In the weeks since the EU referendum there has been much gnashing of the teeth and nail biting over the UK’s future trade relationship with both EU and the rest of the world.
Much negativity has been expressed by commentators, a good deal of which is exaggerated or misguided. It is not all doom and gloom as many would have you believe. The UK remains in a strong position with respect to its current and future trading partners. It can, in fact, prosper going forward under existing arrangements and new ones which are highly feasible and indeed quite likely.
First of all, it must be acknowledged that, contrary to what many have stated, the UK is and will remain a member of the World Trade Organization (WTO).
One of the founding parties of the original General Agreement on Tariffs and Trade (GATT) which later became the WTO, the UK is automatically entitled to enjoy the benefits of the WTO’s key non-discrimination guarantees – both national treatment (prohibiting discrimination against foreign suppliers based on the origin of the good) and most favoured nation (prohibiting discrimination among WTO members based on the national origin of the good).
This means that UK manufacturers are entitled to the same tariffs as the rest of the world from the day that its membership in the EU terminates.
Free from the EU and as a WTO member, the UK will be able to set its own level of tariffs for the rest of the world. It will mostly likely keep these at the same level as the EU, entitling UK consumers to the same low prices on most goods that they have enjoyed for years.
The UK will also be free to offer the same terms of trade to the rest of the EU that it did while a member of the Common Market, indeed some UK politicians have suggested that this is precisely what will occur.
Alternatively, leveraging its status as the largest export market within the (former) EU, the UK could secure very favourable deals with the EU, particularly in relation to manufactured goods like cars. Germany will not surrender their favourite market just for spite.
It is true that there are some issues which will need to be ironed out regarding the UK’s membership in the WTO, such as its share of the EU’s import tariff quotas (agricultural products which are entitled to a lower tariff rate), as well as allocating the UK’s portion of the EU’s agricultural subsidies (which the UK has paid into and will now want to extract).
Making these deals should not represent significant obstacles because much of the negotiations, at least with respect to the tariff rate quotas, will effectively proceed on a bilateral basis with those countries for which the UK’s quotas had the most relevance, such as New Zealand’s quota for salted butter.