Brexit - doing a deal with the EU
the referendum campaign, huge attention has focussed on the question of
what kind of deal should replace the current relationship which exists
under the EU Treaties between the UK and the rest of the EU. That
current arrangement naturally involves the UK participating in the EU
market. What then should replace that current relationship and how
would it compare with present arrangement?
The first point to make is that participation within the
single market is far from being an unmixed blessing. In our
article Brexit and the
we explain that the rules of the European single market are made up of
a number of different elements, some of which are helpful to trade,
some of which (such as harmonised regulations) have benefits and
disadvantages which counterbalance each other and may have different
positive and negative impacts depending upon the sector concerned, and
others of which are positively harmful and negative for the UK.
that latter category are the 'Fortress Europe' rules of the single
market which positively require us to impose restrictions on trade
between ourselves and non-Member states, so driving up costs to our
consumers and industry.
Therefore the aim should not be to preserve participation
in the European single market with its negative features. Instead,
the aim should be access to the single market.
The EU trade tail should not wag the global dog
Before turning to what kind of deal with the remaining EU we should aim
for, we should first ask what is the dog and what is the tail?
Over the past 10 to 15 years, there has been a dramatic decline in the
proportion of our trade which goes to the EU as compared with our trade
which goes to the wider world.
In 1999, 55% of our exports of goods and services went to the EU.
By 2015, this percentage had dropped to under 44% and it is still
This speaks volumes for the supposed benefits of the single
market - if it’s really so great to belong to it, why do we find
it more difficult to grow our exports to the EU than to the rest of the
But what it means is that trade with the rest of the world is now more
important to us than trade with the EU. This is not some passing
phase but a long term and persistent trend which seems likely to
continue into the future. So, in our dealings with the EU after
exit we must look first to what is best for our global trading
outside the EU (the dog), and must ensure first and foremost that
deal regarding trade with the EU (our declining tail) does not
interfere with or compromise our global trading interests.
It is also worth noting how we compare with other EU member states in
our pattern of trade. The EU's official statistics body, Eurostat, has
published a comparative study of the way in which exports from
different member states go to other EU member states or outside the EU:
Intra-EU trade in goods - recent trends
That Eurostat article contains an informative table which we reproduce
for the benefit of our readers:
shows that by 2013, the percentage of our exports going to other EU
states had dropped to 43.6%, the lowest percentage of any member
state except for tiny Malta. This trade pattern is hugely out of line
with the rest of the EU: it is 18.4% below the EU average
of 62%. It represents a major change from the position in 2002
over 61% of our exports went to EU members, and we were much closer to
the average and much more typical of the pattern of other member states.
This illustrates why the interests of the UK are so dramatically
different from those of all other member states of the EU. Our
global trade is much more important to us than it is to other
states, while our exports to the rest of the EU are much less
to us than any other major EU state - the next major state closest to
us in its trading pattern is Italy, which sends 53.7% of its exports to
other EU states.
Since the EU club is run for the benefit of the club members who send
of their exports to each other inside the EU, it is hardly surprising
that we are the
club member who gets least benefit from our membership.
The EU's best customer
The other aspect of our trading relationship with the EU is our balance
of trade. We import very much more from the EU than we export to
them, a trend which has persisted over recent years and appears to be
According to the latest figures (2015, ONS “Pink Book”) the UK exported
£134.3bn worth of goods to the r-EU but imported £223.0bn, a trade gap
of -£88.7bn: we import 66% more goods from the EU than they export
to us. The reason why this trade gap is important is not because
it is of itself a bad thing - within a country's overall trading
pattern it will have surpluses with some trading partners and deficits
with others, and there is no particular reason why one should try to
achieve a trade balance with each partner.
But this trade gap does have major implications when it comes to
negotiating a trade deal with the remaining EU. Any measures which
trade between the UK and the r-EU after exit (such as the imposition of
tariffs) would disproportionately affect EU exporters compared with UK
Rather silly comments currently are being made by certain EU
an attempt to influence the outcome of the referendum claiming that
terms of access to the r-EU market will be made difficult for the UK in
order to deter other countries who might have the temerity to believe
in democracy and be thinking of following us out of the door.
Such puerile sentiments will not be
reflected in reality when the jobs of German car workers and French
agricultural producers are dependent upon reaching a harmonious and
mutually beneficial trade deal with the UK.
Key elements of the trade deal with the EU
There is a widespread misconception that any post-Brexit trade deal
with the EU would have to be based on a "model" of one of the EU's
existing external trade agreements. So it is asked whether the UK
for a Norwegian, Swiss, Canadian or even Albanian "model"?
This is a mistaken starting point. Of course it is interesting to
examine the EU's existing trade agreements in order to see the kinds of
things the EU has agreed to in the past. It is also interesting to note
that the Western European countries who are outside the EU all seem to
be doing very well economically and do not want to convert their
existing arrangements into EU membership.
Examination of the EU's external trade deals demonstrates that there
is no fixed template and no limited "a la carte" menu from which other
states must choose. The wide variety of the agreements reached simply
demonstrates that the EU is willing to negotiate on a case by case
basis a deal which suits the mutual interests of itself and the party
it is negotiating with. Therefore it is not surprising if agreements
negotiated to suit the circumstances and interests of other states with
economies that differ from the UK should not be best fits for the UK's
What the UK should press for in terms of a trade related agreement is
in fact fairly straightforward and simple, and consists of three
Trade is of course not the only aspect of our current relationship with
the EU where it would be sensible to continue to cooperate. A wide
range of matters should be covered by inter-governmental agreements,
from intelligence and security cooperation to continued participation
in Europe-wide (not EU-wide) programmes such as scientific and higher
education research and student exchange programmes. Such continued
mutually beneficial cooperation in non-trade matters does not need to
be embodied into a trade agreement.
- A free trade agreement: A free trade
agreement allowing for tariff-free entry of goods (in both directions)
is a permissible departure under Article XXIV of GATT from the rule
that WTO members must charge the same tariff rate to all comers. Unlike
a customs union, members of a free trade area can decide on the level
of the standard tariffs which they charge to non-members of the free
trade area. As pointed out in our article Brexit and International
Treaties, this would allow the UK to charge lower or nil tariffs on
goods where there is no substantial UK industry to protect, to the
benefit of our consumers and industry. The r-EU would have a very
strong incentive to agree to an FTA deal, in view of the huge trade
imbalance pointed out above. In any case, all non-EU territories
in Europe have free trade agreements with the EU apart from Belorussia.
- General rules on free movement of goods and
services: The general rules of the EU treaties on free
movement of goods and services have generally worked well and in the
interests of the UK. There would be no difficulty in replicating these
general rules in an EU-UK trade agreement and in fact many of the EU's
external trade agreements already do so. Since these rules are for the
benefit of consumers in the state of importation, there is a strong
argument for replicating these rules and applying them to goods and
services imported from non-EU states as well, something which we are
currently prevented by our EU membership from doing.
- Continued access for goods and services under
existing regulations and directives:
The EU currently has
numerous regulations and directives which lay down rules with which
goods and service providers must comply, in return for which the goods
or services may be sold in other member states without further
regulatory restrictions. Unlike a country which might newly approach
the EU for a trade relationship, the UK is currently compliant with
this mass of regulations and directives. This makes the basis of a
trade deal simple: so long as neither party changes the relevant rules,
access will continue after exit in the same way as before.
Importantly however, this would give both parties (us and the r-EU) the
right to change the rules in a relevant area but bearing in mind that a
rule change might affect the continued access rights of those
businesses who export from the UK to the r-EU or vice versa.