In the event of a 'no deal', an adjusted 'hard Brexit' WTO option, or 'WTO 2.0' would be an equitable holding point for both sides, says William Walter.

The EU is our largest trading partner. Last year, it accounted for 44 per cent (£223.3 billion) of UK exports, while the EU sold us £291 billion of goods and services. But with Brexit less than 500 days away, negotiations slumbering on, and both sides accusing the other of intransigence, a 'no-deal' on trade relations looks increasingly likely.

Our membership of the World Trade Organisation (WTO) allows us to fall back on WTO trade terms, while its 'most favoured nation' (MFN) provision ensures equal treatment among members, preventing the EU from discriminating against us, either through higher tariffs or increased customs checks.

With goods accounting for the majority (57 per cent) of our trade, concerns have been raised about WTO tariffs. Much of this this is exaggerated. Some sectors have comparatively high tariffs on goods, such as automotive and agricultural, but the majority have low tariffs (in 2014 the average was 2.7 per cent). As a net importer of EU goods, the gains from the new tariff levies can be used to soften the impacts upon our manufacturing industry.

The most significant challenge to selling goods, as opposed to services, is 'conformity'. Conformity ensures products distributed within a market meet performance, safety and environmental parameters.  To ensure a product adheres to these standards it is subject to a product conformity assessment, by which manufacturers demonstrate their products are admissible. Assessments are carried out by 'notified bodies', who, in turn, are granted assessment status by relevant authorities. In the UK, we have nearly 200 such bodies assessing a broad range of legislation. Our membership of the single market grants our notified bodies awarding status to determine whether a product meets the standards necessary to be sold in the single market.

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Countries outside of the EU, so called 'third' countries, have no such right. Instead, the EU will perform their own assessment before granting access. Proof of standards alone is not enough to win access. Instead, manufacturers must provide evidence of the processes by which the standards were met. Our WTO membership makes no provision for conformity assessment. Upon exiting the EU without a deal, our notified bodies would lose their single market awarding status, and in doing so all existing UK goods would be stripped of their single market access. Instead, despite meeting EU standards, our products would have to be resubmitted for approval, together with evidence of procedural conformity. A lengthy and costly process in itself and one for which UK manufacturers would have to foot the bill. Overnight, and for the short-to-medium term at least, UK manufacturers would be unable to market their goods effectively to our greatest export market.

For our services industry, which accounts for 43 per cent of our export market, Brexit has its own implications. Our WTO status grants us access to single market members. While terms aren't as consistent or favourable as single market status we still retain the ability to trade among single market members. In some areas, such as legal services, where regulation is woven very tightly among member states, Brexit will have little impact.

The greatest issue facing our services industry is 'passporting' rights for our financial services industry – our predominant service sector export. In the event of a 'no deal' outcome the City would be stripped of its simplified access to the single market. Banks would have no choice but to shift their operations to individual EU member states to circumvent the crisis. While the banks could still function, it would trigger the loss of thousands of jobs in the City and damage our economy considerably.

Conformity assessment and simplified single market access for financial services are essential. Were the EU to refuse to grant these we could retaliate by hindering EU products and financial services access to our market. This would give rise to the frequently quoted example of Germany being unable to sell Mercedes cars in the UK.

But this trade war is exactly the kind of scenario proponents of the WTO option are seeking to avoid. Instead, as the Brexit date approaches, and if the talks remain deadlocked we should reduce our demands and offering to the EU. We should call only for our 'notified bodies' to retain their EU conformity assessment status and our financial services industry to retain its simplified access rights.

This adjusted 'hard Brexit' WTO option, or 'WTO 2.0' would be an equitable holding point for both sides. It would offer us a more generous time period of time with which to strike a long-term deal, while giving us the ability to forge new broad ranging bi-lateral free trade deals around the globe. WTO 2.0 is the way to go.

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