What would Brexit mean for UK trade deals?

As part of the EU we benefit from many trade agreements. But if we voted out in the referendum what might the negotiations look like? Our panel discuss

geneva city aerial view

Geneva city: the UK might negotiate a similar trade deal to Switzerland if we vote for Brexit.
Photograph: Alamy

In the run up to the EU referendum we ask a panel of experts to answer your questions on how the vote could affect small businesses. This week they consider the impact on imports and exports: Europe accounts for half of the UK’s exports.

If we leave the EU, how might that change our trade with Europe and worldwide?

If you have a question about the impact of the EU referendum, you can submit it here.

lesley batchelor director general at the Institute of Export

Lesley Batchelor Photograph: PR

Lesley Batchelor

Director general of the Institute of Export. Shaping policy and decision making at the highest level, she is active on various advisory panels on exports, SME support and the all-party manufacturing group.

The change will not be instantaneous: UK exporters will be charged import duties on the goods they sell into the EU, just as they do to any country that is a member of a trading bloc.

This, in turn, will increase the price of their products in that market. These duties are on top of the local VAT charged between states and impact on the final price charged. The EU covers this through our subscription, much like a membership to Costco works – where the benefits increase the more you use it. To this end, a trading bloc is slightly different to a trade agreement.

A trade bloc is a group of countries that agree to reduce trade barriers between themselves. There are 13 trade blocs around the world today designed to increase regional trade and create economic growth – the EU for example.

More than 300 agreements have been reported to the World Trade Organisation (WTO) and the number of free trade agreements have increased significantly over the last decade.

Trade agreements outline how the agreement will work in practice and exactly what the agreement is – whether it is goods or goods and services, a basic preferential trade agreement, free trade or a customs union. In the meantime, we will revert back to the next level of agreement which is the WTO and that’s 161 countries to find agreement with.

catherine barnard professor of European Union Law at the University of Cambridge

Catherine Barnard Photograph: Daniel Bates

Catherine Barnard

Professor in European Union law and employment law at the University of Cambridge and senior tutor and fellow of Trinity College. She advised the government over the balance of competences review, which is an audit of what the EU does and how it affects the UK.

The answer to this question depends much on what is put into place if the UK were to leave the EU. If the UK were to do a Norway – join the European Economic Area (EEA) – then the UK would still benefit from free movement of goods. However, it would not be able to benefit from the 50 free trade agreements (FTAs) which the EU enjoys. That said, all EEA states are also members of the European Free Trade Association which has 25 free trade agreements with 36 countries.

Were the UK to go down the Swiss route (managing its relationship with the EU through a series of bilateral agreements), this is likely to include an agreement on the free movement of goods with EU states. The UK would, however, be free to conclude its own bilateral trade agreements with “third countries” – non-EU states. This freedom has to be weighed against the reduced influence the UK would have as a smaller player, a point emphasised forcibly by US president Barack Obama on his visit to the UK this week.

Were the UK to go down the route of looking for an FTA with the EU (sometimes referred to as the Canada model), there would be free movement of goods between the UK and the EU. However, the Canada deal took over five years to negotiate. The UK’s bargaining power would be weaker: the UK sells about 50% of its goods to the EU, while the EU sells about 6% of its goods to the UK.

If no deal is reached, then the WTO rules apply. This means that the EU can apply a tariff to UK goods, provided the tariff is no higher than those imposed on goods imported into the EU from other non-member states. It is estimated that tariffs would be imposed on 90% of the UK’s goods exports to the EU by value, meaning many exporters will become less price competitive.

Mike Cherry national chairman of the Federation of Small Businesses

Mike Cherry

Mike Cherry

Federation of Small Businesses (FSB) national chairman and former FSB policy director. He is an entrepreneur with a passion for small business issues and getting the voice of small businesses heard

Now is a good time for any small business which exports or imports to have a crystal ball. Because the truth is, no-one can really predict how trade will be affected if the UK does leave the EU. We do know that the EU is the most important export destination for small firms. The EU market is often considered the easy option because it’s close by, there are no tariffs and there is one set of product rules and standards.

For all that, there is a clear appetite to export further afield: 32% of FSB members currently either export or import. The US is their second biggest export destination after the EU. The trans-Atlantic Trade and Investment Partnership (TTIP) has huge potential to benefit smaller firms seeking to increase or start selling their goods and services to American customers.

In event of an EU exit, exporters will want to know how the UK will negotiate a trade deal with the EU and what this deal will look like, as well as how it will approach other trade deals around the globe. If the UK does end up going it alone on trade deals, the FSB would push for each set of negotiations to have a focused strategy on smaller firms. Small businesses have huge potential to export, both within the EU and further afield. Only by supporting these businesses to achieve their potential will the government succeed in closing the UK’s long-standing trade gap.

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