Brexit Briefing: what are the UK's trading options

With just days to go until the EU vote and the polls suggesting all is still to play for, we look at what sort of trading arrangements the UK could put in place if we vote to leave.

There are various options for UK-EU trade if we vote to leave the EU next week

One of the most important questions as far as farmers are concerned is what sort of trading relations the UK would put in place with the EU in the event of Brexit.

There are various options and the UK would have an official period of two years to negotiate the new arrangements, although Brexit campaigners say this period could be extended.

In a paper looking at possible implications of Brexit for the agri-food sector for the journal EuroChoices, Dr. Alan Swinbank outlines the various possible trade scenarios.

EU TURKEY-STYLE CUSTOMS UNION

Dr Swinbank suggested the simplest format would be to leave the EU but retain the existing customs union, along the lines of Turkey’s relationship with the EU.

But he also describes this as the most unlikely outcome.

The EU–Turkey customs union largely excludes agriculture, so if this precedent were to be followed, both the EU and the UK would apply their most-favoured-nation (MFN) tariffs on cross border agri-food trade, he added.

Read more: see FGInsight's Brexit Briefing analysis on the trade implications of Brexit for UK farmers

WTO PARTNERS

If no arrangement could be negotiated, then the EU and the UK would trade with each other as WTO partners, applying their respective Most-Favoured Nation tariffs against each other.

Fresh lamb carcasses dispatched from the UK to France would, for example, face a tariff of 12.8 per cent plus €1,713 per tonne.

Similarly, if the UK retained the MFN tariffs it currently applies on imports from outside the EU it would now charge them on shipments from its former EU partners as well.

Irish and Danish butter into the UK would pay €1,896 per tonne (for comparison the EU’s support price for butter is €2,463.9 per tonne).

Under WTO rules the UK could unilaterally reduce its MFN tariffs, rather than continue to apply a tariff schedule inherited from its EU membership, but, according to Dr Swinbank, this is ‘perhaps unlikely’.

Trade negotiators prefer to secure some quid pro quo from trading partners in exchange for tariff reductions.

FREE TRADE AREA

Between the two above extremes are various WTO-compatible Free Trade Area (FTA) agreements, either including or excluding agriculture.

In its simplest form, an FTA would remove trade barriers on goods covered by the agreement and originating within the FTA.

Rules of origin and border controls would be required to identify the shipments that can and those that cannot circulate freely.

The UK would continue to apply the EU’s tariff regime on third country trade, while there are varying assumptions regarding the additional costs that would be incurred on UK–EU trade.

THE EUROPEAN ECONOMIC AREA (EEA)

The EEA which includes Norway, Iceland and Lichtenstein as well as the EU, goes further than an FTA, extending many of the EU’s regulatory – internal market – provisions to the other EEA members.

Norway has no formal say in determining these measures, and pays a membership fee to the EU for participating in the EEA, comparable in some respects to the UK’s net contribution to the EU budget, Dr Swinbank said.

Moreover, as with many of the EU’s FTAs, trade in agri-food products is largely excluded from its provisions.

Dr Swinbank, among others, questions whether the UK, particularly its Eurosceptics, would be satisfied with an EEA-like outcome, particularly if the EU insisted on the inclusion of the internal market’s four freedoms covering the movement of goods, services, capital and labour’?

Ireland, for example, would undoubtedly want beef to be included in any EEA-like agreement to gain easy access to the British market, he said.

He added: “But what if the UK then lowered its tariff on beef to all suppliers (as in the final column of Table 1), allowing British consumers access to cheaper beef from Latin America for example, whilst continuing to export British bred and reared beef to the protected EU market?”

GLOBAL TRADE ARRANGEMENTS

Dr Swinbank said the assumption was the UK would simply drop out of the dozens of FTAs that the EU has with countries around the world, thereby forcing the UK to renegotiate dozens of trade deals.

This includes those under negotiation such as the Transatlantic Trade and Investment Partnership (TTIP) with the USA.

However, the situation may not be quite that simple, he claimed.

Most recent FTAs are so-called ‘mixed’ agreements that have been ratified by both the EU and each of the Member States, and just how they would be unravelled and repackaged is unclear.

EU REFERENDUM - THE RACE TIGHTENS

With just 10 days to the outcome of the EU Referendum appears to be wide open.

While overall polling puts the two sides neck-and-neck, some recent polls are suggesting a significant swing towards ‘Leave’ and have it well ahead.
But interestingly the bookmakers across the board still have Remain (typically 4/9) as favourites, although the odds on Leave (7/4) have shortened over the past week or so.

Article provided by Alistair Driver, Political Editor Farmers Guardian. To view more stories like this why not subscribe to FGinsight.com