Brexit: How will it affect Britain’s trade standing in the world?

With a month to go before the potentially epoch-making vote on British membership of the EU, the debate so far has been characterised by bias, distortion and exaggeration. But how important are the EU establishments really for a body of open trade policies?

 

What could Britain do to increase trade if it were to leave the EU?

British eurosceptics claim that the case for British membership has been weakened by the fall in the proportion of the UK’s trade accounted for by the EU. They argue that, in the event of an exit, Britain would have little trouble negotiating a free trade agreement with the EU because the UK has a large trade deficit with the rest of the Union: if trade barriers between Britain and the remaining member states were erected upon exit, the EU would lose more exports earnings from Britain than vice versa. At the same time, the UK would be freed from the burdens of EU regulation and hence able to boost trade with faster growing parts of the world, by eliminating tari s and signing trade agreements without the constraints of EU membership. Underpinning this assertion is the belief that the UK is a big enough economy to be an e ective trade negotiator in its own right.

Britain could focus on potentially lucrative markets like China and India. But the Chinese have made it clear that they want to deal with the UK as part of an EU block. India, because of historic ties, may be more accessible, but is unlikely to be easy. David Cameron has visited India three times since he became Prime Minister in 2010. Narendra Modi’s visit to Britain last November was the first by an Indian prime minister since 2006. Mr Modi made 28 other foreign trips before coming to Britain.

What might be the consequences for Britain’s trade if it left the EU?

Many argue that the UK would be wrong to assume that it could dictate terms in any negotiation with the EU by virtue of the fact that it is running a trade de cit. first, the EU buys half of Britain’s exports whereas the UK accounts for little over 10 per cent of exports from the rest of the EU, so the UK would be in a weak position to negotiate access on its terms. Second, half of the EU’s trade surplus with the UK is accounted for by just two member- states: germany and the netherlands. Most EU member- states do not run substantial trade surpluses with the UK, and some run de cits with it. Any agreement would require the assent of the remaining 27 members, some of whom buy more from Britain than they sell to it.

The Alternatives

If Britain withdrew from full membership of the EU, there would be a number of potential options for managing its trading relationships: membership of the European Economic Area (the norway option); a customs union, similar to the one the EU has with Turkey; a basket of bilateral agreements such as that which exists between Switzerland and the EU; a so- called ‘vanilla’ free trade agreement such as the ones the EU has with countries ranging from South Korea to South Africa; and nally trade with the EU under World Trade organisation (WTo) rules. None of these options would be straightforward though, and it would be a difficult journey both for Britain and the EU.

 


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