The United Kingdom’s Post-Brexit Trade Regime with the European Union and the Rest of the World: Perspectives and Constraints

Abstract

The preliminary agreement reached by the UK with the EU in December 2017 has clarified that a “hard” Brexit will most likely be avoided. Negotiations on post-Brexit relations will start early 2018 and a transition period of two years following the UK exit form the EU at the end of March 2019 will maintain the UK in the EU Single Market and Custom Union. The nature of the ‘close partnership’ to be maintained thereafter between the two parties is however still to be elaborated since the UK has signaled that it does not intend to remain part of either, while maintaining a ‘regulatory alignment’ such as to avoid reestablishing of a border within Ireland. At the same time, the UK intends to be able to freely negotiate free trade agreements (FTAs) with other countries. Establishing a trade regime ‘as frictionless as possible’ as aimed at by the UK appears therefore problematic. The article discusses first the features of a possible EU-UK post-Brexit FTA, and of reciprocal trade relations in the light of World Trade Organization (WTO) rules. The Frontier Traffic exception of General Agreement on Tariffs and Trade (GATT) Article XXIV.3 could be a basis for avoiding reestablishing a hard border between the Republic of Ireland and Northern Ireland, as both parties aim at, by establishing a special free trade regime between the two parts of the island. As to the existing trade and economic cooperation agreements of the EU with third countries, of which the UK benefits as a member of the Union, their political and economic context and the principles of state succession to treaties speak against the possibility of the UK remaining a party, even if it so wished. The UK exit from the EU may even justify a non-EU party asking for renegotiation if a fundamental change in the trade balance would result therefrom. As to UK’s relations with other WTO members, the UK will retain its status as a full ‘original’ member of the WTO. Its schedule of concessions will be initially that of the EU in place at the date of Brexit. A delicate issue is represented however by the apportionment between the EU and the UK of EU tariff-rate quotas for agricultural products, which will imply negotiations with third countries beneficiaries. Finally, the UK will be able after Brexit to freely negotiate FTAs with any WTO member, notably with the USA. If such agreements will however contain terms not aligned with the EU custom regime and its internal market standards, the UK will face obstacles in accessing the EU market. The UK will thus be faced with difficult trade-offs, considering that the EU market absorbs about 45% of the UK’s goods export, not to speak of its importance for the UK’s financial and other services.