How would a Brexit affect our trade relationship with Europe?
There are a number of variables which would materially shape our trade relationship with Europe in a post-Brexit world. This article considers how the key economic grounds for a Brexit stack up when considered through the prism of our continued relationship with Europe.
The preliminary issue to acknowledge is that the choice is not one of detachment from the EU versus the status quo. It is detachment from the EU versus continuing to move towards deeper integration, as was envisaged in the founding treaties.
The first obstacle for the UK Government post-Brexit would be to agree a tariff-free trade agreement for goods and services. UK trade standards are already in line with EU standards, so agreeing a transition would seemingly be straightforward. The main pitfall with this avenue would be the short intermediate period between a Leave vote and when any deal is agreed – Boris' so-called 'Nike tick' spell. Any agreement would have to tackle myriad details, for example rules of origin to prevent Britain being used as a backdoor by other nations to access the European market.
The second potential obstacle would be agreeing a way of trading with EU states without having to fully accede to the single market – an aspect which is key to the Brexitiers, whose arguments are underpinned by critiquing the single market's detrimental impact on national sovereignty and control of our borders. EU regulations would still apply to goods and services being sold into Europe, and Europe could potentially invoke tariffs on goods which they believe are undercutting EU prices or standards. The likelihood of this actually happening however is uncertain. The CBI (strongly in support of remaining) commissioned a report by PwC to analyse the impact of Brexit. While that report suggested short-term disruption, it concluded that, over a 15 year period, there would only be a 2-3% differential in impact on GDP as a result of Brexit.
The issue of services will also be critical for the UK economy which is heavily reliant on this sector. The Government will likely try to set up bilateral deals for those areas where agreement has already been struck, such as in digital services. If, however, Eastern European nations are hit by stricter British immigration rules, for example, they could be in a position to block such deals.
The question of 'passporting' in relation to financial markets is also vital. The UK would have to quickly establish a means of being permitted to passport its services into the continent, notwithstanding its removal from the EU. This is of course already possible for some non-EU nations, and any such agreements would likely be replicated for an independent UK.
Notwithstanding the economic arguments for our continued membership with the EU or otherwise, there will be those on the Leave side who will argue that the benefits of re-claiming sovereignty far outweigh any economic cost that could only potentially befall us if we were to vote Leave. Likewise, the Remain campaign will argue that 'pooling' sovereignty and accepting compromises is worth the benefits that the single-market/free-trade bring.