What does Brexit mean for Trading?
As the March deadline as promised by the PM to trigger Article 50 will soon be upon us, Parliament remain undecided on many factors that should come into account when leaving the EU, but one of the major questions on everyone’s mind is: “What will become of trading in the UK?”
Currently, the UK remains a part of the EU, meaning we can continue to sell our goods to other countries without any additional taxes or costs. UK consumers can also import from other EU members tariff-free.
Considering Teresa May has refused on the suggestion of a continued membership within the EU’s single market once the Brexit procedure has been completed, many will also need to leave the customs union.
This leaves us with 2 choices:
A reformed trade deal with other continents, like the EU developed with Canada or South Korea – however this procedure can take a large amount of time, meaning it would be impossible to form new trade deals in time for the deadline when we plan to cut all tied with the EU and end our trade deal.
We can also form an agreement under World Trade Organization terms.
The WTO is an agency on an international scale with over 160 countries as members, with the mission to promote international commerce. Many of the head world economies such as the UK are a part of the WTO. Countries in the EU act together as part of the EU rather than as individual nations.
The WTO are strongly against discriminating between any of their members. As such the UK and EU would both need to impose on each other’s exports, meaning barriers applied to goods would have to match for both parties. Without a free trade agreement there is an obligation to follow WTO rules which would mean tariffs, these would only apply to imports. The WTO cannot raise tariffs above a certain level, but WTO rules have to be followed during trade which would mean tariffs for any imports between the UK and the EU, as the UK would no longer be a part of the single market.
The EU’s average maximum tariff is 4.8% for all imported goods. With this average there are variations in cases. Agricultural produce increases to 10.9%, while cars are at 10%. Some other goods are 3.9%. As such the UK can expect the same tariffs as the EU currently faces.
The UK’s updated schedule will need the consent of two other WTO members. Meaning any trade deals agreed on are verified by other WTO members, which ensures countries stick to trade deal plans as well as limiting any competition the trade deals may have. Julian Braithwaite, UK ambassador to the WTO wrote in his blog: "So to minimise any grounds for objection, we plan to replicate our existing trade regime as far as possible in our new schedules."
The UK can still apply for lower tariffs, as it probably would. The EU has also previously applied for lower tariffs which have been granted in particular cases. Economists are supporting a more comprehensive exercise in cutting tariffs and other barriers unilaterally. Meaning the EU and UK would receive tariff cuts simultaneously.
What if the UK and the EU simply can't agree on trade tariffs?
If the UK and EU can’t agree on the tariffs the matter would be taken to the European Court of Justice. The Prime Minister has already stated that its jurisdiction in the UK will end. A trade agreement with the European Union would likely contain an arrangement for a tribunal to make rulings.
If an agreement cannot be reached between both parties then any dispute taking place would have to be passed onto the World Trade Organization, which has its own developed dispute settlement system. Where panels are established and authorized to make rulings for any cases.
In any case, the UK and EU will have to follow rules set out by the WTO. What is important is that any new trade agreements reached which might need to be negotiated to allow for deeper integration on a global scale for the UK, whether this improves trade for other nations along with the UK remains to be seen with mere predictions as to what the result of Brexit could mean for the economy.