One of many articles written over recent days, with many to come doubtless, about the UK-EU trade deal to be negotiated after we formally leave. I thought it might be useful in this context to return to basics - what is a trade agreement? Thread... 1/
The starting point for all trade agreements is the World Trade Organization where 164 members (UK and EU included) agree to treat each other equally with regard to tariffs and services market access, known counter-intuitively as Most-Favoured Nation. wto.org/english/thewto… 2/
Members of the WTO are however allowed to give preferential treatment to each other provided this covers "substantially all trade" - this was a founding principle of the GATT (General Agreement on Tariffs and Trade, 1947), the predecessor of WTO. 3/ wto.org/english/tratop…
We're putting to one side for the time being President Trump's attack on the WTO, including signing agreements which do not appear to meet the rules, and stopping the disputes function operating as it should... relevant for UK strategy, but basics as yet unchanged... 4/
Tariffs on goods (no tariffs on services) have been reducing globally since the 1940s, but remain substantial particularly in agriculture. e.g. average EU tariffs on agricultural goods are 12% but 4% on non-agricultural goods. You can see all this here 5/ wto.org/english/res_e/…
The EU Customs Union is a preferential trade arrangement eliminating tariffs between members. The UK will be leaving this and therefore goods trade between UK and EU will attract tariffs unless we have a new arrangement. Proposed UK tariffs are here... 6/ gov.uk/government/pub…
So at its simplest a UK-EU trade deal only has to reduce tariffs to be WTO compliant. Few trade deals remove all tariffs, and in agriculture there are often quotas attracting reduced tariffs, after which WTO tariffs apply. See e.g. on EU-Canada... 7/ madb.europa.eu/madb/fta_canad…
To take advantage of preferential tariffs in a trade deal you have to prove a product comes substantively from one of the parties - known as "Rules of Origin". If you can't, the WTO tariff applies. This could be a problem e.g. to the UK food industry 8/ fdf.org.uk/rulesoforigin-…
Rules of origin are not an issue in Customs Unions, where members have a common external tariff. They are in trade deals. Adding cost. Sometimes the tariff is paid rather than proving origin. About a third of the time for EU exports according to this... 9/ kommers.se/Documents/doku…
Typically as well as rules or origin tariff reduction is also accompanied by rules to ensure fair competition, or 'level playing field' rules. In particular large markets like the EU and the US insist on various commitments (e.g. for the US) 10/ ustr.gov/sites/default/…
The larger economy in negotiations will typically set the conditions for access to their larger market (and ignoring trade balances), because of domestic concerns about competition. It could be minimum labour and environment provisions, but the trend in US and EU is more... 11/
Trade agreements typically focus mostly on tariff reduction even though non-tariff barriers are often a higher barrier to trade. There may be elements of regulatory alignment to reduce checks, and some dialogues. These can also come outside trade deals 12/
Similarly trade agreements typically don't deliver significant access to services markets over and above WTO commitments, which is a lot less than the EU single market. This table (from economy-ni.gov.uk/sites/default/…) puts a score on no-deal, trade deal, and EU / EEA membership 13/ 
Trade agreements also contain the other rules required to regulate preferential trade between countries - these could be on Intellectual Property, customs and border procedures, public procurement, disputes and so on. EU-Canada contains 30 chapters... 14/ ec.europa.eu/trade/policy/i…
The impact of most trade deals is modest on the economy as a whole. For example 0.03% GDP boost from EU-Canada to the UK. For the industries concerned though, it can be significant, their chance to remove particular barriers to trade 15/ assets.publishing.service.gov.uk/government/upl…
Typically countries start the process of a trade negotiation by consulting with business and others as to what they wish to see. The detail is all important - they may wish to protect from competition or remove a problem preventing their exports. 16/ trade.ec.europa.eu/consultations/…
For the UK and EU it is important then to note that the starting point of a trade deal is WTO rules, not EU membership. Both sides start with the disadvantage of not knowing what this means for how the UK runs trade (they know how the EU implements WTO rules) 17/
If we're doing this properly, both the UK and EU would need to understand the notional trade barriers in place for a UK-EU WTO relationship, then what to prioritise in minimising these. Business would need to do the same. That wouldn't be done in a year 18/
There are many related areas - trade deals with other countries, unilateral preferences for developing countries, domestic industry priorities, UK-EU non-trade agreements (data for example will require a separate agreement). For another time... 19/
Sorry about length (I've been learning from @pmdfoster...) but all of this is to show that a UK-EU trade deal is not simple, not about preserving current access, and should require a lot of thought by government and stakeholders. Let's walk before we can run... 20/ end
@pmdfoster PS there's plenty of further writing on the subject. Here's my primer on Free Trade Agreements from 2017... uktradeforum.net/2017/09/28/tra…
@pmdfoster PPS will add some comments to this as I see them. Not a reply, but very relevant...
