6. Option: WTO

If the UK does not put alternative arrangements in place, its trade with the EU (and most of the world) would be governed by the World Trade Organization (WTO). This is the fallback position, but it may actually be more attractive than that suggests.

The WTO has 161 members comprising all major economies (and most minor ones). Each WTO member must grant the same ‘most favoured nation’ (MFN) market access, including charging the same tariffs, to all other WTO members. The only exceptions to this principle are that countries can choose to enter into free trade agreements such as the EU or EFTA and can give preferential market access to developing countries.

As a WTO member, the UK’s exports to the EU and other WTO members would be subject to the importing countries’ MFN tariffs. Compared with EU or EFTA membership, this would raise the cost of exporting to the EU for UK firms. The UK’s

services trade would also be subject to WTO rules, with reduced access to EU markets.

The WTO has no provisions for free movement of labour, so under this scenario, free labour mobility between the UK and the EU would cease. But free movement of capital between the UK and EU would probably continue, as the EU prohibits restrictions on capital mobility not only within the EU, but also with countries outside the EU.

All member states of the EU must agree any deal with a non-EU country, so the WTO option is quite feasible if, at the end of two year, negotiations have not resulted in agreement. It may, however, be a temporary solution for many reasons.

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