• BREXIT - The risks and opportunities for international trade
Article:

BREXIT - The risks and opportunities for international trade

07.01.16

Noel Clehane, Global Head of Regulatory & Public Policy Affairs |

The UK exports 45 per cent of its goods and services to the rest of the European Union accounting for £223bn of trade in 2015. As a result of the UK’s membership of the EU, these exports did not attract any tariffs for access to the EU single market.

Overall, UK trade with the EU represents approximately 12.6% of UK GDP whereas EU trade with the UK represents in aggregate, just over 3.1% of the GDP of the other 27 EU Member States although there are considerable variations within those countries. Meanwhile, the UK currently imports over 53% of its goods and services from the EU giving a net trading deficit of £61bn in 2014. Regardless of the outcome of the various political processes, it is clear that even in a post-Brexit environment, the EU will continue to be the world’s largest market and the UK’s biggest trading partner.

It is still too early to predict what this future EU-UK trade relationship will look like but most commentators agree that there are a limited set of options, each with their advantages and disadvantages, both politically and economically.

The European Commissioner for Trade, Cecilia Malmström, has already indicated that the UK will not be in a position to begin trade negotiations with the EU before the exit talks are concluded although Article 50 of the Treaty on European Union (TEU), part of the Lisbon Treaty, is not clear on this.

At this juncture, the EU views those negotiations as separate and distinct, although the outcome of one will have a significant bearing on the other.

Pro-Brexit campaigners in the UK referendum maintained that a trade deal would be agreed in parallel with exit negotiations but if the two sets of negotiations are sequential as now seems likely, the UK may well have left the EU before knowing what its subsequent arrangements with the EU will be. Of course in practice, this is unlikely to be wholly the case as it is not in the EU’s interest to damage the EU Single Market or one of the world’s largest economies and current EU member, i.e. the UK, so undoubtedly a common sense approach will prevail.

It is the view of most experts also that under existing EU law, the UK cannot enter into trade agreements with third countries until it has formally left the EU. This will make it difficult for the UK to replace quickly, the 50+ agreements with those third countries to which it is party as a result of its EU membership but which would no longer apply to the UK once it leaves the EU.

The regulatory and public policy team at the BDO Global Office, in conjunction with external consultants, prepared this short paper to help you begin to understand the impact of Brexit on trade issues in the short, medium and long term.