Uncertainty for UK trade outside EU, says WTO chief

By Andrew Walker
BBC World Service economics correspondent

  • Published
Director-general of the World Trade Organization (WTO) Roberto Azevedo of Brazil, gives a press conference on 9 Sept 2013Image source, Getty Images
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WTO chief Roberto Azevedo said he did not know how trade talks would take if the UK left the EU

The UK outside the European Union would face uncertain trade relations, according to the World Trade Organization (WTO).

In a BBC interview, the WTO's director general, Roberto Azevedo, said Britain would not have the same negotiating leverage as the EU.

Britain could have to impose £9bn worth of additional tariffs on imports, raising the cost of living.

Exporters could face an extra £5bn of tariffs on their sales abroad.

Those figures for additional tariffs on goods going into or out of the UK come from the WTO analysis of preferential trade arrangements.

Under WTO rules, member countries are generally supposed to apply the same level of tariffs to goods wherever they come from. But there are exemptions for preferential regional and bilateral trade agreements.

So, we can allow into the UK goods duty free from the EU and from countries with which the EU has negotiated preferential deals. Such agreements are already in force for Turkey, Switzerland and South Korea, for example.

The EU itself is another case of a trade agreement (and more). Others are being negotiated, including the controversial Trans-Atlantic Trade and Investment Partnership with the United States.

On leaving the EU, the UK would no longer be party to those agreements (unless replacements had been negotiated in the meantime). Without a deal in place, we would, under WTO rules, have to impose tariffs on goods from the rest of the EU and those other countries.

Politically difficult

That would raise the cost to consumers and to businesses buying imported goods. The only way to avoid that under WTO rules would be to eliminate the tariffs altogether.

That is the approach favoured by some Brexit supporters, notably the economist Prof Patrick Minford. That kind of unilateral trade liberalisation does find some support in economic theory, but it tends to be politically difficult. It exposes industry to new competition without gaining better access for exporters.

Image source, Getty Images
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Manufacturing accounts for about 10% of the output of the UK economy

Mr Azevedo mentioned two examples that have no tariffs on imports: Hong Kong and Macao. But it's very unusual.

In practice, it seems unlikely that any British government would go that far in the foreseeable future.

Equally, those other countries - the EU and those with EU preferential agreements - would have to impose tariffs on British goods at whatever rate they have set for the same goods from other WTO member countries.

Then there are the rest of the WTO member countries to consider, including some very important trading nations such as China, India and the US. Would they accept the UK simply adopting the EU tariffs? Or would they want to negotiate afresh? Mr Azevedo said it is "very difficult to tell".

Farm subsidies

In some areas, it would simply make no sense to adopt the EU's WTO commitments, especially farm subsidies. The EU has made commitments to limit them. The UK couldn't realistically expect other countries to accept the same cap. "Other members would definitely not agree to that," Mr Azevedo says.

Realistically, no British government would want to spend as much as the whole EU does on farm subsidies, but the issue is very important to many other WTO member so it is likely that a cap would need to be agreed.

How keen does he think other members would be to negotiate? "I don't know exactly how members are going to behave and what kind of engagement there will be," Mr Azevedo says.

Image source, Getty Images

Nor could be sure how long negotiations would take.

"Two, three, four years. It can take a decade or more. It depends on the complexities of the negotiations and the appetite for members to do it quickly."

In the meantime, "there would be a vacuum. The UK would be the only WTO member without a list of its commitments… it's a legal uncertainty".

No crystal ball

In the interim, he said, it was "theoretically possible" that WTO members could treat the UK as they would a country that is not a member. That means potentially erecting significant new barriers to British goods and services, though he did not appear to think that the most likely picture.

He said: "They would most likely want to negotiate and make the rules of the game absolutely certain and legally binding for both sides."

Still, he did identify a downside. Investors want profitability and predictability "and predictability would be gone in this situation".

Campaigners for a leave vote often argue that because Britain is a large prosperous economy that imports more than it exports, our trade partners would have powerful incentives to negotiate seriously.

There is certainly some truth in that. But the WTO chief is very far from convinced that it would all fall into place quickly or easily.

Mr Azevedo, the world's top trade official, said "I don't have a crystal ball and the message I am bringing to you is that nobody has that crystal ball."

You can hear Andrew Walker 's interview with Roberto Azevedo on Business Daily on BBC World Service Radio on Wednesday 8 June at 0830 BST