Due to the repercussions of the shocking 52% to 48% split in votes, in favour of the UK exiting the EU, back in June 2016, and the dramatic effects of the COVID-19 outbreak this year, the economic climate seems to be more uncertain and speculative than ever. Everyone seems to be asking the same question: “What on earth will happen?”
So, what are the options that Britain could undertake, ahead of the imminent 31st of December deadline?
An EU single market:
After the dust from the coronavirus settles, Boris Johnson might be able to negotiate to remain within the single market, which would eliminate all tariffs and quotas on British products, allowing the UK to trade, free of any restrictions, with all 27 members of the European Union. Other countries such as Norway have also sought such an agreement with the EU. Inevitably, it comes with certain, obvious drawbacks such as: the need to pay regular commissions to Brussels; reduced control over immigration and mandatory adherence to EU laws. Nevertheless, it appears promising in the long run, sustaining a major trading partnership with the EU.
This likely scenario would revert the UK back to trading with the bloc of 27 EU states under the rules of the World Trade Organisation (WTO), meaning tariffs would be imposed on goods and services. This will lead to trade suffering in the short term. On the other hand, there would be no legal obligation for the UK to pay substantial payments to Brussels. Furthermore, it will mean no more EU influence over British law which was one of the determining factors during the Leave campaign. The majority of ‘leave’ supporters believe that this would free the UK from all EU structures in one fell swoop. However, a ‘No deal’ would mean disruptions to flights and border control due to the lack of regulatory approval. This will have severe implications on the economy as SMEs and MNCs might not be able to deal with the EU as easily as before. Although there is quite a lot of uncertainty right now, draft packages relating to aviation have been exchanged by both sides, and this is expected to help smoothen the transition.
No deal would be a very, very bad outcome for Britain!Philip Hammond ~ Chancellor of the Exchequer 2016-19
A limited tariff-free deal:
45% of all UK exports go to the EU whereas 17.5% of all EU exports come to the UK. This presents an interlocked, mutualistic relationship accumulating in a £290 billion market each annum. It would make the UK a little like Canada in its dealings with the EU, establishing tariff-free trade on industrial goods and agricultural products, but with a very limited access for services within the single market. However, this would not benefit the UK’s tertiary-oriented economy and allow it to flourish, as financial institutions like Barclays, Prudential and Strategy & London would lose the right to sell their banking, insurance and consultancy services across the EU. Undoubtedly, this will impact economic growth in the short-run as demand for these services dries up. Overall, this option is still quite likely amidst the numerous concerns regarding control over trade within the EU.
A customs union:
The UK could also adopt the procedure of leaving the EU single market, yet still remain within the customer union, undertaking a similar stance to Turkey while continuing tariff-free trade. An upside of this option versus the single market is that the UK would have more control over services, agriculture and legalisation. According to research conducted by ‘The Parliament,’ 80% of UK’s output comes from the tertiary sector. If the customs union approach is taken, the UK will be able to strike its own deals when domestic firms sell their services around the globe, generating greater control when trading its products, thus benefiting the UK hugely. The customs union also comes with certain disadvantages however, such as a lack of control over immigration and also incurring large fees from the EU headquarters in Brussels. This factor has made this solution quite unviable due to its lack of popularity in the House of Commons.
With the negotiations hobbled by the pandemic, significant doubts remain on both sides of the camp as to how Brexit should be delivered. It is anyone’s guess if Boris Johnson will finally be able to secure some sort of a trade deal, which he has promised time and time again. What is certain however, is that we will leave the EU on the 31st December 2020 and will need to adapt to a new way of life, without our European counterparts.
- Image sources: Bloomberg and Statista
- Peter Foster. “Britain seeks to put treaty commitments to respect speciality food brands back on the table”, FT, April.2, 2020
- Co-author: Aditya Krishna