Crashing out of the EU

If the UK Government fails to conclude a deal with the EU by the end of the year, the country will be trading with the bloc on WTO terms from 1 January 2021. Academic think tank The UK in a Changing Europe has updated its report, What would ‘trading on WTO terms’ mean? and have found: 

  • WTO terms means the UK and EU would have to apply their ‘most favoured nation’ tariffs to trade. The EU could apply its common external tariff and the UK would apply the new tariff schedule it announced last week. That means, for instance, a 10% tariff on cars, in both directions, and much higher tariffs on some agricultural goods
  • The direct economic impact of leaving on WTO terms, compared to trading on current terms, would be a 3.3% reduction in GDP after 10 years; adding in indirect effects, our estimate is that GDP would be 8.1% lower than it would otherwise have been
  • WTO terms are relatively comprehensive on goods but far less so on services. Barriers to trade in services, in particular, will increase substantially under WTO terms.
  • It is often said the UK trades with the USA on WTO terms. In reality, through the UK’s EU membership, the country is party to several agreements that facilitate EU–US trade
  • The EU would be within its rights to insist on extensive border checks on goods coming in from the UK. This would not be ruled out by the WTO’s Trade Facilitation Agreement nor be ‘illegal under WTO rules’ as many have claimed (the exception to some of this is goods trade between Northern Ireland and the EU which is covered by the Ireland/Northern Ireland Protocol).
  • The UK has access to a number of free trade agreements through its EU membership. Nineteen have been rolled over. Where an agreement is not rolled over, the UK’s trade with that country or bloc will be governed by WTO terms.

Professor Anand Menon, director of The UK in a Changing Europe, said: “A lot of people talk, sometimes flippantly, about the UK trading with the EU on WTO terms. Our report explains what this actually means. It outlines the substantial economic consequences which, are  highly significant given the economic challenges we’re already facing.”