What would be the impact of staying in or leaving the EU for the UK’s global trade? This has become one of the most talked about questions of the referendum so far.
The various Leave campaigns have claimed that quitting the EU would free the UK from its “shackles”. As one of the world’s largest economies, they claim the UK would be well placed to opt out of the EU’s existing deals with non-EU countries and forge free trade deals of its own.
Arguments on both sides turn on whether the UK can strike free trade agreements with non-EU countries. But “free trade” is not as straightforward as it sounds.
The current deal
Within the EU, member states enjoy largely unrestricted trade in goods and services, which is just not generally available in other trade deals. Agreements with non-EU countries often do not cover economically significant areas, such as financial services or agricultural goods.
According to Article 207 of the Treaty on the Functioning of the EU, the EU has the legal competence to run external trade policy towards the wider world. This provision has been in place since the original Treaty of Rome in 1957 (long before the UK joined).
The logic is straightforward – if there is a single market within the EU, then member states cannot set up individual deals outside the EU, as the two would be incompatible. Changing this rule was not part of the UK’s demands for a new settlement from the EU earlier this year. In fact, the UK has always supported the external commercial aspect of EU membership.
Currently, the EU operates bilateral deals with states across the globe. It has preferential trade agreements with South Korea, South Africa, Mexico, many countries around the Mediterranean, and a customs union with Turkey. A deal with Canada has been agreed, and negotiations with India, Japan, Australia and New Zealand are underway. Many Commonwealth countries in Africa, the Caribbean and the Pacific are also covered by EU deals.
The unknown alone
Could the UK opt-out and go it alone? In theory, yes, but in practice, the picture would be rather different. There are three major obstacles in concluding post-Brexit deals.
The first is that much would depend on what the UK’s relationship with the EU would look like after Brexit. That would take time to resolve but would probably take priority given the UK’s current reliance on the single market. If the UK concludes an agreement to retain access to the single market, like Norway and Switzerland, it would be difficult for it to have separate deals with non-EU member states, as they may conflict. And while the UK might be able to continue to take advantage of existing EU agreements with other countries, it would not have a say in any changes or negotiations over new agreements – for example, with China.
The second is the process, both in terms of the content and the time needed. Trade agreements are complex and take time.
Although negotiating an external agreement as part of the EU means taking account of 28 national interests, there is no guarantee this would be easier as a single state – especially if trying to negotiate multiple deals at the same time within a limited timeframe.
To take an example, the Canada-Korea Free Trade Agreement took 14 rounds of negotiation over nine years to conclude. And as one Eurosceptic MP – who is nevertheless going to vote to remain in – recognises, markets are more global and sophisticated than they ever were, adding to this complexity.
Neither does being a relatively large economy guarantee success. Japan, the world’s fourth largest economy, has only 15 agreements. With a service-based economy, the UK would need to make the case that any agreement was not limited to goods or investment alone for it to be effective in supporting British interests. The need for comprehensive agreements would probably lengthen the process considerably.
The third, crucially, is the willingness of other countries to deal with the UK outside the EU. Although a relatively large economy, the UK’s attractiveness to outsiders is largely because of its position within the much bigger single market. Narendra Modi, prime minister of India (the largest country in the Commonwealth) has said as much.
And given the complexities and time involved in these sorts of negotiations, the US Trade Representative has explicitly said that the US is not interested in a separate US-UK deal. His comment confirms the trend for free trade agreements to be pursued collectively by blocs, including the Gulf Cooperation Council and Mercosur, where they exist. The EU has of course led the way in this respect and is still in the process of agreeing the Transatlantic Trade and Investment Partnership with the US.
Therefore, the choice seems to be remaining in the EU with current agreements and negotiations ongoing with other states, or leaving in the hope that states respond positively to the UK seeking an agreement. But there is no evidence yet to suggest that they would do so, and plenty of evidence to the contrary.