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The future trade relationship between the UK and the EU

Updated: Oct 16, 2018



After the Joint Report was published on 8th December 2017, it became possible to move on to the second phase of the Brexit negotiations. The main issue of the current phase is on what Article 50 TEU describes as the ‘framework for [the UK’s] future relationship with the Union.’[1] The future trade relationship between the EU and the UK is one of the most important aspects of the negotiations and the position of the UK Government is clear – the UK will neither be a member of the single market nor a member of the customs union. This means that there are not many options left for the EU, and it appears to suggest that the only realistic option is a Free Trade Agreement (FTA). This blog article will focus on five potential options for the future relations between the EU and the UK and will state a most likely outcome at the end.


The Norway Model

The first possible option is the Norway Model. The UK could join the European Economic Area (EEA) and the European Free Trade Agreements (EFTA) like Norway, Iceland and Liechtenstein, to purse a close relationship with the EU without being a Member State, yet still has a full access to the internal market in goods, services and persons.[2] If the UK joins the EEA and EFTA, the UK will no longer be in the customs union, the Economic and Monetary Union (EMU) and the Area of Freedom, Security and Justice (AFSJ). More importantly, the EEA Agreement will not have the direct effect and supremacy in the EFTA Member States as the EU law has in the EU Member States. The direct effect is a fundamental principle of European law and was enshrined by the Court of Justice of the European Union (CJEU). Direct effect enables individuals to immediately invoke European law before a national or European court. [3]


The Switzerland Model

The second possible option is the Switzerland Model. Albeit Switzerland is not an EEA EFTA state, it has reached separate bilateral agreements with the EU. These agreements allow Switzerland to have a high degree of access to the single market like the other three EFTA states and also contribute in the same way to the EU budget. However, the Switzerland Model does not seem to significantly differentiate itself from the Norway model.[4]


The Turkey Model

The third possible option is the Turkey Model. Turkey is one of a few states which is a member of the customs union but not a member of the EU single market (the other two states being Andorra and San Marino). The UK could leave the customs union and still negotiate to maintain some form of access like Turkey.[5] If the UK could remain a part of the customs union, there would be no tariffs (taxes or duties on imports and exports) on goods from the countries within the customs union.[6] However, if the UK adopts this model, it would have no say on the common tariffs on goods from non-EU countries, and this would significantly reduce the ability of the UK to freely negotiate its own trade deals with non-EU countries.[7]


The Canada Model

The fourth possible option is the Canada Model. It has often been said that the Comprehensive Economic and Trade Agreement (CETA) would be the model that the UK would base its plans on its future relationship with the EU.[8] CETA has a focus on free movement of goods, services and capital and also removes 98% of tariffs between Canada and the EU.[9] The CETA agreement thus might be a good starting point for a bespoke agreement between the UK and EU. However, this model would lead to a significant restriction on the access of the UK businesses and citizens to the single market. In addition, the protection of agriculture sectors and the rights to regulate in the CETA would also mean that all Canadian imports would have to meet EU standards, so that the EU retains the rights to change or even tighten the regulations if it wishes to do so and in that sense, the UK would struggle with the old problem of regulatory divergence again.[10]


The WTO Model

The fifth possible option is the World Trade Organization (WTO) Model. If the UK and the EU ultimately failed to reach an agreement on the future relationship, trade rules would be regulated by the WTO agreement by default. In that case, there would be no free movement rights, financial contribution, and obligation to apply EU law. The UK and the EU would be obliged to apply to each other the same tariffs and trade restrictions that apply to the rest of the world.[11]


UK Government’s View

Theresa May recently, in her Mansion House speech, set out her vision for the future economic relationship between the UK and the EU. May asserted that none of the existing models could provide the ‘broadest and deepest possible partnership that would cover more sectors’.[12] The partnership she wants is one which would allow more full co-operation ‘than any Financial Trade Agreement (FTA) anywhere in the world today’ and provide a ‘good access to each other’s markets; fair and open competitions; reliable and transparent means to meet the commitments and resolving disputes.’[13] Moreover, May highlighted that the Norway Model would not be considered as an option for the future relationship since this Model would require the UK to ‘implement new EU legislation automatically and in its entirely, which would also mean continued free movement.’[14] The possibility of adopting the Canada Model and the WTO Model was also denied because these models would significantly reduce the UK and EU’s access to each other’s markets compared to what the EU and UK currently enjoy.


The Future Path

It was implied that the UK Government wanted to leave both the single market and the customs union. Meanwhile, the UK Government demands a FTA that provides a high degree of access to the single market. At this point, realistically speaking, it is not very likely for the EU to accept this proposal. Therefore, it is not hard to conclude that May might need to make some compromises on her proposal of the FTA in the future. In light of the baselines indicated by the UK Government so far, it seems that the Canada Model, or some similar models, would be the option that is most likely to be adopted in the future. However, as noted before, this model would raise the problem of regulatory divergence and impose restrictions on the access of the UK businesses and citizens to the single market.


Yuxin Li

Brexit Feature Writer

4th May, 2018


 

Image source: https://www.google.co.uk/imgres?imgurl=https://i.ytimg.com/vi/ChAxqH7LSl8/maxresdefault.jpg

[1] See Section 2 of the Article 50 TEU <http://www.lisbon-treaty.org/wcm/the-lisbon-treaty/treaty-on-European-union-and-comments/title-6-final-provisions/137-article-50.html>

[2] EFTA, ‘EEA Agreement’, accessed on 19 March 2018 <http://www.efta.int/eea/eea-agreement>

[3] See further <https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=LEGISSUM%3Al14547>

[4] Switzerland’s European Policy, accessed on 19 March 2018 <https://www.eda.admin.ch/dea/en/home/bilaterale-abkommen/ueberblick.html>

[5] Daniel Thornton, ‘Leaving the EU Customs Union: what is involved?’ (Institute for Government, 28 July 2016) accessed on 19 March 2018 <https://www.instituteforgovernment.org.uk/blog/leaving-eu-customs-union-what-involved>

[6] EU Referendum, ‘Five Models for post-Brexit UK trade’ (BBC News, 27 June 2016) accessed on 19 March 2018 <http://www.bbc.co.uk/news/uk-politics-eu-referendum-36639261>

[7] ibid

[8] Matt Allen, ‘What Are the Possible Future EU-UK Trade Agreements?’ (marketMogul ,30 November 2017) accessed on 19 March 2018 <https://themarketmogul.com/possible-future-uk-trade-agreements/>

[9] European Commission, ‘EU-Canada trade agreement enters into force’ (Europa, 20 September 2017) accessed on 19 March 2018 <http://trade.ec.europa.eu/doclib/press/index.cfm?id=1723>

[10] Matt Allen (n.8)

[11] BBC News (n.6)

[12] Speech by Theresa May, ‘Our Future Partnership’ (Conservatives, 2 March 2018) accessed on 19 March 2018 <https://www.conservatives.com/sharethefacts/2018/02/our-future-partnership>

[13] ibid

[14] ibid



Disclaimer: The views expressed are that of the individual author. All rights are reserved to the original authors of the materials consulted, which are listed in the bibliography above.

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