There’s an emerging narrative about the UK becoming the ‘champions of free trade’ once again. This magical state of independence wherein we rise to the top of the proverbial food chain and become an independent nation with market dominance is one touted by a number of keen Brexiteers. But is it based in fact?
The storyline is now pulling in the World Trade Organisation (WTO) as a late-addition. Our new protagonist has been around since 1995, with 164 member countries subscribed to its rules which govern international trade.
As it stands, the UK currently trades with a total of 24 countries and territories under WTO rules, including the United States, China, Thailand and the United Arab Emirates. The EU negotiated these deals on our behalf, but it is likely that Britain becoming independent from the EU will not affect trade terms with these countries. However, there are a number of countries which we have trade agreements with based on our EU membership: Canada, Mexico and South Korea, for example. In fact, even parts of our trade relationship with the U.S are made easier due to agreements between the European Commission and U.S exporters.
Currently, Prime Minister Theresa May is attempting to renegotiate a deal with the EU. If this fails and we leave without a trade agreement, the UK will have to negotiate all current trade deals.
So, what does this mean? Unfortunately, not even our top economists can seem to agree.
There are a multitude of possible endings to the Brexit story, including the one where we default to WTO trading rules. If this were to happen, a number of tariffs would be introduced on exported goods. Tariffs vary across different product groups, with pharmaceuticals seeing a 0% tariff, but meat and cereal attracting a 45 – 50% tariff. Vehicle trade would be significantly impacted with a 9% additional charge to export, and Aircraft seeing the new terms at 3%.
A real-life example could demonstrate the impact: our biggest receiver of exports is Poland, who import £45 million of tobacco annually. Under WTO trade tariffs, tobacco would see a 45% price increase – terrible news for exporters of tobacco in the UK.
It’s also interesting to note that there are currently no countries who trade under WTO rules alone. All members of the WTO have at least one bilateral or regional trade agreement in place in addition to WTO rules.
However, we do have some strengths. Britain is the world’s fifth-largest national economy by GDP, and in a number of cases it’s suspected that other countries will be reluctant to disrupt current trading agreements too much for fear of losing out. On top of this, some of the potential export tariffs could be balanced by significant savings on some import tariffs, therefore equalising the economy again.
Nothing is certain until the outcome is defined. The fantasy of total geopolitical omnipotence in the eyes of some Brexiteers seems unlikely, but we can still hope for preferential trade with some countries if No-Deal becomes The Deal.