What if the UK falls back from EU to World Trade Organisation rules?

60% of the UK’s trade in goods benefits from preferential trade agreements – around 47% with the EU itself and around 13% with other countries and trade blocks that have agreed preferential trade treaties with the EU (see the map from 2013 for a guide). These could be directly affected by a switch to World Trade Organisation rules. We explain the situation below.

Map of 2013 EU Trade Agreements
Source: European Commission http://trade.ec.europa.eu/doclib/html/150129.htm

What does the WTO do in this context? The WTO provides upper limits on tariff rates and other barriers to trade in most goods and some services, as well as providing some mechanisms to settle disputes protect intellectual property. WTO members must also apply the same tariffs on imports from all WTO members (except if they are both members a trade block like NAFTA or the EU). Crucially, though, the upper bounds on tariffs have been published by WTO member states themselves after years of detailed negotiations where all other WTO members in practice have a veto, and the commitments primarily apply to imports rather than exports. What does this mean for the UK?

Challenging negotiations. The UK is and will remain a member of the WTO in its own right, but it has been been using the EU’s published tariff schedule and that ceases to apply to the UK upon leaving. The UK could try to simply replicate the EU’s tariffs, but that would need to be agreed by all WTO members including the EU, and may not be agreed without careful negotiation that could take some time. For example, the EU imposes 87 so-called ‘quota tariffs’ mostly on foodstuffs, and the UK may wish to take some of those quotas with it and the EU would need to adjust its. So even the ‘fall-back’ to the WTO rules could require some skill.

If the tariff schedule to be negotiated deals with imports to the UK, what happens to exports to non-EU countries? Arguably, not a lot. The UK would clearly lose the benefit of preferential trade agreements on the 13% of trade mentioned before, but exports to other countries currently governed by WTO rules would not change.

For example, let’s take a look at exporting goods falling under HS code 8481, one of the major categories of trade between the UK to the UAE:

Share of exports and imports
Share of exports and imports

The UAE currently applies a tariff of 5% of the value of imports of these goods from the UK along with some documentary requirements. The UK would not need to have agreed and published a tariff schedule for UK exporters to be able to benefit from the same 5% tariff on sales to the UAE.

To our knowledge, this has not been disputed anywhere and we would welcome comments.

In future posts, we will look at the impact on trade with the EU, non-tariff impacts on exports to other countries (especially documentation and Rules of Origin), and how future negotiations may depend on if the UK agrees “third-party most favoured nation” clauses with EU.

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