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Exit option: the World Trade Organisation

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Introduction

If no special arrangement is agreed between the EU and Britain after a vote to leave, trading relations between them would be governed by the rules of the World Trade Organisation (WTO) which would include some tariffs on products like food, cars and aluminium. This is the situation between the EU and America now. WTO members are bound by the rules of the most favoured nation principle not to raise aggressive tariffs against individual members: all WTO members must be treated the same, unless they sign full free trade agreements together.

Supporters of the option argue that with no formal link to the EU at all, Britain would be free to regulate its borders as it chose, govern its farms and fishing waters independently, write its own regulations, and would not have to pay towards the EU budget. Supporters also argue that the money saved by ending contributions to the EU budget could be spent compensating export businesses that are negatively affected by EU tariffs, such as the car industry. Under WTO rules this could not be done as a direct subsidy, but may be possible via research and development funding.

Strengths

  • The WTO option offers the purest expression of British sovereignty, since Britain would not be linked to the EU by any trade agreements or mutual obligations. This would give parliament the most flexibility to govern Britain without outside interference or compromise.
  • The WTO option would allow Britain to regulate its borders however it wanted, since there would be no trade-offs with EU members for market access. Britain would save all its current EU budget contributions.
  • As with the Norwegian and Swiss options, Britain would be free to negotiate its own free trade agreements and to represent itself at global bodies like the Organisation for Economic Cooperation and Development (OECD) and the WTO itself.

Weaknesses

  • Tariffs on some UK goods exports might make certain British businesses uncompetitive, since the exported goods would be more expensive abroad. This could hurt the economy or lead to low wages and job losses. Equally, some goods would become more expensive to import, like French wine or Parma ham.
  • Some big companies have many factories each making different parts of a finished end-product. They would worry that their parts made in Britain would be taxed or regulated differently to those made in the rest of Europe, and may threaten to move the UK factories. For example, a car plant that makes its chassis in Britain, its engines in Germany and its final construction in France might worry that the chassis has to pass inferior safety tests and the company needs to pay duties to bring the chassis over to France, so has a motive to move the chassis factory to France too.
  • The latest WTO session, called the Doha Round, has officially stalled after years of inaction. There is fear that the multilateral system, in which the whole world tried to improve trade conditions together, will not make progress, which is why regional deals like TTIP and TPP are being negotiated. Britain would not automatically be part of either of these, and if it joined TTIP, would again be part of some EU rules.