When the UK leaves the EU one option is to revert to World Trade Organisation (WTO) rules - This is our fall back option which the letter triggering Article 50 references explicitly. We have had many questions about what this option means for UK businesses. And, below we answer some of the most common questions:

The below analysis is taken from our recent report “What does defaulting to World Trade Organisation (WTO) rules mean for UK businesses?” conducted by the Price Bailey Research & Insight team.

What standards will my products need to adopt in order to access the EU market?

Under the WTO Option, where tariffs on trade between the UK and EU would be in place, it is likely that there will be mutual recognition of product standards between the EU and UK.

UK product standards are, at present, compliant with EU regulations. Once Britain leaves the EU, the two entities will need to sign a mutual recognition agreement (MRA). An MRA is a commitment to recognise each others traders as ‘safe’. By doing so, there is also recognition that agencies responsible for standards are equivalent between those signing the MRA. The WTO does no play an active role in this process.

China signed an MRA with the EU in 2014, following the US and Japan. Without mutual recognition of product certifications, the administrative and processing burden for customs agencies would become extremely high – what is known as a technical barrier to trade. Exporters would bear the cost of any conformity assessment.

Do WTO agreements dictate products standards and what industries do these standards affect?

The WTO does not dictate product standards, but does provide parameters that members should bear in mind when drawing up technical regulations.

In 1995 the WTO signed an agreement regarding Technical Barriers to Trade (TBT). According to the agreement, when a country designs compliance standards for products these should “not be more trade-restrictive than necessary to fulfil the legitimate objective.” Standards must also not fall foul of the MFN rule by treating any one imported differently to others or to domestic providers.

Beyond this, the agreement strongly encourages mutual recognition agreements and the harmonisation of product standards as this reduces the barrier to trade and increases efficiency.

Will existing supply contracts need to be re-written with European purchasers?

Under the WTO Option articulated above, it is very likely that parties to supply contracts will wish to renegotiate terms. The payment of duties – and any variations of tariffs – will need to be reflected in pricing formulas.

It is also likely that sections of the contract which refer to the ‘laws by which the agreement is governed or enforced’ would need to be adjusted to refer to both UK and EU jurisdictions.

Would fees be applicable to access foreign-based capital markets under the WTO Option?

A WTO Option should not impact access to foreign-based capital. The EU prohibits any restriction on capital movements, including capital moving in and out of the EU. Therefore, receiving FDI from the EU or moving capital from UK markets to the EU-27 should continue as usual.

There are complications re the provision of financial services. For UK-based financial institutions to operate across the EU they must comply with the latter’s financial regulations. Being based in the EU and complying with financial regulations, such as MiFID, provides financial institutions with a so-called ‘passport’. Solving this access problem will require negotiation beyond the WTO General Agreement on Trade in Services (GATS). Such matters should not affect an SME’s access to capital.

Do WTO rules have any bearing over domestic working regulations?

WTO agreements do not deal with labour standards. After leaving the EU, Britain would not be bound by any labour laws other than those defined by the UK parliament.


Download the report
To find out more information you can download the full report “What does defaulting to World Trade Organisation (WTO) rules mean for UK businesses?” for free. For any questions please contact Grant.Rudgley@pricebailey.co.uk from the Price Bailey Research & Insight team.

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