Trading on WTO rules is cited as one the main problems the UK will have to deal with if it leaves the EU without securing a deal – but what exactly are these rules? And would it be such a disaster?
What is WTO?
The World Trade Organisation (WTO) is the global body that governs international trade.
There are 164 member nations who negotiate the rules of international trade at the WTO headquarters in Geneva, Switzerland, and WTO rules stipulate that each member must grant the same ‘most favoured nation’ (MFN) market access, to all other WTO members.
Trade agreements are negotiated and signed by the majority of the world’s trading nations and ratified in their parliaments, and any who don’t have free trade agreements with each other, they trade under ‘WTO rules’.
What are WTO rules?
Each WTO member nation has its own WTO schedules, which is a list of tariffs (taxes on imports of goods) and quotas (limitations on the amounts of goods) they negotiate and apply to other countries.
WTO agreements are long and complicated as they have to cover the legal complexities of a wide range of activities and industries, including: agriculture, banking, food sanitation regulations, government purchases, industrial standards and product safety, intellectual property, telecommunications, textiles and clothing, and much more.
The UK and parts of the EU already trade with a number of countries under WTO rules, including Australia, Brazil, China, the United States and any other nation that hasn’t signed a free trade deal with the EU.
When no deal has been agreed between two countries, they then trade on WTO rules, but the larger economies also operate using separate agreements to help regulate some specific areas of trade. The EU and US, for example, have in place a number of additional trade agreements that cover everything from wine to insurance and several things in between.
What’s the problem with the UK trading on WTO rules?
In short, things would get more expensive.
As things stand, almost half (44%) of all UK exports are shipped to the EU, and because the UK is part of the single market and customs union, they aren’t subject to and any checks or tariffs. If the UK leave the EU without any new agreements in place, this could make things very complicated and very expensive, especially in sectors such as motor and agriculture.
The average EU tariff rate is low, at between 1.5% and 2.8%, but it’s much higher in the motor industry where the tariff rate on cars and car parts in 10%. If the UK starts working under WTO rules, after Brexit, cars would be taxed at 10% when they crossed the UK-EU border, while agricultural tariffs would be significantly higher, rising to an average of more than 35% for dairy products.
Tariffs on trade with the EU would increase costs for both UK importers and exporters, which would also, in turn, increase prices for consumers. An increase on agriculture tariffs, for instance, will result in significant food price inflation for British consumers.
How do you think a wholesale move to WTO rules would affect your business? Let us know in the comments section below.
