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Brexit: A Guide to the WTO rules
The EU is the UK’s largest trading partner, in 2018, the UK exports to the EU were £289 billion, accounting for 46% of all UK exports. The UK imports from the EU accounted for £245 billion, totalling 54% of all UK imports. The UK had an overall trade deficit of -£64 billion with the EU in 2018. A surplus of £29 billion on trade in services was outweighed by a deficit of -£93 billion on trade in goods. Source: House of Commons 2019
Whilst the UK is a member of the WTO within its own right, as a current member of the EU, the UK is represented by the European Commission regarding its WTO goods schedule and services schedule. The WTO rules and WTO schedules will have to be established independently following exiting the EU. The UK trade secretary Liz Truss Lays the Groundwork for an Independent Seat attended the WTO forum on 10th October, outlining of low barriers to trade and lower tariffs, finalising preparations for an independent seat at the World Trade Organisation. In a speech delivered to business leaders and senior trade figures she discussed:
"The government’s top priorities at the WTO after Brexit include working with other members to agree new rules on issues that matter to British businesses and households, like digital trade; improving transparency so that British businesses have the information they need on other members’ trade rules; and working to make sure trade disputes are settled in the most effective way to provide certainty and stability for world trade."
The WTO agreement covers not just goods, but also trade in intellectual property and services. The General Agreement on Trade in Services (GATS) covers services, and Trade-Related Aspects of Intellectual Property Rights (TRIPS) covers intellectual property. Although the WTO lists an agreed members tariff levels on particular products, the customs duties that EU member states actually charge on imports do not appear in a WTO schedule.
HMRC provide an online service to check temporary rates of customs duty on imports, in the event of a no-deal Brexit:
When UK based businesses consider the effect of implementing World Trade Organisation’s tariffs, a macro-perspective must also be taken into consideration which accounts for the value of sterling against the euro. The EU’s applied tariff, which all member states must apply to goods imported from non-EU countries, is known as the common external tariff. Goods can circulate freely within the member states of the EU. The application of the common external tariff ensures that domestic states can compete fairly and equally on the internal market when importing from outside of the EU.
The Combined Nomenclature (CN) is a tool for classifying goods, set up to meet the requirements of both the Common Customs Tariff, and of the EU’s external trade statistics. The CN is used within the intra-EU trade statistics.
Having triggered Article 50, the UK must continue to enforce the EU’s applied tariff until the Brexit withdrawal date of 31st October 2019, and in the event of a Withdrawal Agreement, over the post-transition period of 2 years. Unless the UK enters into a UK-EU customs union following this period, the UK can choose to apply and charge lower applied tariffs, even if the UK’s bound tariffs mirror the EU’s WTO tariffs.
The World Trade Organisation’s principle of non-discrimination means that WTO members must not treat any member less advantageously than any other. There are exceptions for regional free trade areas and customs unions, such as the EU. Outside of this, the most favoured nation (MFN) tariff must apply to all. In 2013, the EU’s trade weighted average MFN tariff was 2.3% for non-agricultural products. UK exports account for 2.3% of the EU 27 GDP.
The exceptions to this is that the WTO allows groups of its members to conclude free trade agreements under which states may provide favourable treatment to each other. The EU has a number of preferential free trade agreements, with Canada, South Korea, Singapore and Japan. The United States-Mexico-Canada Agreement (USMCA) will replace the North American Free Trade Agreement, this has been signed by all parties but is yet to be ratified.
UK Brexit-related trade legislation includes the following:
Taxation (Cross-border Trade) Act 2018.
The Trade Bill 2017 - 2019
The customs and taxations TARIC currently places certain prohibitions and restrictions of the import and export of certain categories of goods, identifying luxury goods within this sector. The World Trade Organisation has around 160 members, accounting for around 95% of world trade. The aim is to facilitate trade flow as freely as possible, by providing a negotiating forum, reducing tariff and non-tariff barriers, providing stability through the operation of predictable WTO rules and resolving trade disputes under its dispute settlement process. The WTO regulates international trade in goods and services between WTO members under the WTO agreements. Goods schedules are set out in each member’s concessions and commitments. The WTO schedule sets the maximum tariff rates it can charge other members on particular products, and the maximum agricultural support it can give to domestic producers. Members of the EU share a common schedule. A WTO member's goods schedule is annexed either to the Marrakesh Protocol to the GATT, or to the member's Protocol of Accession if a member joined after the establishment of the WTO.
Dumping occurs when a country exports goods at a price lower than its home market price, to gain market share. The European Commission investigate and take anti-dumping measures between member states. A World Trade Organisation member can take action against dumping which injures its domestic economy, this is known as anti-dumping measures.
WTO Conditions on trade agreements. When deciding upon tariffs following Brexit, the UK as a member of the WTO cannot normally treat any other WTO member any less favourably than as set out in its WTO goods and services schedules.
The UK will be free to trade with other WTO members on more favourable terms than recorded in its schedules, but must do so in accordance with WTO rules; the MFN tariff must apply to all.