A WTO Brexit would be wrenching, costly and fraught with uncertaintyby Patrick Low / October 11, 2018 / Leave a comment
Irreconcilable political passions and the clock may yet conspire to force the UK out of the EU without a deal on 29th March 2019. These days Ladbrokes is putting even money on that eventuality.
In descending order of likelihood, three possible pathways to save the UK from crashing out of the EU are a time-bound extension of the status quo,a cobbled-together deal at the last minute, and a “people’s vote” to reverse Brexit.
Failing any of these, the only place the UK can go to define its global trade relationship with the EU post-Brexit is the World Trade Organisation.
Despite protestations to the contrary from some optimistic Brexiters, the WTO fallback scenario is problematic. It would be wrenching and costly, fraught with uncertainty and not as temporary as some pretend.
The WTO, of course, is a lot better than a void but much less advantageous than today’s situation in trade terms. Around 45 per cent of the UK’s exports go to the EU and it receives over 50 per cent of its imports from that source. These are high levels of dependency. EU countries in aggregate only sell 8 per cent of their total exports to the UK—a considerably lower reliance level.
All intra-EU trade is free from import duties and crosses frontiers in a frictionless manner. Under a crash-out scenario both those conditions cease to exist. As a WTO trade partner of the EU, the UK would be guaranteed non-discriminatory trade (except where preferential trade agreements are in place), a set of clear trading rules, and access to a dispute settlement mechanism.
But tariffs on UK-EU goods would not be zero. Far from it. The average EU tariff is 5.3 per cent and variance is high in some product areas. The UK’s greatest vulnerabilities in terms of post-Brexit access fall on agriculture, food and beverages, the automotive sector, and chemicals and plastics.
Tariffs in these sectors can range as high as 20-30 per cent plus and most are in double figures. Paying these tariffs and other positive rates on imports would not be a small trade shock. Only 30 per cent of EU trade is free to non-preferential partners.
On top of this, the EU has over 30 preferential trade agreements and several others in the making. Can the UK expect preferential trade with these countries to continue…