate with the EU first.
To protect household budgets from rising prices, the UK may offer, unilaterally, zero percent tariffs on imports of certain goods. If it does so for one WTO member, it will have to for all WTO members, because of the anti-discrimination rule. The incentive for nations to agree free trade agreements with the UK would be diminished, if this were to happen.
The UK is hoping to negotiate a free trade agreement with the EU first, and this does appear to be achievable within a reasonable timeframe, given the close alignment of the UK’s regulations with the EU’s.
What will our baseline WTO tariffs be?
Currently, the UK benefits from the tariffs the EU has agreed with the WTO. The UK will need to negotiate its own WTO tariff schedules, and this is likely to take time. The UK believes it can operate under the draft tariffs it put before the WTO in December 2018, but these have not been approved by the WTO. These tariffs would only form the baseline for trade: preferential bilateral tariff rates, agreed with specific countries, would still be better.
What if we cannot agree better tariffs with the EU?
The EU is our closest neighbour, and so negotiating preferential tariffs with it is very important. If we cannot secure better than WTO tariffs with the EU, certain industries would suffer more than others. Generally, EU tariffs are low. But in the car industry, agriculture and fisheries, they are high. These industries would suffer badly from the imposition of tariffs on trade with the EU.
What about border checks?
In addition to tariffs, other barriers to international trade exist, such as customs checks and visa requirements. Free trade agreements seek to lower these barriers, also. If the UK leaves the EU with no deal, the EU would have to impose the same requirements on UK imports as it imposes on all other WTO members with whom it has no deal. This would impact most heavily on the service sector, which makes up 80% of the UK economy. Border checks would also impact heavily on the agriculture and fisheries markets, for example. 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. It is very important, therefore, for the UK to get a deal with the EU at least.