Fundamentally, the WTO rules are a minimum baseline. The EU single market and customs union is at a very advanced stage of integration—it has progressively eliminated a whole range of barriers and has bound Governments not to implement a whole range of barriers to trade or conditions about how trade can happen; the WTO rules are an absolute baseline. The WTO provides a minimum standard of non-interference or limited interference in international trade that 164 members have signed up to.
In practice, in a WTO Brexit scenario, the obligation on the EU and the United Kingdom would be to treat trade flows between each other in the same way as they treat trade with a WTO member with which they have no free trade agreements and no trade-related agreements of any kind. There are not many of those—the closest analogue is Venezuela. A package heading from Edinburgh to Paris receives a very advanced degree of treatment. A Venezuelan exporter trying to send a goods consignment to Paris faces much higher fees and a much greater amount of paperwork. Under a WTO principle called most-favoured-nation status, the EU would have to apply the same rules to the UK as it applies to Venezuela. That is an oversimplification, but that is, in essence, what it would mean.
For UK businesses, even with all the commendable measures that the Governments on both sides have already put in place to mitigate the shock, there is likely to be a very sharp shock indeed, in two ways. First, there is the question of tariffs. The UK has indicated that it will liberalise a range of tariffs on an MFN basis to allow imports to flow in more readily than they otherwise would. However, the EU has made no such indication as far as I am aware. If there is a no-deal Brexit, the UK will definitely face those tariffs. Anyone suggesting otherwise, under unicorn schemes such as article XXIV of the general agreement on tariffs and trade or mysterious last-minute arrangements, is doing so without any basis in EU statements or indications. The UK will face tariffs—that is the first part of the shock.
The second part of the shock involves paperwork and procedures. The EU single market and customs union has done its very best to make moving something from Glasgow to Paris as easy as moving it from Glasgow to Edinburgh in terms of the paperwork and requirements. It has not quite got all the way there, but it has got far closer than almost anyone else at any point in human history. Compared with that, moving something internationally carries a significant burden of paperwork. There is a reason why the customs brokerage industry exists. There is a reason why freight forwarders are a thing. It is because navigating the bureaucracy of international trade, which every country has to do, is a really hard lift. Any business in the United Kingdom or in Scotland that has only ever traded within the European Union will never have encountered that before.
There is the economic operator registration and identification—EORI—number for registering as an exporter. If a business has never traded outside the EU, the chances are that it does not have that registration. It is not registered as an exporter because it did not have to be. EORI registration numbers, which are being tracked, are still hundreds of thousands below where they need to be, meaning that tens of thousands of UK businesses will not be eligible to export. They will not be the type of registered firm that can export goods to markets to which they could easily export them the previous day, because the paperwork requirements will kick in.
Even if that is partly mitigated on the UK import side—I trust that the European Commission will also do what it can to mitigate that in the long term—in addition to the shock, every additional bit of paperwork will cost money and time. The current UK business models are built around not having to register. If they do have to register, that will raise the cost of doing business and might push them outside their competitiveness margins.
I do not want to overstate this, but, at the same time, I struggle to overstate it. This is a really serious and sharp shock that should not be dismissed.