UK may face seven-year wait for frictionless trade under WTO rules if it crashes out of EU
The UK will be unable to have frictionless, tariff-free trade under World Trade Organization rules for up to seven years in the event of a no-deal Brexit, according to two leading European Union law specialists.
The ensuing chaos could double food prices and plunge Britain into a recession that could last up to 30 years, claim the lawyers who acted for Gina Miller in the historic case that forced the government to seek parliament’s approval to leave the EU.
It has been claimed that the UK could simply move to WTO terms if there is no deal with the EU. But Anneli Howard, a specialist in EU and competition law at Monckton Chambers and a member of the bar’s Brexit working group, believes this isn’t true.
“No deal means leaving with nothing,” she said. “The anticipated recession will be worse than the 1930s, let alone 2008. It is impossible to say how long it would go on for. Some economists say 10 years, others say the effects could be felt for 20 or even 30 years: even ardent Brexiters agree it could be decades.”
The government’s own statistics have estimated that under the worst case no-deal scenario, GDP would be 10.7% lower than if the UK stays in the EU, in 15 years.
There are two apparently insurmountable hurdles to the UK trading on current WTO tariffs in the event of Britain crashing out in March, said Howard.
Firstly, the UK must produce its own schedule covering both services and each of the 5,000-plus product lines covered in the WTO agreement and get it agreed by all the 163 WTO states in the 32 remaining parliamentary sitting days until 29 March 2019. A number of states have already raised objections to the UK’s draft schedule: 20 over goods and three over services.
To make it more complicated, there are no “default terms” Britain can crash out on, Howard said, while at the same time, the UK has been blocked by WTO members from simply relying on the EU’s “schedule” – its existing tariffs and tariff-free trade quotas.
The second hurdle is the sheer volume of domestic legislation that would need to be passed before being able to trade under WTO rules: there are nine statutes and 600 statutory instruments that would need to be adopted.
The government cannot simply cut and paste the 120,000 EU statutes into UK law and then make changes to them gradually, Howard said. “The UK will need to set up new enforcement bodies and transfer new powers to regulators to create our own domestic regimes,” she said.
“Basic maths shows that we will run out of time but any gap in our system will create uncertainty or conflict,” said Howard. “Some of these regimes carry penalties such as fines – even criminal offences in some sectors.”
Unless there is an extension to article 50, both these hurdles will need to be crossed by 29 March. This, said Howard, was an impossible task. “Negotiating and ratifying the international free trade deals with the rest of the world alone could take over seven years,” she said.
“A no-deal Brexit could double prices for some products like meat and dairy. There is also a greater risk of trade disputes and sanctions, resulting in reduced market access for UK businesses.
“It’s not just about money,” she said. “We are dependent on imports for a lot of things that we don’t make any more or don’t make enough of, or simply cannot make as they are patented or subject to rules of origin – like lifesaving drugs, radioactive isotopes for MRI scans, medical equipment, chemicals, electricity, petrol, even milk. Shortages and delays could cause panic buying or even civil unrest.”
Rhodri Thompson QC, a specialist in competition and EU law at Matrix Chambers, agreed. He said: “The truth is that this would be extremely difficult and would not cover much of the UK economy at all.”
Howard dismissed ideas of a transition period enabling a “gradual transition” to WTO rules as “unicorns”. “The UK will have to start negotiating over 50 free trade agreements from scratch once we leave the EU. In the meantime we will have to pay tariffs.”
Economists for Free Trade, a group with links to Jacob Rees-Mogg and David Davis, claims there is “nothing to fear” from leaving the EU without reaching an agreement.
David Collins, a professor of international economic law at City University of London, said: “The UK can trade quite easily on an uncertified schedule.”
However, Collins conceded that an uncertified schedule “might be an indication of that complaining member’s intention to initiate a dispute against the member,” and that “the WTO dispute settlement process can take several years to resolve”.