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Offices

  • Brexit

    Process and scenarios

     
    • Brexit process and scenarios


      With the final shape of Brexit yet to be decided, Britain’s future relationship with the rest of the world is uncertain. The scenarios being discussed offer insight into the possible consequences of Brexit for businesses.

      There are huge differences between the Norwegian model at one end of the spectrum and reliance solely on rights and obligations under World Trade Organization (WTO) rules at the other. If a bespoke free trade agreement is preferred, decisions must be made about how deep and comprehensive it should be. All this will have to be negotiated.

      Outside of the EU, the post-Brexit future of the UK’s trade relationships with the rest of the world will need to be reconsidered. And last but not least, the UK will have greater scope to shape its own domestic laws and regulations outside the EU. How best to undertake this will be the subject of much discussion.

    • Scenarios: what will the post-Brexit situation look like?

       

      Existing models – such as the Norwegian, Swiss and Turkish options – illustrate the main possibilities.

      The WTO option

       

      UK relies solely on rights and obligations under World Trade Organization rules.

      • Relationship governed by respective obligations of the UK and EU as members of the
        World Trade Organisation (WTO).
      • Trade between UK and EU largely similar to current situation between, for example, the US and the EU.
      • Trade in goods governed by the General Agreement on Tariffs and Trade (GATT), and trade in services by the General Agreement on Trade in Services (GATS).
      • UK is not part of the EU single market or customs union.* UK exports to the EU would be subject to the EU’s common external tariff.
      • UK is not bound by single market rules, but would need to comply with EU product standards for exports to the EU.
      • Trade in services likely in practice to be constrained by non-tariff barriers.
      • UK is most likely not bound by EU/third country free trade agreements (FTAs), but does not benefit from them either. UK is free to negotiate own FTAs with third countries, and would need to do so if it wanted to retain the advantages it currently enjoys under the EU’s FTAs.
      • UK makes no contribution to the EU budget.

      The lack of market access could make the WTO option unattractive both to the UK and to the EU.

    • The Norwegian option

       

      UK has membership of the European Free Trade Area (EFTA) and the European Economic Area
      (EEA).

      • UK is outside EU customs union – tariff-free EU/UK trade in goods within scope, but subject to
        country of origin conditions.**
      • UK is part of the single market, but must comply with single market rules. Would need to comply with EU product standards for exports to the EU.
      • UK likely not bound by EU/third country FTAs, but does not benefit from them either. UK is free to negotiate FTAs with third countries, either on its own or with EFTA, and would need to do so if it wanted to retain the advantages it currently enjoys under the EU’s FTAs.
      • UK has little formal power in making EU single market rules.
      • UK must pay for access to the single market, but probably not as much as it currently pays.
      Arguably, remaining fully bound by single market rules but having greatly reduced power in making those rules would be an unattractive combination for the UK.
    • The Swiss option

       

      UK has membership of EFTA, supplemented with a series of bilateral agreements concerning
      market access in specific sectors. In the case of Switzerland, well over 100 bilateral agreements
      have been concluded.

      • UK is outside EU customs union – tariff-free EU/UK trade in goods within scope, but subject to
        country of origin conditions.
      • UK is part of the single market in specific sectors, and would need to comply with EU product standards for exports to the EU.
      • UK likely not bound by EU/third country FTAs, but does not benefit from them either. UK is free to negotiate FTAs with third countries, either on its own or with EFTA, and would need to do so if it wanted to retain the advantages it currently enjoys under the EU’s FTAs.
      • UK has little formal power in making EU single market rules.
      • UK must pay for access to the single market, but probably not as much as it currently pays.
      The EU has criticised the Swiss model because of the lack of an adequate institutional framework to ensure the arrangements keep pace with constantly evolving EU legislation, and it is doubtful whether this option would be on offer from the EU side.
    • The South Korean option

       

      Relationship based on a comprehensive free-trade agreement (instead of a series of
      bilateral treaties) outside the EU customs union.

      • UK has tariff-free trade in goods, subject to country of origin conditions.
      • Potential scope to provide for UK access to the whole or parts of the EU single market for services, but UK has little formal powers in making single market rules.
      • UK would need to comply with EU product standards for exports to the EU.
      • UK likely not bound by EU/third country FTAs, but does not benefit from them either. UK is free to negotiate FTAs with third countries, either on its own or with EFTA, and would need to do so if it wanted to retain the advantages it currently enjoys under the EU’s FTAs.
      • UK makes no contribution to the EU budget.
      In theory this option is very flexible, within WTO limits, although it is likely to take a long time to negotiate.
      Access to the single market, and influence over single market rules, would be less than at present, but the
      UK would have greater power to make its own rules.
    • The Turkish option

       

      UK has membership of the EU customs union, but little formal power in shaping EU trade
      policy or market rules.

      • As regards goods:
        • o tariff-free EU/UK trade, regardless of country of origin; and
        • o obligation for UK to apply the EU’s common external tariff to third countries (cannot negotiate own FTAs with third countries in that respect).
      • UK would need to comply with EU product/services standards for exports to the EU.
      • UK not part of the single market in services.

      The UK would have greatly reduced access to the EU market and few formal powers in those areas where it would have market access.

    • *Customs union: trade in goods between members of the customs union is tariff-free, irrespective of the country of origin of those goods. Members of the customs union all impose the same level of tariff (the common external tariff) on imports from countries outside the customs union.

      **Country of origin rules: an important point of difference between a customs union and a free trade agreement. Countries that sign up to a free trade agreement agree to eliminate tariffs on trade between them in goods “originating” in the free trade area, but retain control over the level of tariff they impose on imports from third countries.