This last week has seen a return of cautious optimism to the negotiations, but the looming threat of a ‘WTO terms’ exit has not disappeared from view. To have an agreement ratified in time for the beginning of 2021, a deal will need to be within touching distance by mid-November.
With so much in the balance, and businesses still trying to judge which scenarios to prepare for, we take a closer look at what ‘WTO terms’ really means.
What are WTO terms?
To keep global trade fair and as open as possible, all World Trade Organization (WTO) members are bound by the ‘most-favoured nation’ principle, which requires them to offer all trading partners the same tariffs without discrimination. Any advantage given to one country must be also made available to others.
The exception to the rule is where a free trade agreement (FTA) has been put in place. Under an FTA, trading partners decide to remove trade barriers such as tariffs – as has been the case between the UK and the 27 other European countries through EU membership.
Without an FTA, both the UK and the EU will be obliged to apply the same ‘default’ trading conditions to one another as they impose against all other countries with whom no FTAs are in place.
Put simply, this means introducing tariffs and quotas that have previously been eradicated. Additionally, some services suppliers will no longer be automatically eligible to trade cross-border.
What are the ‘known knowns’?
In many areas, the relative difference in economic impact between trading under the UK government’s proposed FTA and trading on WTO terms is actually minimal. The trading relationship envisaged by this government is a considerably less integrated arrangement than was proposed as part of Theresa May’s deal. In fact, roughly 75 per cent of what Brexit means for business is already known - the ‘known knowns’ - and can be prepared for. In summary:
What happens if there’s no deal?
Businesses have been busy preparing for these areas over the recent months as a matter of priority. But consideration should also be given to contingency planning in areas most at risk if a deal isn’t struck in time. Areas to focus on:
What can I do now?
Given the very short timeframes, businesses are now seeking practical advice. There are a range of key actions that can be undertaken now to ensure firms are better prepared, which we have summarised here:
Whatever happens over the next month, change is coming. Our team of Brexit specialists can help assess all your Brexit-related planning and guide you through the process of implementing change.
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Amanda is Head of Tax & Trade Policy for Deloitte UK. She leads a team undertaking analysis and preparing insights across the spectrum of tax and trade matters including Budgets, technical consultations, trade negotiations and post-Brexit border rules. Amanda has held a wide number of roles during her career including leading client relationships, global representative to the OECD, mentoring and non-executive board roles. As well as previously being a partner at another Big 4 firm, she was in industry at Vodafone plc as global head of indirect taxes and responsible for managing tax value chain and centralisation initiatives. Amanda has an active home life with four children and is also passionate about horses, riding whenever free time permits and supporting the charity World Horse Welfare including volunteering as Trustee and Treasurer for 7 years.
James is a Director and Head of International Trade at Deloitte UK. James works with clients from all sectors to help them understand the UK’s evolving economic, foreign and trade policy agenda and what it means for their decision-making. James was previously an Adviser to Deloitte, working with the global Brexit team. He has wide-ranging experience in Westminster politics, including as a government Special Adviser, an adviser to a political party, a Director of a political consultancy and at the UK Parliament. He has a master’s degree in public policy and is a Policy Fellow at the University of Cambridge.