What does a no-deal 'Australia-style' Brexit mean?

With time running out for the UK and EU to reach a trade agreement - and the prospect of no deal back on the agenda - the government has been talking again about an "Australian-style" relationship with the EU in the future.

Prime Minister Boris Johnson says, "There is now a strong possibility that we will have a solution that is more like an Australian relationship with the EU than a Canadian relationship with the EU".

Just to be clear though, an Australian-style Brexit would mean no trade deal with the EU and would see the UK trading instead under the rules of the World Trade Organization (WTO).

This is what Australia largely does but its former prime minister, Malcolm Turnbull says "Australians wouldn't regard our trade relationship with Europe as a satisfactory one".

He's warned the UK, "be careful what you wish for".

Although Australia doesn't have an overall free trade deal with the EU, it does have a series of agreements on things like wine and product standards, which make trade easier.

If the UK's talks with the EU were to break down abruptly, the UK would not have any such agreements. With no deal, it would be facing an even more limited trading relationship with the EU than Australia has (although Northern Ireland would be treated slightly differently).

It's also important to remember that trade between Australia and the EU is very different to trade between the UK and the EU.

Australia is on the other side of the world, whereas the UK is the EU's next-door neighbour. That means Australia doesn't do nearly as much trade with it as the UK does.

And it doesn't rely on the EU in the way the UK does, for the operation of just-in-time supply chains in sectors such as cars, pharmaceuticals and food.

In other words, border checks and delays - which happen much more when you don't have trade deals - have far less impact on EU-Australia trade than they would on EU-UK trade.

Even so, Australia wants to improve its trading relationship with the EU - the two sides have been negotiating a free trade deal since 2018.

Mr Turnbull told BBC Question Time, "Australians would not regard our trade relationship with Europe as being a satisfactory one...there are very big barriers to Australian exports of agriculture products in particular and a lot of friction in the system in terms of services."

The EU is the UK's biggest single trading partner. In 2019, it accounted for:

As an EU member state, the UK was part of its trading system - the customs union and the single market. This meant there were no tariffs (or taxes) on goods traded between the two, and minimal border checks.

The UK is still in this system until the end of December (as part of the transition phase with the EU).

Both sides have until then to reach a new free-trade agreement, which would get rid of tariffs and quotas but not new border bureaucracy.

If they can't, then they'd have to trade on WTO rules - as Australia does.

The WTO is the place where countries negotiate the rules of international trade - there are 164 members and if they don't have free-trade agreements with each other, they trade under basic "WTO rules".

Every member has a list of tariffs and quotas (limits on the number of goods) that they apply to other countries with which they don't have a deal. These are known as WTO schedules.

Yes, examples include the United States and China and Brazil.

In fact, it's any country with which the EU has not signed a free-trade deal. That's when WTO rules kick in.

But like Australia those big economies don't just rely on basic WTO rules - they have all done other deals with the EU to help facilitate trade.

The US, for example, has at least 20 agreements with the EU that help regulate specific sectors, covering everything from wine and bananas to insurance and energy-efficiency labelling.

The government has said repeatedly that it wants a free-trade deal along the lines of the one the EU has with Canada.

But the UK and the EU have been trying to negotiate an agreement that would have no tariffs or quotas at all.

Whereas the EU's deal with Canada does include tariffs and quotas (on some agricultural produce for example) and it had to be negotiated line by line over a long period of time.

What happens if there's no trade deal?

The UK would have to trade with the EU on WTO rules - at least, initially.

In this scenario, the EU would impose its tariffs on imported UK goods.

The average EU tariff is pretty low (about 2.8% for non-agricultural products) but in some sectors tariffs can be quite high.

Cars would be taxed at 10% with some agricultural tariffs higher still - rising to an average of more than 35% for dairy products.

This would have a big impact on UK businesses selling their goods to the EU.

The UK would do the same, and impose its tariffs on imported EU goods.

It has already released details of the tariffs it will charge from January 2021 to countries with which it does not have a free trade deal.

In some areas, they will be imposed to protect UK producers - in the car sector, for example, and on most agricultural products, to avoid "additional disruption for UK farmers and consumers". That will lead to higher prices in the UK for some EU goods.

But the government is also removing some of the tariffs it has been charging as part of the EU - in areas, for example, where there isn't that much domestic UK production that needs protecting.

Here are some items that are having their tariffs cut to zero.

It's important to remember that the WTO's "most favoured nation" rules limit room for manoeuvre in the event of no deal.

The UK couldn't for example lower tariffs for the EU alone, in order to keep trade going. It would have to treat the rest of the world in the same way, which could lead to cheap imports flooding the UK economy, and harming domestic businesses.

And it's not just about the tariffs - there are also what are called "non-tariff barriers". In many areas of the economy they are far more important.

Non-tariff barriers include things like product standards, safety regulations and sanitary checks on food and animals. Some of them will apply with or without a deal, but businesses that trade with Europe fear that no deal in particular could lead to lengthy delays.

Eventually negotiations on some kind of deal would have to begin again, but it could take some time.

All of this refers only to the trade in goods.

The trade in services between the UK and the EU is also of critical importance. The kind of trade deal the two sides have been trying to negotiate wouldn't say very much about services anyway.

But no deal would be an even greater challenge.

And companies on both sides would be having to adjust to that change at the same time as trying to deal with the impact of coronavirus.

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