WTO warns on tortuous Brexit trade talks

Britain would face tortuous negotiations to fix the terms of its membership of the World Trade Organisation if it votes to leave the EU, its director-general has warned.

Leading campaigners for Brexit have proposed that the UK should leave the EU’s single market and could rely on WTO rules to access European and other markets if it was unable to secure replacement trade deals.

But in an interview with the Financial Times, Roberto Azevêdo signalled this would not be straightforward. He said a British exit from the EU would lead to unprecedented negotiations between the UK and the Geneva-based institution’s 161 other members.

Britain joined the WTO under the auspices of the EU and its terms of membership have been shaped by two decades of negotiations led by Brussels. If Britain voted to leave the EU it would not be allowed to simply “cut and paste” those terms, Mr Azevêdo said.

Britain would have to strike a deal on everything from the thousands of tariff lines covering its entire trade portfolio to quotas on agricultural exports, subsidies to British farmers and the access to other markets that banks and other UK services companies now enjoy.

“Pretty much all of the UK’s trade [with the world] would somehow have to be negotiated,” he said. 

The WTO had never gone through such discussions with an existing member, he said, and even the procedures for doing so remained unclear. But the likely complexity of such talks, Mr Azevêdo said, made them akin to the tortuous “accession” negotiations countries go through to join the WTO. Even a small economy such as Liberia, which last year became the WTO’s 162nd member, took years to agree the terms of membership. 

“It is a very important decision for the British people. It is a sovereign decision and they will decide what they want to decide. But it is very important, particularly with regard to trade, which is something very important for the British economy, that people have the facts and that they don’t underestimate the challenges,” Mr Azevêdo said.

An exit from the EU, for example, would cause the UK to lose the preferential access to other markets covered by 36 trade agreements with 58 countries negotiated by the EU. As a result, to remain compliant with WTO rules the UK would have to impose higher “most favoured nation” tariffs on imports from those 58 countries, while they would have to levy their own surcharges on British exports, Mr Azevêdo said. 

A WTO analysis had calculated the cost of the additional tariffs on goods imports to British consumers at £9bn, while British merchandise exports would be subject to a further £5.5bn in tariffs at their destination. 

“The consumer in the UK will have to pay those duties. The UK is not in a position to decide ‘I’m not charging duties here’. That is impossible. That is illegal,” Mr Azevêdo said. 

The only other option available to the UK would be removing all barriers for all WTO members, effectively turning its economy into a duty-free one like Singapore and lifting the protections politically sensitive domestic industries enjoy under the EU. “That is possible. But that is also very unlikely,” he said. 

Complicating things further is the fact that because the EU has negotiated trade matters on behalf of the UK for decades, the British government does not have an existing corps of trade negotiators and would have to create one in the event of Brexit. That would mean gearing up quickly for negotiations that would probably take years, Mr Azevêdo said. 

“It is extremely difficult and complex to negotiate these trade agreements. And slow as well,” he said. “Even if you are in a position to negotiate quickly with all these other members it doesn’t mean that they will be in a position to negotiate with you because they have their own priorities.

Letter in response to this article:

Bypassing tortuous trade talks in event of Brexit / From the Economists for Brexit