As members of the EU, the UK belonged to a group of countries with no customs duties or tariffs between them. If we leave the customs union, we will be free to negotiate free trade agreements with other countries and, where no agreement is in place, our trade will operate under WTO rules.
Here are some key facts about the WTO:
- Established in 1995, it is based in Geneva and has about 650 permanent staff
- There are 162 members of the WTO, including the EU and also the UK, which is a member in its own right
- 98% of the world’s trade is covered by WTO rules
- 12 nations are not in the WTO, including North Korea and Monaco
How WTO tariffs work
When goods are imported into a country, the government charges a customs tax or duty, also called a tariff, which is usually due as soon as goods are declared to customs. Tariffs are normally paid by a broker or shipping provider who will then hold on to the goods until they have been reimbursed.
The UK government has said that it will stick to the EU tariff rates in general after Brexit for goods coming into the UK. For UK businesses exporting goods under WTO rules, the rates of duty will be subject to WTO ‘schedules’. These are the list of tariffs and quotas (limits on the numbers of goods) that WTO members apply to other countries.
Understanding these WTO key terms will help you distil the important information you need for your organisation.
- Most-favoured-nation (MFN) is probably the most important WTO rule. It means that countries cannot normally discriminate between their trading partners. Grant someone a special favour, such as a lower customs duty rate for one of their products, and you have to do the same for all other WTO members.
- The bound tariff is the maximum MFN tariff applied to goods.
- Preferential tariffs are agreements between countries for lower rates than the MFN tariff.
- The Harmonised System (HS) is a six digit code of product classification standardised under the World Customs Organisation rules. Rates of duty are based on the coding and the system allows additional digits to be set customs authorities. For example, 0403.10 is the code for yoghurt and 0403.10.11 is low-fat yoghurt.