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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.
Amanda is Head of Tax Policy for Deloitte UK. She is an international tax partner and also leads Deloitte’s Brexit insights team based in the UK, co-ordinating expertise across the global network of firms. She advises businesses on the spectrum of Brexit related issues, assessing the scale of potential impact and helping clients to plan mitigating actions to minimise impact and maximise opportunity. Amanda has held a wide number of roles during her career, including leading client relationships, global representative to the OECD, mentoring, non-executive board role and trusteeships. As well as previously being a partner at another Big 4 firm, she was in industry at Vodafone plc for 6 ½ years, as global head of indirect taxes and responsible for managing tax value chain and centralisation initiatives.
Raoul works as an Adviser to Deloitte based in the Global Brexit Insights team advising across a range of business lines on topics ranging from Brexit to trade policy, economic policy and the wider political landscape in the UK and EU. He helps businesses understand what the UK’s exit from the EU means for them and how they can best position to mitigate any impact and take advantage of the opportunities. His previous roles include Special Adviser to the Prime Minister on Europe and Special Adviser to the Secretary of State for Exiting the EU. Raoul holds two masters degrees from the University of Chicago in economics and public policy and an undergraduate degree from the University of Manchester.
James is an adviser to Deloitte based in the Global Brexit Insights team. He advises the firm and its clients on a spectrum of issues relating to the UK’s international trade agenda and the wider political landscape. He helps businesses understand what the UK’s evolving economic, foreign and trade policy means for them, how they can capitalise on opportunities and mitigate risks. James was formerly a political adviser to the Conservative Party and worked for then Chancellor George Osborne. More recently he was a director at a Westminster-based political consultancy and a special adviser at the UK’s Department for International Trade.