What trading "on WTO terms" actually means

It's what will happen if Britain fails to sign a free trade agreement with the EU.

by Johnny Aldred
Last Updated: 03 Feb 2020

If the UK fails to agree a free trade agreement with the EU by the end of 2020, it will revert to trading with Europe - and various other countries - on WTO terms. But what exactly does that mean? 

What is the World Trade Organization?

The WTO, headquartered in Geneva, was set up in 1995 to make trade between countries flow as smoothly, freely and predictably as possible. The body’s 60 or so agreements allow nations to trade with any country with which they have not negotiated a free-trade agreement. It also serves as a negotiating forum and mechanism for dispute resolution. The WTO has 164 members, including the EU in its own right, plus the UK and every other EU member state.

What do the agreements cover?

They regulate trade in goods, services and intellectual property. The agreements include tariffs, quotas and non-tariff barriers, such as product standards, safety regulations and sanitary checks of food and livestock, though these are far less extensive than the equivalent EU standards.

What are the tariffs and where does the money go?

Each country has a list of tariffs and quotas, known as its WTO schedule. These are the rate at which tax is charged on imported goods to countries with which no other trade deal has been struck, and the limits on the number of goods that can be imported from that country. Tariffs are paid by importers to their own government.

What will happen if the UK leaves the EU without a deal?

After a no-deal Brexit, the WTO agreements would automatically apply to any country that trades with the UK, including the EU. Most EU tariffs are fairly low – around 2.8 per cent for most non-agricultural products – though they can be much higher for particular goods, such as dairy products and cars. The UK has set out a schedule that would mean 87 per cent of imports (by value) would be tariff free, as opposed to 80 per cent now.

What is Gatt article 24 and can it help?

The General Agreement on Tariffs and Trade (Gatt) offers trading partners the ability to have a "standstill" on any agreement already in place until a new one is reached. There has been some talk that this could apply to the EU and the UK, meaning that the current zero-tariff terms might be preserved for a period after no deal. However, Gatt 24 requires agreement between both parties – and given the UK has specifically chosen to revoke the trading agreement it already has, this clause would therefore not apply.

Is the UK already trading on WTO terms with any countries?

As part of the EU, we trade on WTO terms with countries such as the US, China, Brazil and Australia. The EU has additional free-trade agreements with more than 70 countries, which the UK is working to replicate. There are continuity deals in place with several countries, most notably Switzerland. However, it is unlikely that deals being sought with Turkey and Japan, for instance, would be implemented in time for a no-deal Brexit.

Image credit: Ricochet64/Getty Images


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