Britain has been warned that it faces “chaos at the border” if Theresa May walks away from talks with the EU without a fallback position.
The prime minister’s threat to abandon EU talks in the event of a “bad deal” has been complicated by the fact that Britain has yet to negotiate a new trading agreement at the World Trade Organisation. This would set out Britain’s trade relationship with Europe and the rest of the world if talks collapsed.
Without it, lawyers and officials said that Britain would be left in legal limbo, with no clear rules governing what happens with customs officials at ports.
A source close to the government said that worries about how Mrs May’s high-stakes threat would be exercised in practice were “keeping people in No 10 and the Department for Exiting the European Union awake at night”.
Liam Fox, the trade secretary, has begun negotiations on membership terms with the WTO by setting out obligations, or “schedules”. These schedules determine the tariffs and quotas Britain would use when trading with other countries. They do not currently exist because the UK relies on rules set by the EU.
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In the event that Dr Fox’s negotiations are not completed, some lawyers have suggested that Britain would be able to continue using the EU rules on trade, known as the EU schedule at the WTO. However, the WTO and experts warned that this was far from certain.
A WTO spokesman said that the talks led by Dr Fox to strike a new deal in two years would be complex.
“The process, particularly as it pertains to agriculture, services and government procurement, will be complicated and may involve negotiations with other WTO members. The scope and duration of those negotiations cannot be determined at this time,” the organisation said in a statement to The Times. It added that “lawyers have differing views as to whether Britain can continue to apply the EU’s schedule post-Brexit or whether they need to negotiate something else.”
Gary Horlick, a US trade lawyer and expert witness for parliament’s trade select committee, suggested that Britain could lose out badly if it could not conclude its talks on WTO rules before Brexit. “In theory, you could probably apply the EU schedule [thereby setting UK trade rules] but [this outcome] may not be optimal. This would mean, for instance, applying the kind of import duties designed to protect European farmers from imports.
“I think you would inherit the EU schedule. If the UK did not — and did not have some sort of replacement on day one — there could be chaos at the border. Customs officials need to know what to charge.”
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Brussels drew up its WTO rules to protect industries such as the agriculture and automotive sectors from competition from non-EU countries. Given that the UK would be outside the EU, the cost of trading items such as food, farming and cars would spiral if it had to work within those rules. The tariff on cars from outside the bloc is 10 per cent, on liquified natural gas it is 4.1 per cent, wine 32 per cent and on some agricultural products is over 20 per cent.
According to the CBI, “new tariffs of economic significance would still be imposed on around 90 per cent by value of the UK’s goods exports to the EU, causing most UK exporters to become less price competitive”
Q&A
What are the rules governing trade after Brexit and what has it got to do with the World Trade Organisation (WTO)?
For two more years Britain’s trade policy is determined in Brussels. Theresa May will shortly begin negotiating a new trade agreement with the EU while in parallel Liam Fox, the trade secretary, will start “scoping” talks with certain non-EU nations. Trading relations between countries where there is no agreement are set by the WTO.
So why does the WTO matter?
Mrs May has warned the EU that if it does not give Britain a good deal, she will “walk away”, meaning the WTO would determine the tariff levels for different export products. The WTO holds documents known as the “schedule” which list these in full. Unfortunately Britain does not have its own “schedule” at the WTO, because the EU governs our trade.
What needs to happen now?
Mr Fox has begun negotiations to draft a new schedule. But the WTO has emphasised this is difficult. The WTO told The Times: “The process, particularly as it pertains to agriculture, services and government procurement, will be complicated.”
When will these negotiations be completed?
It is unclear whether it can be done in two years.
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What happens if they are not completed?
This is also unclear, but it will almost certainly start to get messy. Some lawyers believe that the UK would transpose existing EU rules and use these — though we could pay a heavy price, finding big tariffs levied on food and cars. Even this may not be possible, leaving the UK in an unprecedented and potentially dangerous situation. Although officials think this scenario unlikely, the ramifications are so serious they want to shut down the possibility altogether.
