Analysis: UK trade may struggle to stand still after EU exit

GENEVA Thu May 16, 2013 9:10am EDT

British Prime Minister David Cameron speaks during a news conference at the United Nations headquarters in New York May 15, 2013. REUTERS/Brendan McDermid

British Prime Minister David Cameron speaks during a news conference at the United Nations headquarters in New York May 15, 2013.

Credit: Reuters/Brendan McDermid

GENEVA (Reuters) - As British Prime Minister David Cameron struggles to accommodate eurosceptics in his own party, trade experts warn that quitting the European Union would force Britain not just to rework trade relations with the EU, but also with the EU's trade partners and probably the World Trade Organization.

Moreover, it would struggle to maintain the same level of trading rights it now enjoys, they say, including those that benefit London's financial centre, a major contributor to the national economy and a significant exporter.

Cameron has pledged an in-out referendum in 2017, and opinion polls suggest the public is inclined towards the exit, which would leave Britain in need of a deal to ensure exports to the EU are not hit with EU import tariffs, which averaged 5.3 percent in 2011, and 13.9 percent in agriculture.

"I don't see any advantage in doing it," said Roderick Abbott, a Briton who served as deputy director-general of both the WTO and the European Commission's trade department.

"Could we negotiate a free trade area with the EU? It would be feasible, but you have to be sure that's what the other side wants. Having said 'we want to shut the door and stop paying into your budget', can we then say 'please give us free trade for free?'"

About half of Britain's goods exports and over a third of its services exports go to the EU, about 234 billion pounds ($356 billion) in 2011. Imports were 261 billion pounds.

Without a good deal, Britain could find itself in a worse position than competing exporters, such as Norway, Switzerland, South Africa, South Korea and many others, which have preferential trade agreements with the EU.

Those agreements gradually eliminate tariffs on goods traded between the two sides. A WTO study shows virtually all South Korea's exports to the EU will be duty-free by 2016.

By leaving the EU, Britain would also lose the duty-free advantages on the other side of those deals. That would mean paying tax on exports to countries like Switzerland, its biggest non-EU market in 2012 after the United States and China.

The EU is currently pursuing deals with the United States and Japan, too. The U.S. deal, championed by Cameron, seeks to go far beyond tariff cuts and make it much easier for European and U.S. firms to do business in each other's markets.

"The size of the British economy is still to be reckoned with in the world economy but of course its share is rapidly shrinking, and that means the willingness of other countries to prioritize the UK ahead of others is probably going to shrink," said Fredrik Erixon, who heads the European Centre for International Political Economy in Brussels.

HAGGLING OVER QUOTAS

Petros Mavroidis, a WTO expert at Columbia University, said there would be no need to renegotiate Britain's membership of the global trade body, since both it and the EU are already members. But that would depend on Britain not trying to take any of its rights to EU agricultural subsidies and quotas with it.

"If the UK wishes to pay subsidies, then the EU and the UK will have to present a new proposal to all WTO members, the sum of which will not exceed what they have already committed," Mavroidis said.

Apportioning the right to agricultural subsidies would be made easier by the fact that the EU is using only a fraction of the agreed limit imposed by the WTO - 8.76 billion euros of the 72.2 billion euro ceiling in 2009/2010.

But import quotas may be trickier because they apply EU-wide and are the result of negotiations with suppliers. For beef alone that would reopen negotiations with countries like Argentina, the United States, Canada and Australia, who currently enjoy a certain quota of low-tariff exports to the EU.

So unless it gave up its claims, Britain would have to haggle over the size of its portion, first among EU states, and then negotiate any new deal with the rest of the WTO.

Abbott said such an exercise should be technical and "with goodwill" could be done in six months, but there is a risk other countries could see it as a chance to demand better terms.

Worse still would be any loss of access to the EU's single market for services. While Britain has a goods deficit with the EU, services are in surplus.

TheCityUK, which promotes Britain as a place to do business, said Britain had a financial services trade surplus with the EU of 17.6 billion pounds in 2011, and EU banks in Britain held 1.4 trillion pounds in assets, 17 percent of the national total.

"I think the City of London ought to be a lot more anxious about all this," said Abbott.

With no say in EU decisions, Britain would also lose its right to defend against policies such as the European Central Bank's effort to bring clearing houses of euro-denominated securities onto euro zone territory, Erixon said.

"It's going to force a lot of financial activity to move outside London and inside the euro zone," said Erixon.

($1 = 0.6568 British pounds)

(This version of the story corrects the ninth paragraph to say China is also a bigger UK export market than Switzerland.)

(Editing by Will Waterman)

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Comments (4)
totherepublic wrote:
If the UK leaves the EU Germany will HAVE to follow suite, they can not hold the leaches up without help. That would be the demise of the EU.

May 16, 2013 9:45am EDT  --  Report as abuse
thorpy63 wrote:
What a dumb piece, who cares if they agree to a free trade agreement we run a £65 Billion per year trade deficit with the EU. We have never had unfettered access to the services sector in the EU while we operate a free & open economy letting the same people buy into every kind of business in the UK be it services, utilities, Manufacturing or retail. We have nothing to lose from a cessation to a Free Trade arrangement but if they wish to return to WTO’s methodology we will be the winners but can you imagine the Germans, French or Italians losing unfettered access to the only growing car market in the EU? Who pays Tom Miles salary? Barroso?

May 16, 2013 12:38pm EDT  --  Report as abuse
I’m glad the level of debate is getting to a higher standard than “It would be an economic disaster!” and “We’d lose clout!”, but even this article is somewhat one-sided. Free trade is something the EU would benefit from as much as the UK, it’s not something we should be expected to pay a price for. As they have a surplus with us, and are in a worse economic crisis, they’re not going to cut off their own noses. As you mention, plenty of other countries have a non-fee paying arrangement to get free trade. You also entirely fail to mention that the UK would be able to sign free trade agreements the EU has been unable to do. The US Finance Committee invited us to be a member of NAFTA in 1999, for instance, and said a deal could be done “within weeks”. Yet a decade and a half later the EU is only just getting started on negotiations.

May 16, 2013 1:14pm EDT  --  Report as abuse
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