Trade Deals 

The House of Commons has rejected the proposed UK-EU ‘deal’ in a series of meaningful votes. Any such deal will need to be formally approved by the EU to be put in place. In the absence of such a deal, arrangements for trading with the EU and the rest of the world will be required.

The UK is unable formally to negotiate trade agreements with other countries prior to exit day. The UK is expected to reach trade deals with third parties (including EU) within 2-10 years post Brexit. The first trade deals to be negotiated largely (including Switzerland, Faroe Islands and Israel) replicate existing EU trade deals. The UK might be able to accede to trade blocs e.g. EFTA, CPTPP in similar timescales. 

World Trade Organisation, General Agreement on Tariffs and Trade (GATT) and General Agreement on Trade in Services (GATS)

It is likely that the EU and other countries will continue to trade in goods (in the short term) with the UK on the basis of WTO schedules the UK used as an EU member. In the short term it is also possible that current EU trade partners will agree to apply existing FTAs to the UK during a renegotiation phase. Further development of formal trade agreements in accordance with WTO terms is likely to take a longer period.

The WTO operates by consensus and is currently facing structural challenges. US opposition to the WTO and increasing Chinese influence in it are restricting its functioning and development. The UK may wish to see WTO powers increase to provide easier access to more markets worldwide. Currently it appears unlikely that the UK will achieve a consensus for this. The UK will be able to negotiate for its own objectives but its negotiating power will be less than that of the EU trade bloc.

Rights to provide services internationally are very restricted under WTO rules. The UK is likely to remain a member of GATS under which some additional access for services is permitted, however not all WTO members are signatories of GATS.

Trade in goods is permitted under WTO rules subject to fixed tariff rates which must be applied non-discriminatorily to all WTO members. WTO rules provide little consistency in regulation (other than where regulation is imposed to discriminate between suppliers) and do not reduce or dispense with border checks.

The UK is likely to be permitted to accede to the General Procurement Agreement (GPA) which is an international agreement allowing companies based in the GPA signatory countries access to other GPA signatory country government contracts. 

The WTO limits unfair state aid and some unfair competition practices subject to difficulty in enforcing such provisions.

Should no deal be reached between the EU and the UK, the EU has stated that it will treat the UK as a third country (i.e. not a member state of the EU or on the terms of any of the trade agreements which it has set up with third countries). In theory this will mean that tariffs/taxes and checks will be introduced until a trade agreement is reached between the two. It may be possible for the EU and UK to put in place temporary arrangements which will preserve a non-tariff border during negotiation of a free trade agreement - however that would require agreement from both parties.

Composite Products and Supply Chains

EU imports may become more expensive due to tariffs, differences in regulatory regimes, currency devaluation and administrative costs. This may affect the manufacture of composite products and impact upon UK supply chains for UK businesses who then export.

UK exporters will also need to ensure country of origin of goods is clear (for taxation reasons) where components of final products derive from the EU.

Other Trade Impacts

UK businesses entering international contracts frequently seek English or Scottish law and UK courts or international arbitration in the UK. While there is no reason in principle for this to change, counterparties may be more reluctant to accept such provisions or may require change of law provisions.

Contracts which are linked to specific delivery or completion dates may be affected by potential border delays and fluctuation provisions may need to be incorporated into contracts as well as protections in relation to border issues.

UK businesses may be able to benefit from a distinct ‘brand’ – separate from other European trading powers. This will require substantial efforts from UK exporters of goods and services and will take time to develop. Initially, Brexit may give rise to additional scepticism about UK suppliers which may take time to overcome.

How will Brexit affect your business?

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