BREXIT: Now What?

[@deschepper]

I would like to see a discussion on the effect of the UK leaving the WTO, which seems to be a pretty likely side-effect of the UK no longer being able to use the EU's tariff quota schedule (as warned by the director-general of the WTO in the run-up to the vote). To make that a bit more exciting, let me put it in stark terms: it would seem that the UK either has to trade outside the WTO - the Iran model - or offer the WTO members a tariff schedule that is so attractive that it can be accepted in less than two years - the Hong Kong model. Trading outside the WTO is not impossible, as several countries still do it, with Iran being the largest. It does, however, make it impossible for WTO members to make trade deals that would give the UK a better deal than that of "most favourite nation" in the WTO. In essence, the UK couldn't make useful trade deals until it becomes a member. That would also be true for the EU: it could not offer the UK anything better than MFN status. A scholarly article by professor Choi on the latter issue (integration of non-WTO members in RTAs) from 2005 offers more detail. A tariff schedule that would be attractive enough that no WTO member would block it (at least not on trade arguments) could be the zero-tariff schedule that Hong Kong uses. It would essentially be an irreversible commitment to unilateral free trade. This would certainly please professor Minford, but it would drastically reduce the leverage the UK has in future trade talks. While it is technically possible that the WTO breaks its own rules to prevent the UK from dropping out or having to accept rather stark terms, that is not necessarily desirable. It would weaken the WTO at a time that international trade is already under fire. It's also unlikely that countries (such as China and Russia) that had to make considerable concessions to become WTO members would agree to the UK getting off easy.