Brexit – Will Britain’s trade be any freer by leaving the EU

On Thursday 23 June, Britain will hold a referendum on whether or not to remain a member of the European Union. Prime Minister David Cameron’s Conservative Party is deeply divided on ‘Brexit’. Much of this debate has revolved around the implications of an exit for British trade and investment. While Britain may be relieved from some EU constraints with an exit, it is doubtful that Britain will enjoy more regulatory sovereignty.

cameron_wide-2076677c3d27ea7c28f027632e896a02ec0efc16-s800-c85Dan Kitwood/Getty Images

For those on the exit side, they say that membership of the single market imposes too many regulations on Britain, and that Britain’s trade with countries outside Europe would be higher if it left. Those on the other side counter that the single market has boosted trade and investment between Britain and the rest of the EU, and conclude that leaving would weaken Britain’s economy.

The EU’s single market employs three tools to boost trade. First, it eliminates tariffs on goods. Second, it establishes the right of companies and people to sell their goods, services or labor, or to invest, in other member-states. Third, it reduces the cost of potential exporters having to comply with 28 different rule books.

However, there are two ways in which the UK’s membership of the single market may constrain its trade with non-European countries. The first is membership of the EU’s customs union. Trade is tariff-free between member-states, but the EU sets tariffs on imports from outside the bloc. The second is the way in which the EU removes non-tariff barriers: in doing so, it may regulate at a European level in a way that makes trade with non-European countries more difficult. Together, these may divert British trade from lower cost producers outside the EU, to higher cost ones inside. If more trade is diverted than created, Britain may gain by leaving the single market.

But a question here it that – if Britain exit, would it achieve the result of a more favorable trading environment that it desires? Or, would it effectively negotiate its own right within or outside the EU? It is clear that if Britain were to from full membership of the EU Britain, it will need to erect and manage new trading relationships. Among all the options, hardly any is straightforward and favorable for Britain.

One option is to sign a free trade agreement with EU. However, an FTA with the EU would not leave Britain free to set its own regulations. As part of any deal with the EU to create an FTA, the EU would make demands on labor market rules and health and safety, and in all likelihood competition policy would be subject to mutual regulatory oversight.

Another option is that Britain join the European Economic Area (EEA). British firms would have unimpeded access to the single market and would continue to benefit from the EU’s trade deals with other countries. But Britain would have no say over EU trade policy, and in order to qualify for EEA membership, the UK would still have to abide by EU regulations while enjoying very little input into the drafting of those regulations.Also, the UK could opt to trade with the EU under WTO rules. The UK would not have to comply with EU regulations, but it would face the EU’s Common External Tariff (CET) and substantial NTBs to trade.

Also, the UK could opt to trade with the EU under WTO rules. The UK would not have to comply with EU regulations, but it would face the EU’s Common External Tariff (CET) and substantial NTBs to trade.

Given the constraints outlined above, it is doubtful that UK would be any freer outside the EU. It would not be as powerful as it may seem in negotiating an FTA with EU. Meanwhile, it would find it very difficult to negotiate trade agreements with non-EU countries and it would hardly be better off by trading under other rules than the ones it currently enjoys. So, would the UK realize its envisage of liberalization of trade through Brexit? Probably not.

 

References:

http://www.abc.net.au/radionational/programs/rearvision/what-happens-if-britain-leaves-the-eu/7248152

https://www.cer.org.uk/insights/would-britain’s-trade-be-freer-outside-eu

http://www.global-counsel.co.uk/system/files/publications/Global_Counsel_Impact_of_Brexit_June_2015.pdf

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3 Responses to Brexit – Will Britain’s trade be any freer by leaving the EU

  1. fycaoblog says:

    I think it Britain should not leave EU in terms of improving its trade condition. Britain has enjoyed tariffs benefit as a part of EU, reserved the rights to enter into the global markets, simplification of the regulations and rules. If Britain leave EU, it should sign numerous agreement with EU and other countries in the world, which not necessarily result in more favorable trade conditions.
    Based on what we learn from class, trade improves the country’s overall economic situations by allowing countries to focus on their own comparative advantages and trading at world price. In reality, countries have their different opinions on how to set the commodity prices and trading standards. So far, we already achieved several trade agreements and free trade zones to solve those different opinions. These improved the world economy. Britain, being part of EU, has more negotiating power about the trade contracts. It may have its country specific situation that can maximize its overall benefit even more under the current trade condition. However, signing new agreements, which is of uncertainties, could diminish those benefits and deteriorate the current condition. Thus, I do not think it is wise for Britain to leave EU so as to improve its trade conditions.

  2. jwang9361 says:

    This article analyzes the pros or cons of quitting EU for Britain. But undoubtedly, whether it quits or not, there would be much uncertainty that no Economists can accurately tell before it really takes place. Although it is hard to tell whether quitting or not would be better, there is actually a situation that would definitely make Britain better off. Britain may use the withdraw as a bargaining chip in the negotiation with EU, and end up getting better terms for trade and lots of other aspects after the negotiation. But on the other hand, EU may not compromise much in the negotiation; as if Britain gets greater terms with the threat of quitting, other countries may imitate and the EU system may finally break down.
    This article brings up several choices for Britain in its future trade negotiation if it finally decides to withdraw from EU. However, one thing that the article doesn’t mention is that if Britain quits EU, there would be more tension between Britain and some other European countries. German is a country that has great influence in EU and is also highly dissatisfied with the attitude shown by British. So I doubt that once Britain really quits EU, it would still have that many choices at hand. And I believe it would be hard for it to negotiate with other European countries.
    In addition, although withdrawing from EU could have great influence on the trade of Britain, it may not be really that important for British when they are making the decision of quitting or not. There are actually many other factors driving them to make the choice. For example, immigration issue is one that can easily draw the attention of British citizens when they vote for quitting or not. As poll plays an important role in British final decision of quitting or not, and trade may not be a priority factor for the British citizens to consider, Britain may not make an Economically rational decision in the end.

  3. jytong says:

    Brexit is a very interesting topic. I think UK should stay in EU.
    UK Treasury chief George Osborne warned that the Brexit would leave UK ‘permanently poorer’, because UK would trade less, do less business and receive less investment. According to a new UK government analysis, the U.K. economy could be around 6% smaller in 2030 if it left the EU than if it remained a member. That would be a loss of income equivalent to £4,300 ($6,107) a year for every British household.
    Under all plausible alternatives to British membership of the EU, UK would have a less open and interconnected economy – not just with Europe but, crucially, with the rest of the world.

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