The future of UK trade in a 'No Deal' Brexit scenario in December 2020

Trade Deals

During the transition period and after its end in December 2020, the UK will formally negotiate trade agreements with other countries. The first trade deals to be negotiated (including Switzerland, S Korea and Israel) largely replicate existing EU trade deals (roll over deals). Such roll over deals have been done with approximately 2/3 (by value) of the trading partners with whom the EU has an equivalent agreement.

The UK is expected to reach trade deals with other third parties (including EU) within 2-10 years post Brexit. It is possible that this will include countries with whom the EU does not have current trade agreements (including the US, Australia and New Zealand). If it wished to do so, the UK might be able to accede to trade blocs e.g. EFTA, CPTPP in similar timescales.

World Trade Organisation, General Agreement on Tariffs and Trade (GATT) and General Agreement on Trade in Services (GATS)

It is likely that the EU and other countries will continue to trade in goods (in the short term) with the UK on the basis of WTO schedules the UK used as an EU member. Further development of formal trade agreements in accordance with WTO terms is likely to take a longer period.

The WTO operates by consensus and is currently facing structural challenges. US opposition to the WTO and increasing Chinese influence in it are restricting its functioning and development. The UK may wish to see WTO powers increase to provide easier access to more markets worldwide, however, it currently appears unlikely that there will be a consensus for this. The UK will be able to negotiate for its own objectives but its negotiating power will be less than that of the EU trade bloc.

Rights to provide services internationally are very restricted under WTO rules. The UK will remain a member of GATS under which some additional access for services is permitted, however the extent of access under GATS varies between WTO members.

Trade in goods is permitted under WTO rules subject to fixed tariff rates which must be applied non-discriminatorily to all WTO members. WTO rules provide little consistency in regulation (other than where regulation is imposed anti-competitively to discriminate between suppliers) and do not reduce or dispense with border checks.

The UK has acceded to the General Procurement Agreement (GPA) which is an international agreement allowing companies based in the GPA signatory countries access to other GPA signatory country government contracts. The access provided is not at the same level as access to contracts current provided under EU rules.

The WTO limits unfair state aid and some unfair competition practices subject to difficulty in enforcing such provisions.

Should no deal be reached between the EU and the UK, the EU has stated that it will treat the UK as a third country (i.e. not a member state of the EU or on the terms of any of the trade agreements which it has set up with third countries). In theory this will mean that tariffs/taxes and checks will be introduced until a trade agreement is reached between the two. It may be possible for the EU and UK to put in place temporary arrangements which will preserve a non- tariff border during negotiation of a free trade agreement - however that would require agreement from both parties.

Composite Products and Supply Chains

EU imports may become more expensive due to tariffs, differences in regulatory regimes, currency devaluation and administrative costs. This may affect the manufacture of composite products and impact upon UK supply chains for UK businesses who then export.

UK exporters will also need to ensure country of origin of goods is clear (for taxation reasons) where components of final products derive from the EU.

Other Trade Impacts

UK businesses entering international contracts frequently seek English or Scottish law and UK courts or international arbitration in the UK. While there is no reason in principle for this to change, counterparties may be more reluctant to accept such provisions or may require change of law provisions.

Contracts which are linked to specific delivery or completion dates may be affected by potential border delays and fluctuation provisions may need to be incorporated into contracts as well as protections in relation to border issues.

UK businesses may be able to benefit from a distinct ‘brand’ – separate from other European trading powers. This will require substantial efforts from UK exporters of goods and services and will take time to develop. Initially, Brexit may give rise to additional skepticism about UK suppliers which may take time to overcome.

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