As you will most likely be aware, the UK left the European Union (the EU) on 31 January 2020. As things stand, we are now in what’s been coined as a Brexit transition period, whereby the UK government is in the process of negotiating formal trade agreements with other countries/third parties (including the EU), with this transition period ending on 31 December 2020 unless it is extended. On the whole, the UK is, in the meantime, being treated as if it were still an EU member state, and most EU law will continue to apply to the UK during this time.
So, focusing in on the subject of trade, the aim of this article is to equip you with a working knowledge of what trade might look like in the event that the UK is unable to strike a new deal with the EU by the end of 2020, and the consequences of all future trade being done on World Trade Organisation (WTO) terms if that turns out to be the case. This scenario is not without fierce opposition (due to fears of shortages of essential goods, higher prices and cross-border disruption), and having a basic understanding of how it may affect your business is important.
- What is the WTO, and how will its terms affect the UK if there is no trade deal?
- Would a no trade deal only have an impact on trade between the UK and the EU?
- What would be the situation with tariffs and quotas?
- What are non-tariff barriers and how will they be affected in a no deal situation?
- What about the effect on services?
- Does no deal by 31 December 2020 mean that all negotiations on a possible future deal will cease?
What is the WTO, and how will its terms affect the UK if there is no trade deal?
The World Trade Organisation or WTO is the global, international organisation that deals with the rules of trade between nations. In a nutshell, it is a place where member governments try to deal with and find solutions for the trade problems they encounter with each other. Currently, there are 164 members of the WTO (who account for around 98% of world trade) and in the absence of members having free trade agreements with each other, the fallback position is effectively trading on the WTO terms.
Would a no trade deal only have an impact on trade between the UK and the EU?
The effects of a no trade deal would have more far reaching consequences than just the trading relationship between the UK and the EU: this is because, as things stand, Britain trades with the rest of the world as an EU member – if a no deal scenario occurs, many trade agreements fully or partially in place between the EU and multiple other countries would no longer apply to the UK.
What would be the situation with tariffs and quotas?
Under the terms of the previous rules and the current transitionary arrangements, there are no tariffs on goods traded between the UK and the EU and border checks are minimal. If a new free trade agreement is not reached that is satisfactory to both parties, this means that the UK will be faced with the tariffs and quotas imposed by the EU as a member of the WTO, and vice versa. From a UK perspective, it would have an impact on businesses that rely on selling their goods to the EU, as the EU would impose its tariffs and taxes on UK-imported goods – some of these tariffs being notably very high (for example, in the agricultural and car manufacturing industries).
Learn more about the potential impact Brexit could have of tariffs and quotas in our guide: How Will Brexit Affect Imports And Exports?
It is worth pointing out that the UK has already released details of the tariffs that will be applicable from January 2021 in respect of those countries with which it does not have a free trade deal.
What are non-tariff barriers and how will they be affected in a no deal situation?
A non-tariff barrier can be described as any measure, other than a customs tariff, that acts as a barrier to international trade. If there is no fresh deal on trade between the UK and the EU, there will be new non-tariff barriers as a result of the UK leaving the single market and customs union: these would include measures like border controls, country of origin checks, and differences in regulations over issues such as product standards and safety, to name but a few examples. In relation to the effect upon UK businesses, there is a concern that increased delays will arise in relation to the above areas in the event of a no deal scenario.
What about the effect on services?
It is common knowledge that the UK and the EU currently (and historically) enjoy a strong reciprocal trade in services. A lack of trade deal taking into account reliance on WTO rules in the alternative provides for only a limited integration for services, and the UK Institute for Government has raised concerns that many countries believe WTO rules don’t address trade barriers sufficiently. One area that looks set to be particularly hard hit by a no deal scenario in the services sector is the banking and financial services industry.
Does no deal by 31 December 2020 mean that all negotiations on a possible future deal will cease?
All is not lost in the event that the UK and the EU cannot agree trade terms that are outwardly more mutually favourable than trading on the basic WTO terms by the end of December this year. Invariably, negotiations would at some point resume with the aim of reaching a deal. In light of the global effect of coronavirus, however, how long any resurrected negotiations would take to bear fruit is impossible to glean at the moment.
If you’re concerned or require legal advice to prep your business for the impact of Brexit, read our whitepaper: 6 things you can do now to prepare for Brexit, including sound advice on how to ready yourself along with insight from ambitious start-ups and SMEs. Alternatively, get in touch with our expert solicitors for further advice.