The UK’s ‘WTO Option’ Explained
As the UK prepares to leave the EU, several visions for a post-Brexit trade arrangement have emerged – including the ‘WTO option’. Here, Galvin International explores what the ‘WTO option’ actually means, and how it could impact on international expansion.
What is the ‘WTO option’?
The World Trade Organisation (WTO), which currently has 164 member countries, is an international agency that is designed to promote international commerce and regulate international trade. It does this primarily through administering a foundational set of rules and regulations regarding trade and tariffs.
If the UK and the EU reach the end of their negotiating period without a detailed trade agreement in place, trade between the two will fall back under these WTO regulations. This will also apply if the UK and EU have agreed a transitional period, but not to arrangements beyond that.
How will this impact international expansion?
Supporters of the WTO option suggest that it would act as a regulatory safety net for the UK in the event of a ‘no-deal’ Brexit scenario. The WTO’s trading rules would ensure a level playing field by prohibiting the EU from placing excessive, punitive tariffs on exports from the UK.
The Eurosceptic economist Ruth Lea has insisted that the UK’s trade and international business could thrive under WTO rules, as the greater level of freedom to negotiate trade deals with other countries could be used to mitigate any increased EU tariffs.
However, other voices have warned that WTO rules may not offer the level of protection that supporters claim. If the UK were to leave the Single Market, exports would face the EU Common External tariff – while opinions vary on the extent to which this would directly impact businesses, the indirect impact could be greater than realised, as goods being exported would potentially face increased delays and compliance checks to ensure they comply with EU standards.
Another potential issue is the limited scope of the WTO, especially when compared to the EU single market. Its rules cannot be enforced by a business or individual, and can only be implemented at a state-led level via the WTO Dispute Settlement Body. There is also distinctly less liberalisation for services than for goods under WTO regulations – a definite disadvantage for an economy such as the UK’s, which is more reliant on services than goods. The aviation sector could also be unduly impacted, as it has historically been excluded from WTO regulations.
There have been other indicators that trading under WTO rules would not be as easy as some claim. Following the announcement of a recent arrangement between the UK and EU on agricultural quotas, made under WTO regulations, the US and six other countries expressed their strong disapproval. Coming on the heels of the dispute between Bombardier and Boeing, it would seem that the UK will face tough negotiation, even from its closest allies – with or without the oversight of the WTO.
While these disputes demonstrate the importance of having a regulatory body such as the WTO, they also suggest that the UK should be wary of relying too heavily on its regulations as a comfortable safety net. UK businesses looking to expand overseas, or who are already doing business abroad, would be wise to remain attentive to the situation, and begin exploring options such as setting up a legal entity abroad.
How Can Galvin International Help?
With so many aspects of Brexit still to be decided and clarified, the situation for businesses can seem uncertain. Having the right guidance and support is therefore crucial to the success of your international expansion.
Galvin International can provide the clarity and practical support you need during periods of global growth. Our international expansion concierge service untangles the complexities of international business, working closely with you to develop custom strategies and ensure you remain efficient and compliant.
Get in touch to find out how we can help your company expand internationally.
The WTO is Facing Calls for Reform: What Would this Mean for International Business?
The World Trade Organisation (WTO) is a multilateral, rules-based trading system that was set up in the mid-1990scontinue to read