19 March 2017

POLITICO: Britain’s Brexit Plan B

Officials from the U.K.’s Department for International Trade are investigating the possibility of keeping tariffs between Britain and the EU at zero as part of an interim arrangement that could last up to 10 years, allowing more time for a full trade deal to be negotiated after Britain has left the bloc, according to sources familiar with the discussions that have taken place at the World Trade Organization.

Under a little-known WTO clause, the U.K. and Brussels would be allowed a “reasonable length of time” after Brexit to agree a free-trade deal before trade law would force both sides to impose the same tariffs on each other as they do on everybody else. Such a transitional deal would allay fears about an impending cliff edge in March 2019, when Britain is set to crash out of the single market and face the EU’s steep external tariffs on goods ranging from meat to cars.

The provision, set out in Article 24 of the WTO’s General Agreement on Tariffs and Trade, can only be challenged by other countries if the temporary continuation of existing tariffs is not applied to all trade. This makes a special deal for finance or the car industry less likely as part of any interim arrangement.

According to Geneva-based officials, British trade experts are working on the understanding that a decade would constitute a “reasonable” timeframe to stay on special trading terms with the EU. They are supported by the WTO rules, which state that any interim agreement should “exceed 10 years only in exceptional cases.” [...]

While a “zero-for-zero” interim tariff deal may be legally feasible according to the rule-book, it is also highly unlikely that the remaining EU 27 countries would agree to such an arrangement without significant concessions from the U.K. government on budget contributions and free movement of people. There is also no obligation under WTO rules for either side to agree to tariffs of zero. [...]

The Geneva-based official who spoke to POLITICO on condition of anonymity said the idea for a 10-year deal that set tariffs at zero was gaining ground.  “What’s important for you to take away is there is not a great swell of bitterness towards the British in Geneva,” the official said. “The attitude is nothing like what it it is Brussels. I don’t think anyone wants to see trade disrupted between WTO members.”

The official added that an interim agreement that allowed existing tariff-free trade to continue is likely to be accepted by the “vast majority” of WTO members. “Nothing precludes a member challenging anything, but you have to show some injury — that you are materially worse off — for it not to be spurious,” he said. “It’s hard to see how that might be the case.” [...]

Full article on POLITICO

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