In a matter of days Theresa May will trigger Article 50, marking the beginning of negotiations for the UK’s exit from the EU. So what are the likely effects for UK businesses?
Currently, as a member of the EU, the UK can sell their goods and services to other EU members without additional taxes, and vice versa.
Mrs May has already ruled out continued membership of the EU’s single market, but does this mean – as is presumed – leaving the customs union?
We could negotiate trade deals with the EU, similar to the one that Canada has with them, but how long this may take is unknown. Negotiations are generally lengthy and in this case could be quite fractious due to the nature of our exit.
We could come to an arrangement with the World Trade Organisation whose purpose is to promote trade amongst its 164 member countries.
All the major world economies are members of the WTO, including the UK. All the countries in the EU are also members, but they act together in the WTO as a single trade body.
One of the most important principles of the WTO is that you cannot discriminate between other WTO members.
The UK and the EU would have to impose the same trade barriers on each other as they have with other WTO countries.
These include import tariffs, which are taxes that are only applied to imports.
WTO members have made agreements that they will not raise tariffs above a set level.
Those maximum levels vary from country to country and product to product, and these tariffs are, in many cases, below those levels.
But if the UK does want to go below those set levels, it’ll have to apply them to all WTO member countries.
The average maximum tariff in the EU is 4.8% for all goods. However, even within these tariffs, there are some big variations.
For example, the tariff for agricultural produce is 10.9%, while for cars it’s 10%. For other goods it’s 3.9%.
Assuming that the UK trades with the EU under WTO terms, these are the levels of tariffs British exporters would face on their goods.
It would make them far less competitive in the EU market than they are now.
The other WTO members would, however, need to consent to any new terms with the UK.
From an administrative point of view, it would be easier and less likely to be contested if we stuck with an existing arrangement that we already have.
However, the UK would be able to apply for lower tariffs if it so wished, and in some cases it is highly likely it would.
Some economists are in favour of a more extensive approach to cutting trade tariffs and other barriers unilaterally. However, these cuts would also have to be applied to goods coming from the EU, but this could prove to be quite complicated.
Currently, the EU has import quotas where the tariffs are lower, but it has yet to be agreed how these quotas will be divided between the UK and the remainder of the EU.
There is also the problem of what happens to that produce when it is traded between the UK and the EU.
Currently it is free of any tariffs, but both will probably want a slice of the other’s reduced tariff quota, which would mean that either a larger total quota will be agreed or a reduced slice for another country.
As a part of the arrangement with the WTO, the EU has agreed to cap some of its farm subsidies, but as yet, we don’t know exactly what type of system the UK will adopt. This could be another difficult area to negotiate.
There are many other types of trade restrictions. These include regulations on product specifications, labelling and testing, with requirements for authorisation from a national regulator to provide some types of services.
The UK would have to decide if it’s in its interests to maintain EU rules in these areas.