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  November 4th, 2016 | Written by

Post-Brexit: How Will the UK Trade With the EU?

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  • What will UK-EU trade look like post-Brexit?
  • One-third of UK trade moves without a formal trade agreement.
  • The integration of global supply chains are more important to managers these days than tariffs and non-tariff barriers.

At some point in the next couple of years, the United Kingdom will take its final bow on the European Union stage.

That’s what UK voters wanted when they voted to leave the EU back in June. (That process may be delayed, however, as a London court ruled yesterday that the government must consult Parliament over its Brexit plans.)

Much has been made over what UK-EU trade will look like post-Brexit. Not that the “leave” voters care. One of their issues with the EU was that their country was on the losing side in the free movement of goods and people.

It’s hard to quantify how much trade or economic activity Britain will lose, if any at all, as a result of Brexit, but it’s fair to say that trade between the UK and the EU will remain fairly robust.

The reasons for this, and an outline of the possible future configuration of UK-EU trade were discussed in a recent paper published by Transport Intelligence.

One possibility is that no formal trade relationship will exist between the UK and the EU. In that case, trade will be governed by default by the rules of the World Trade Organization. Currently, about one-third of UK trade moves under that paradigm, which has sought to broadly lower tariffs and allow members to operate on a most-favored-nation basis. As the TI paper notes, UK trade with Japan, the United States, China, Brazil, and India all operate on that basis.

Along those same lines, the paper posits, the integration of global supply chains and the related issues of inventory levels, risk, product quality, transportation availability, and environmental factors are more likely to be top-of-mind to today’s supply chain managers and corporate executives than tariffs and non-tariff barriers.

Among the three formal trade relationships the EU has negotiated with other countries, one includes the integration of Norway, Iceland, and Liechtenstein into the European Economic Area (EEA). These countries have significant access to the EU’s Single Economic Market, but are not full EU members. They are bound by a number of EU rules and regulations without having any influence on the development of EU legislation. They must also accept the free movement of EU citizens, something which would be anathema to many UK “leave” voters as well as to the goverment.

It also has no by which, in many instances, it is still bound.

Turkey has been part of the EU’s Customs Union since 1995—an agreement which excludes agricultural goods and services—and has been a candidate to join the EU since 1999. Like the members of the EEA, Turkey must align its trade with European policy, without having a say in its formulation.

A free trade agreement would be the final existing alternative to formally define a UK-EU trade relationship. In the case of Switzerland’s FTA with the EU, the free movement of people is one of the conditions, which could present a problem in the case of the UK.

This may not be acceptable to the UK Government.

The EU also has a trade deal with South Korea, which took less than four years from initial negotiations to final implementation.

“Any negotiations between the UK and EU would commence from the basis of an already standardized market,” the TI paper notes, “which may reduce timescales further.”

One final suggestion would be a deal which allowed tariff-free access to the EU for UK exporters and vice versa. But that kind of arrangements, critics note, would not address the issue of non-tariff barriers such as consistent product standards and labeling.