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Brexit, the EU and the Future of International Trade

11 January 2017, 15:31 CET

In the UK, 23rd June 2016 marked the beginning of a period of instability for the EU, with Brexit labelled as a dangerous precedent with rumours of a staggering 34 further European referendums on the horizon.

Six months later and Article 50 is yet to be triggered, although Theresa May has promised to do so by March 2017.

What type of agreement this will lead to no one can be entirely sure, and therefore how this will affect firms within the UK, EU and further across the globe is purely conjecture. However, at this stage there appears to be three likely negotiation outcomes, each with different implications for the future of international trade.

1. The European Economic Area

A collective area in which free trade is permitted between EU members and the EFTA (European Free Trade Association), the EEA permits countries within these boundaries to trade within the single market without having to join the EU.

As an EFTA member, Switzerland has been hailed as the Brexit solution. Unfortunately, this may not be the case. By belonging to the EEA, the EU would still: enforce freedoms (including the freedom of movement); impinge upon the UK's decision making process via EU legislation and the European Supreme Court; restrict Britain's ability to forge trade agreements with other markets; and demand contribution towards the EU budget. On the other hand, in terms of business exports and imports, relatively little would change.

2. Customs Union

There are currently three customs unions in existence with the European Commission. Should Britain follow in Turkey's footsteps, a customs union with the EU would provide and promote easier trades with member states, through reduced charges, fewer custom checks, and less administration. While beneficial to businesses involved in importing and exporting goods overseas, a customs union would also have its draw backs.

Similarly, whilst belonging to the EEA, the UK would have no involvement in the EU law-making process, be subject to EU trade policy rules, and limit Britain's power to negotiate trade agreements with countries outside the EU.

3. Free Trade Agreement

The third option is forming a free trade agreement (FTA). For example, the USA has benefitted greatly from the Trans-Pacific Partnership (TPP), which negotiated trade amongst 12 countries positioned along the Pacific. The US has also signed numerous individual trade agreements, opening up new markets in Israel, Morocco and Korea.

However, an FTA between Britain and the EU would have a number of detrimental consequences. While it would permit the UK to form additional trade agreements with the likes of: India, USA, Australia and China, Britain would not be able to maintain its current trade agreement with the EU. This could damage UK businesses, increasing taxes and tariffs, and ultimately driving up the prices of goods.

Although one can speculate, undoing the legislation that ties the UK to the EU will be a lengthy and complex procedure, due to be completed until 2019. While one can hypothesise, it is certainly true that the future of international trade is set to change. Thankfully, it has been predicted that the UK will exist in a status quo during the transitional phase, meaning businesses will have time to prepare.

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