“There are WTO rules which govern world trade, and most of our dealings with most countries in the world are based on WTO rules.”
Charles Moore, 12 July 2018
Most of the UK’s trade is with the EU or countries the EU has trade agreements with—about 57% of our exports and 66% of our imports in 2016. That means it doesn’t happen under standard World Trade Organisation (WTO) rules.
But EU trade agreements don’t affect tariffs on all goods and services. Some goods and services have the same tariff level for countries the EU has trade agreements with and those it doesn’t.
If the UK were to leave the EU with “no deal”, we would go back to trading under WTO terms with these countries.
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The WTO prevents discriminatory tariffs, except between countries with trade deals
In a nutshell, the WTO is an international organisation aiming to reduce all barriers to trade. Most countries around the world are members, including the UK.
The WTO requires member countries to apply tariffs (taxes) on goods and services to other WTO countries equally. It also means you can’t set different rules for foreign and domestic products in your country. The big exception is if countries have negotiated their own customs union or free trade area.
You can read more about how the WTO works here.
Most of our trade is with countries the EU has a trade agreement with
The main exception to WTO trade rules that apply to the UK is that we’re a member of the EU customs union and so have free trade with other EU members. In 2016 44% of our exports in goods and services went to other EU countries and 54% of our goods and services imports came from EU countries.
The EU also has trade agreements with other countries, like Israel and South Korea. Countries where there is an EU trade agreement in place accounted for a further 12% of our imports and 13% of our exports.
The EU also has “preferential trade agreements” with various other countries. This is where one country grants preferential tariffs on imports from developing countries. As these arrangements are unilateral (they’re one way and so don’t require a two-way trade deal), we’ve not included these countries in our calculations.
So in total 57% of our exports and 66% of our imports happen with countries we have some trade agreement with as part of the EU. The EU has also negotiated or is in the process of negotiating trade deals with other countries, including Japan and Australia.
However WTO rules don’t always mean tariffs
Free trade agreements that change tariffs between countries from the WTO default don’t necessarily affect all goods and services. While 57% of the UK’s exports go to the EU or other countries with which we have some kind of trade agreement, that doesn’t mean that a “no deal” situation would mean new tariffs on 57% of our exports.
For example, take bottled beer. At the moment the EU, and therefore the UK, has no trade deal with the USA and it pays no tariffs on the bottled beer it exports there.
If the UK was to revert to trading with the EU under WTO rules following Brexit, there would similarly be no tariffs on the export of UK bottled beer to the EU.