More than half of the UK’s total trade could be subject to new tariffs if we exit the EU, as we would no longer be part of the EU’s free trade agreement.
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What happens if the UK leaves the EU?
As a non-member the UK would lose its automatic access to the EU’s Single Market of over 500 million consumers. Non-EU countries are required to pay for access and to follow regulations over which they have no control. Once the UK has left the EU (which it will have up to two years to do) it will have to negotiate a new trading relationship with both the EU and all of the EU’s current trading partners.
In total the UK will need to renegotiate about 60 different trade deals so this process is expected to take around a decade.
What are the options?
Graphic courtesy of Britain Stronger In Europe
Who will have the upper hand in negotiations?
It is clear that the EU will have a significant advantage in any negotiations to regain access to the Single Market, as the UK accounts for only 13% of the EU’s total trade, whereas the EU is the UK’s largest trading partner, responsible for 52% of all UK trade.
In addition much of the UK’s service sector, accounting for 78% of the UK economy, relies on unfettered access to the single market in order to operate. This is not something which is included in regular trade deals.
During a visit to Oxford in 2012 Poland’s former Foreign Minister Radosław Sikorski highlighted the issue:
“No prizes for guessing who would have the upper hand in such a negotiation. Any free trade agreement would have a price.”
“In exchange for the privilege of access to the [EU] Single Market, Norway and Switzerland make major contributions to the EU’s cohesion funds. They also have to adopt EU standards – without having any say in how they are written. At the moment, Norway’s net contribution to the EU budget is actually higher, per capita, than Britain’s.”
Other trade deals
The UK’s economy imports far more than itexports, which means the UK generally does not have a lot to offer other countries in trade deals. However as a member of the Single Market the UK is able to bargain away access to other EU countries’ markets in order to gain access to new markets. This option would no longer be available to the UK after leaving the EU.
In a recent visit to the UK, Barack Obama said should the UK leave the EU it would would move to the “back of the queue“ for any future trade deal.
The UK has one of the highest levels of Foreign Direct Investment (FDI) in the world. This is in large part due to its reputation and position as a leading member of the EU. Many countries, including China, Japan and India, have come forward and said the reason they invest so much in the UK is because it is a ‘gateway to Europe’ and its single market. Investors are also very likely to steer clear of the UK if it ends up embroiled in years of renegotiations and uncertainty.
Office for National Statistics: UK Trade records sheet March 2015
Eurostat: Intra-EU27 trade by Member State 2014
Eurostat: Extra-EU27 trade by Member State 2014
Economist “Sikorski in Oxford (again)” – 23/09/12
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