Trade implications of BREXIT
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Trade implications of BREXIT

The knock on effects of the recent decision of British citizens to leave the European Union on the legal framework governing the trade relations between the UK and the rest of the world are yet to be determined.

First, by virtue of the Treaty of the Functioning of the European Union, British goods and services can move freely across national borders of EU members. The EU is by far the largest UK trading partner. With respect to merchandise trade, HMRC data indicates that in 2015 the UK exported £304,909 million worth of goods, 44% to the EU and 56% to the rest of the world. In the same period, the UK imported goods for £410,925 million, 53% from the EU and 47% from the rest of the world. With respect to trade in services, WTO data indicates that in 2014, the UK exported US$ 361,350.35 million worth of commercial services, 37% to the EU and 63% to the rest of the world. In the same period, the UK imported commercial services for US$ 210,229.98, 49.4% from the EU and 50.6% from the rest of the world.

It is up to the UK to decide the moment to notify the European Council of its intention to withdraw from the Union. The notification will trigger a maximum two-year period of negotiations for a withdrawal agreement that will govern future relations between the UK and the EU, including trade matters. It is expected that British goods and services will continue to have some sort of preferential access to the EU internal market but it remains to be seen what will the terms of access look like. One thing that is has been made abundantly clear is the reluctance of EU officials to grant access to British goods and services, whilst allowing the UK to restrict the free movement of people.

Second, as an EU member, British goods and services also have preferential access to countries that have concluded a trade agreement with the EU. So far, the EU has concluded agreements covering goods and services with 40 countries and agreements covering trade in goods with 19 countries. The EU is also negotiating preferential trade agreements with all major economies in the world but China. Upon withdrawal, British goods and services will cease to have preferential access to these countries’ markets.

The UK cannot conclude trade agreements with third countries while being a member of the EU. True, it can hold informal consultations with third countries at any time, but the scope of these talks will be limited whilst it remains bound by the EU commercial policy. It is only after the entry into force of the withdrawal agreement, that the UK will be legally free to conclude trade agreements with third parties. It can take at least two years to conclude a trade agreement with a single partner. So, it will take some time and a great deal of uncertainty for the UK to secure a level of preferential access to third countries similar to the one it currently enjoys as an EU member.

UK withdrawal will also require the EU to renegotiate the terms of the agreements with its trading partners. The loss of access to the second largest economy of the EU gives provides a strong case for EU partners to seek the renegotiation of the terms of their trade agreements. In addition, many of the existing trade agreements include specific legal obligations such as quota allocation of third countries’ agricultural products among EU members that must be renegotiated if one of them leaves the block. Although the EU has competence to renegotiate the terms of the agreements with its trading partners at any time, both the opportunity and the legal aspects of such negotiations are far from clear.

Finally, the access of British goods and services to WTO members which have not concluded a preferential trade agreement with the EU is governed by WTO law. The UK is an original member of the WTO on its own capacity, so once it withdraws from the EU its goods and services will continue to be entitled to the same trade preferences they currently enjoy. But a process will have to be observed which is not free from uncertainties. Currently, UK schedules of tariff concessions on goods and specific commitments on services are part of the EU ones. The UK will have to draft its own schedules and submit them for certification to WTO members. WTO members may raise observations. If not dealt with to the satisfaction of the observer Member, the may trigger a renegotiation process whose outcome is, by definition, uncertain.

In sum, the ramifications of BREXIT extend well beyond UK and EU trade relations. The decision has open a question mark regarding the terms of access of British goods and services not just to the EU internal market but to third countries as well. It will require the expertise from shrewd negotiators and skilful trade lawyers to bring back certainty in the years to come.

Dr Gabriel Gari

Senior Lecturer in International Economic Law

Academic Director of LLM in International Economic Law

Queen Mary University of LondonQMUL-1-1-300x219