Now that the dust has settled from the shock decision by the British electorate to walk away from the European Union (EU), the UK must decide how they will negotiate trade deals to maximise their prosperity for the future.
One of the options is tariff free trade as a customs union, like in the case of Turkey.
Also, the UK will have to decide how much of the current EU trade regulations that is wishes to tear up, and whether sector arrangements, such as a ‘passport’ suggested for the financial services, can be agreed upon.
It will also be up to the remaining 27 members of the trade bloc, in just how difficult that they wish to make life for the UK.
Paul Hollingsworth, a UK economist with research group Capital Economics, said, “It’s really up to the politicians which free trade agreement that they design, and the concessions that the UK will have to make. One the most significant examples is access to the single market in terms of a fresh deal with the EU. That may come with freedom of movement, which is unlikely to be politically viable to Theresa May’s new administration.”
“Outside of the EU, trade deals can be about goods and services only, and do not have to include people. The EU deal will decide to a large degree how much more control over migration the UK has.
“The most advantageous trade deals that the UK should agree on are with fast growing and emerging economies. China’s growth might have slowed down, but there is still a rapidly growing with the middle class, with increased demand for goods and services.”
In a recent study, London and Brussels based think tank Open Europe said that they were not optimistic about the UK out of the EU.
GDP is now likely to drop by 0.5% to 1.5% in the long run if a reasonable trade deal is struck between the EU and the UK.
After agreeing terms with the EU, the UK would then need to open its borders to the rest of the world.
Open Europe cited countries, such as Norway, Australia and Canada, who have covered a large portion of their trade with bilateral free trade deals.
An option for the UK would be to ditch the all or nothing approach of the EU, allowing the UK to strike agreements on removing tariffs and non-tariff barriers.
This would make sense for deals with emerging market economies, such as China, India and Brazil, where tariffs are relatively high and the majority of UK trade is in goods.
Geographically, Asian could prove to be rich pickings for the UK, the think tank believed. Alongside China and India, there are the Japanese and ASEAN markets.
Potentially, the UK could increase their GDP by up to 0.6% if free trade deals are put in place in Asia, reducing any negative effects of ‘Brexit’.
Renegotiation of current agreements could also prove profitable, particularly for the UK’s huge service industry.
According to Open Europe, only 11 of the 33 EU free trade agreements cover services, leaving opportunities open for basic treaties for goods and tariffs.