Trouble at WTO Could Have Negative Impact on the U.K.

Brexit has been on the back-burner for the past six weeks, as attention has been focused on the snap election in the UK. After the election, the new government will have to again deal with Brexit, and changes at the WTO could complicate matters if the EU and UK fail to reach a trade agreement.
Kenny Fisher

After the Election – Back to Brexit

With only one day until the British election, the focus of the markets is on Boris Johnson and Jeremy Corbyn as the two politicians duel in a vote which will have tremendous ramifications for the U.K. and for Europe. When the dust settles and the final votes are tallied, the attention of the markets will once again shift to the vexing issue of Brexit.

Fast forward to December. Prime Minister Boris Johnson has vowed to take Britain out of the EU by January 31. Assuming that Johnson wins his majority (by no means a certainty), a critical unanswered question is what will the trade relationship between Britain and the EU look like? London and Brussels are likely to have differing opinions on this question, which could lead to difficult negotiations. This could sour investor sentiment and weigh on the British pound and the FTSE. Both are sensitive to investors’ moods, and the vexing Brexit negotiations have caused significant volatility in the currency and equity markets.

Johnson’s position is that the UK and the EU will negotiate a trade agreement during an 11-month transition period, during which the UK will temporarily remain in the single market and the EU customs agreement.

WTO Rules Apply if No Trade Deal Reached

What happens if the trade talks are not wrapped up by then? Technically, both the EU and UK would be bound by WTO (World Trade Organization) rules, which would apply to any tariffs or quotas set by either side. However, as of December 11, the WTO court will be unable to adjudicate trade disputes, since the U.S. has blocked the appointment or reappointment of any judges, in effect leaving the court unable to function.

This means that if a UK-EU trade deal has not been reached after the 11-month transition period, neither party would have recourse to an enforceable settlement mechanism for trade disputes. If the Trump administration relents (or there is another U.S. president in office), the WTO court could be back in business. Still, this issue underscores the many challenges that trade negotiators will face after the day after Brexit.

Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.