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Politics & Law Series: Expert Comment

Professor David Collins discusses UK’s Brexit trade options

As the UK explores its trading arrangements with the EU before the end of the transitional period on December 31st 2020, City’s Professor of International Economic Law says trading on WTO terms may not be a suitable solution.
by John Stevenson (Senior Communications Officer)

The City Law School’s Professor David Collins says trading on World Trade Organisation (WTO) terms could impact adversely on trade in services between the UK and the EU in the event that a Free Trade Agreement (FTA) cannot be concluded before the end of December.

293398In the event that a FTA is not possible, the world-baseline Most Favoured Nation (MFN) tariffs will be applied between the UK and the EU.

However, City's Professor of International Economic Law believes that many UK firms have already attempted to adapt to a changing trade environment by establishing offices and relocating personnel to the EU, while other transactions will be done through middlemen, such as locally (EU) qualified professionals.

Clearing houses

In some areas, he says, the UK and the EU have already reached an accord to facilitate future services relations. The EU has recently recently agreed to grant UK clearing houses temporary access for 18 months.

Though some tariffs on most goods are already low (around 4 percent of value), Professor Collins says “there will be some goods for which tariffs are higher”.

Citing the 10 percent tariff on automobiles as an example, he said:

Generally, tariffs comprise only a fraction of the retail price in part due to importers, distributors and retailers all adding their own mark-ups. There is also reason to believe that if prices rise substantially there will be incentives for import substitution with local products as well as with products sourced from non-EU countries. Indeed, we can expect some products coming from outside of the EU to be cheaper because the UK will not have to impose the EU-wide tariff. The UK released its schedule of WTO MFN tariffs earlier this year and they are near zero on most products. Furthermore, if there is a rival, locally produced product, the manufacturer or retailer of the imported product is more likely to absorb the increased tariff cost to avoid losing market share.

Professor Collins believes that though non-tariff barriers, such as checks at the border for conformity with product safety standards, could lead to significant delays, “but they may not be as onerous because there will be no actual divergence in standards, at least for the foreseeable future”.

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