What does a WTO Brexit mean?

WTO scenario for the EU and the UK

In the event that no agreement is reached on a trade agreement by the end of the two-year formal exit negotiations, the British government has announced that it will simply leave the European Union (EU) ("No deal is better than a bad deal"). In this case, Great Britain would in future rely on the rules of the WTO for trade with the EU (as with most third countries). As an independent member, Great Britain has to reorganize its WTO status.

WTO rules as the basis of trade
The World Trade Organization WTO currently has 164 members, including the USA, Japan, China, India, Brazil, Russia and the European Union (EU). The main objective of this most important international trade agreement: the worldwide dismantling of customs and trade barriers. It is estimated that the WTO currently covers more than 90% of world trade.
Even after leaving the EU, Great Britain is a member of the WTO in its own right. As a WTO member, it is committed to the most-favored nation principle in international trade, according to which a WTO member grants the same advantages to all WTO trading partners. The national principle also applies, according to which there is no discrimination between foreign and domestic goods / services. A large part of the EU and Great Britain's trade is currently carried out according to WTO rules.
If the EU and Great Britain fail to agree on a customs union or a free trade agreement with transition periods during the Brexit exit negotiations, the EU and Great Britain will in future have the same status in mutual trade as other WTO members. In the movement of goods between the EU and Great Britain, customs duties would have to be paid in future, since there is no longer an intra-Community delivery, but an import or export to a third country in the WTO.

Noticeable customs charges and new customs formalities
What duties were there for UK deliveries to the EU? The currently valid EU external tariffs are published in the so-called combined nomenclature, most recently in the Official Journal L 294 p. 1ff of October 28, 2016. The legal basis is Regulation (EEC) No. 2658/87 on the customs and statistical nomenclature and the common customs tariff. Appendix I is the Combined Nomenclature, which is updated annually.
For British deliveries of goods to the EU, trade under WTO rules would mean that the applicable EU external tariff would be incurred in full, as would be the case for goods imports from other countries that have not concluded an individual agreement with the EU, such as Brazil, Russia or China .

The EU is currently levying various tariffs on the import of industrial goods from third countries, e.g. 10% on cars, 3% to 4.5% on car parts supplied, 11% on glassware for table use, 6% on raw aluminum, 7.5% on aluminum tubes, 22% on trucks with a total weight of more than 5 t (8704 2291), 2.7% to 4.2% on car engines. In the agricultural sector, customs duties of e.g. 8.8% (melons) or 12.2% (orange juice with a Brix value <20) may apply. For a large number of agricultural goods (market regulation goods), flexible import duties are applied, depending on the level of the import price.
For the British export industry, the British daily The Guardian recently put the additional costs of a "no deal" Brexit at around 6 billion pounds sterling (£) annually.
German exporters would also be hit hard by new customs duties on the British side. Cross-border, multi-part production processes might become uneconomical, and newly introduced customs formalities would tie up additional capacities. - All factors that threaten to affect the previous German trade surplus in Great Britain and represent a considerable deterioration in comparison to the previous internal market with the free movement of goods, people, services and capital.

Great Britain has already announced significant tax competition for such a hard Brexit. It has also expressed interest in concluding free trade agreements with other countries, possibly with India, China or the USA, for example. British Trade Secretary Fox described Brexit as a "golden opportunity" for Britain to trade with the rest of the world. However, negotiations on substantial agreements will take time.

EU negotiating guidelines with a roadmap for further negotiations
EU President Tusk made it clear that in the two-year negotiations on Brexit, the EU would first like to negotiate the exit conditions before negotiating with the UK on future relations.
The European guidelines for the negotiations were decided on April 29, 2017 at a special summit of the European Council in Brussels. These contain a roadmap for further EU negotiations.

New regulation of the WTO status of Great Britain
If Great Britain leaves the EU, it is no longer covered by the framework agreement negotiated by the EU with the WTO. In order to regulate its future WTO status, Great Britain must then submit its own new lists of obligations to the WTO, in which its market access obligations are listed. The consent of all WTO members is required for this.
Great Britain has already announced that it will adopt the schedule with maximum tariffs deposited by the EU at the WTO one-to-one. Maximum tariffs are the bound WTO tariffs (Article II GATT), which the member states have set against the WTO as tariffs that they are only allowed to impose on countries (upper tariff limits). For the other third countries that belong to the WTO, there will be no deterioration in the future of goods traffic with Great Britain with regard to customs duties.

Observers assume that before new lists of commitments are submitted to the WTO, both sides, the EU-27 and the UK, will negotiate the allocation of their WTO tariff quotas. Tariff quotas are limited import quantities that can be imported with preferential tariffs or duty-free within a specified period of time, e.g. in the agricultural sector or in fishing.
If the EU-27 retains its previous WTO quotas, with which it grants preferential tariffs to third countries, and if Great Britain grants further quotas in the future, this would mean an increase in exemptions in quantitative terms and thus a (fundamentally unproblematic) improvement for third countries. The EU-27 could, however, have an interest in reducing its granted quotas after leaving and negotiating with Great Britain about the assumption of certain tariff quotas.

An unbundling would also have to take place with regard to the EU eligibility for domestic subsidies. The concrete strategies are currently likely to be negotiated.
An agreement between the EU and Great Britain would have to be reached before Great Britain submits its lists of commitments to the WTO.

Extension of the negotiation period possible
Much information about Brexit will only become public in the next few weeks. Industry representatives on both sides consider the fact that the UK will actually leave the EU in 2019 without the conclusion of a trade agreement with the EU to be less than desirable. However, there are certainly supporters of a hard Brexit in Great Britain.
If there is no agreement within the 2-year period that applies to the exit negotiations, the negotiation period can be extended by a unanimous decision of the European Council in agreement with Great Britain. Otherwise the British EU membership will automatically expire.