In a nutshell: Brexit and the UK’s trading relations with the EU

The four options are well-known but their implications are not always understood. Some summary graphics

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By Peter Ungphakorn
POSTED SEPTEMBER 19, 2016 | UPDATED SEPTEMBER 30, 2016

This is a summary of the four main options facing the UK for its trade relationship with the EU after Brexit. The four options are well-known but their implications are not always understood. These are the options:

  • Full access to the single market (as the European Economic Area [EEA = Norway, Iceland, Liechtenstein] or Switzerland) — free movement of goods, services, capital and labour. The UK would apply its own tariffs on products from the rest of the world, not the EU’s (unlike a customs union)
  • In the customs union (as Turkey) — by definition a customs union only applies to goods. Access for services and anything else would be under separate agreements including the WTO’s. The UK would apply EU tariffs on goods from the rest of the world
  • A free trade agreement with the EU — this can cover considerably more than trade in goods, including services, regulations, “mutual recognition” (for example of standards and inspection), and dispute settlement. The UK would apply its own tariffs on goods imports from the rest of the world
  • No special relationship with the EU — the UK would apply its own tariffs on goods from the EU as well as the rest of the world

World Trade Organization (WTO) rules apply in all scenarios (including the present case where the UK is an EU member). It is not just the default when the UK has no special relationship with the EU. Here the focus is on integration and market access (but all other WTO rules apply as well):

  • The single market, customs union and any free trade agreement are disciplined by WTO rules (GATT Article 24 for goods and GATS Article 5 for services)
  • Any trade outside those is disciplined by WTO commitments, including access to services markets. For example, if the UK is in the EU customs union but has no other arrangements with the EU, then the UK’s WTO commitments on services would apply to EU services accessing the UK market
  • The UK’s WTO commitments on goods and services are currently those of the EU. Whichever post-Brexit option the UK chooses, it will have to negotiate in the WTO to extract its own commitments from the EU’s.

Some more details:

(Download this as a pdf file)

Present situation UK in EU
Click the image to see it full size. (GATT = General Agreement on Tariffs and Trade, the WTO’s umbrella agreement for trade in goods. GATS = General Agreement on Trade in Services, the equivalent for services)
Brexit 1 full access to EU single market (EEA, Switzerland)
Click the image to see it full size
Brexit 2 UK full access to single market
Click the image to see it full size
Brexit 3 UK has FTA with EU
Click the image to see it full size
Brexit 4 No special relationship
Click the image to see it full size

Updates:
September 30, 2016 — “Brexit 1” revised to cover EEA rather than Norway alone
September 20, 2016 — “Brexit 2”, the part on “UK’s relationship with EU” revised to separate trade in goods (the customs union) from trade in services; explanation of GATT and GATS added; some other minor typographical corrections

Maps based on this one by Maurice07, own work, CC BY-SA 3.0

Author: tradebetablog

I used to work on trade issues and am now retired. I am an occasional freelance journalist, focusing mainly on international trade rules, agreements and institutions, with periodic analyses for AgraEurope www.agra-net.com/agra/agra-europe. This blog is for trialling ideas on trade and any other subject, hence “β”. You can respond by using the contact form or tweeting @CoppetainPU — Copyright © Peter Ungphakorn except where stated