The multilateral global trade of goods and services is essential to the modern way of living; however, underlying the perceived simplicity of consumer access are numerous trade deals and agreements. Following the Brexit referendum last June, Britain is preparing to leave the EU. The World Trade Organisation (WTO) requires member states to commit to schedules of concession, and currently, as a member of the EU, the UK shares its schedules with the other 27 member states. Therefore, upon leaving the EU, the UK will need to establish its own position in the WTO and its respective schedules. Additionally, the EU may also be required to alter its own WTO schedules, as these schedules were previously negotiated with the UK incorporated.
The UK will most likely adopt the current EU schedules for the majority of trade tariffs. However, the UK and the EU will have to split their WTO schedules with respect to tariff quotas and agricultural subsidies, which may lead to disputes during negotiations. As a member of the EU, the UK currently has access to both the single market and the EU trade agreements that have been formed by the EU with third party countries. This access will cease upon the UK’s exit from the EU; this may prove to disadvantage the UK. The UK will no longer be included in agreements such as the Canadian-European Trade Agreement, or CETA, which was approved by the European Parliament on 15 February.
There are numerous options for the UK’s trade with the EU after Brexit, and below I have outlined the most probable options:
1) Joining the European Economic Area (EEA): This would require the UK also to become a member of the European Free Trade Agreement, or EFTA. This is also known as the ‘Norway Model’ and would give the UK access to the single market and third-country trade agreements. However this option would still require the UK to give a substantial amount of money to the EU (around 80% of what we pay now) and the UK would have to accept a majority of EU laws (which would go against the principles outlined in the government’s white paper on Brexit).
2) Remaining part of the EU’s customs union: There are common tariffs and quotas that govern trade between members of the customs union and external third countries. Turkey’s customs union with the EU allows tariff free trade on some products (agricultural products are a notable exception). However, it is possible to be a member of the EEA without being a member of the customs union, and therefore members of the EEA are able to set their own external tariffs and quotas.
3) Negotiating bilateral trade agreements with the EU: An example of this is the ‘Switzerland Model’; however, this also requires a significant financial contribution to the EU.
4) Taking the WTO Option: This would mean falling back on trade according to WTO rules and tariffs – an eminently possible outcome, given that Theresa May has asserted that “no deal is better than a bad deal”.
Regardless of the approach the UK decides to take regarding trade within the EU, any trade agreement reached will be an agreement based on negotiations with the EU. The EU will have its own agenda to consider when reaching any agreements; hence it will consequently prioritise its own economic interests. Nevertheless, the UK is a global economic and political power, and therefore the EU should be interested in forming a free trade agreement with the UK following Brexit. Liam Fox, the secretary of state for international trade, expressed this notion in his speech in Berlin last week when he stated that the EU should be wary of imposing trade barriers on the UK.
90% of future global growth will happen outside EU borders: this is why securing trade agreements with countries outside the EU is so crucial. One issue with the negotiation of trade deals following the UK’s departure from the EU is the lack of a big negotiating team in the civil service. Therefore, to overcome this issue, a new division of the government has been set up. The UK will be able to implement trade deals and agreements at a much faster rate than the EU as a consequence of only a single government being involved instead of 28. The UK has the possibility to follow the ‘Hong Kong Model’, which advocates no tariffs or trade barriers, although this is unlikely. The direction that the UK is expected to go in is to forge free trade deals and agreements with countries such as America, Canada, India and China as well as the EU; the UK government has already initiated informal talks with many potential trading partners such as Australia and India.
The white paper on Brexit was published on 2 February, with principles 8 and 9 referring to trade. These principles state that we are pursing free trade with European markets and new trade agreements with other countries. The Conservative government has suggested that we are looking for a ‘bespoke’ deal. A bespoke deal would entail agreements that would be a significant improvement on the UK’s current situation; however, it is unclear how likely such an outcome is. Despite all the uncertainties attached to Brexit, the UK has an unprecedented opportunity to strengthen its position in the global market and economy.