LONDON — British trade officials are discreetly exploring a 10-year interim arrangement with the European Union in case a trade deal is not reached during Britain's exit negotiations.

Officials from the U.K.'s Department for International Trade are investigating the possibility of keeping tariffs between Britain and the EU at zero as part of an interim arrangement that could last up to 10 years, allowing more time for a full trade deal to be negotiated after Britain has left the bloc, according to sources familiar with the discussions that have taken place at the World Trade Organization.

Under a little-known WTO clause, the U.K. and Brussels would be allowed a “reasonable length of time” after Brexit to agree a free-trade deal before trade law would force both sides to impose the same tariffs on each other as they do on everybody else. Such a transitional deal would allay fears about an impending cliff edge in March 2019, when Britain is set to crash out of the single market and face the EU's steep external tariffs on goods ranging from meat to cars.

The provision, set out in Article 24 of the WTO's General Agreement on Tariffs and Trade, can only be challenged by other countries if the temporary continuation of existing tariffs is not applied to all trade. This makes a special deal for finance or the car industry less likely as part of any interim arrangement.

According to Geneva-based officials, British trade experts are working on the understanding that a decade would constitute a “reasonable” timeframe to stay on special trading terms with the EU. They are supported by the WTO rules, which state that any interim agreement should "exceed 10 years only in exceptional cases."

The U.K. Department for Exiting the European Union said it did not recognize that British officials were looking into Article 24, but refused to formally deny it. An official stressed that the position remained that the U.K. would pursue a full and comprehensive free-trade deal within the two years of exit negotiations with the European Commission's Michel Barnier.

While a "zero-for-zero" interim tariff deal may be legally feasible according to the rule-book, it is also highly unlikely that the remaining EU 27 countries would agree to such an arrangement without significant concessions from the U.K. government on budget contributions and free movement of people. There is also no obligation under WTO rules for either side to agree to tariffs of zero.

Zero-for-zero

The claim that U.K. officials are exploring the prospect of a 10-year grace period after Brexit exposes growing concern in London that the two-year deadline to withdraw from the EU under Article 50 is not long enough to negotiate a trade deal.

Britain’s Brexit Secretary David Davis has admitted that without an exit agreement the U.K. is likely to fall back on basic WTO rules on trade — known as “most favored nation status” — which would see the imposition of tariffs on imports and exports between the EU and U.K.

However, while Euroskeptic Conservative MPs are sanguine about the prospect of WTO rules, insisting the U.K. has less to lose than the EU because it is a net importer of goods, there is a widespread economic consensus that the U.K. is much more dependent on its exports to the EU, than the EU is on its exports to the U.K.

The Geneva-based official who spoke to POLITICO on condition of anonymity said the idea for a 10-year deal that set tariffs at zero was gaining ground. “What’s important for you to take away is there is not a great swell of bitterness towards the British in Geneva,” the official said. “The attitude is nothing like what it it is Brussels. I don't think anyone wants to see trade disrupted between WTO members."

The official added that an interim agreement that allowed existing tariff-free trade to continue is likely to be accepted by the "vast majority" of WTO members. "Nothing precludes a member challenging anything, but you have to show some injury — that you are materially worse off — for it not to be spurious," he said. "It’s hard to see how that might be the case."

Trade experts in London express a similar view.

"Zero-for-zero tariffs could be agreed to cover the interim," said Shanker Singham, chair of the Legatum Institute's Special Trade Commission on trade. "If we are not able to get a comprehensive free-trade agreement in two years, which everybody assumes we won’t, we will have at least got quite far down the track on what interim measures are necessary. It’s quite hard to see how no interim measures will be agreed."

"Under WTO rules you can’t say you are going to have zero-for-zero until a deal is struck, but you can say for a limited amount of time," he continued. "WTO will allow it if both sides are negotiating a free trade deal.”

He said there would be a lot of pressure around the world for the EU and the U.K. to settle terms —such as from the Japanese, for example, whose supply chains would be threatened by tariffs.

Smooth Brexit

One leading Euroskeptic MP with close ties to Davis backed Singham’s analysis of how an interim deal might be possible under WTO law, adding a trade deal might not be agreed in two years, but might be “70-80 percent of the way there.”

“It might need a bill saying it will be done within the next year, with a sunset clause attached,” the MP said.

Another Conservative MP close to the Chancellor Philip Hammond said the Treasury believed it was crucial to get transitional arrangements agreed as soon as possible. “The question for the U.K. is the transition period — everyone is obsessed by the two years," the MP said. "This is something they are going to try to get pinned down very early.”

A government spokesperson insisted the U.K. was focussed on getting a free-trade deal agreed by 2019. "We will look to negotiate our withdrawal and future relationship in parallel. That is what is implied by Article 50 itself, which makes clear that the framework of a future relationship should be clear before a deal for withdrawal is finalised.

"We are confident that this can be done in the period set out in Article 50, not least because unlike other trade negotiations the parties will be starting from a point of equivalence," the spokesperson said. "A smooth and orderly process of exit will be in the interests of both sides, which is one of the reasons that we have spoken about a phased process of implementation."

A WTO official said: “The [WTO] director general Roberto Azevêdo has made very clear that he hopes that both Article 50 process and any subsequent agreement between Britain and any WTO member will take place as smoothly as possible without disruption to trade.”