[attach id=254933 size="medium"]British Prime Minister David Cameron has pledged a referendum on exiting the EU in 2017, and opinion polls suggest the public is inclined towards exiting. Photo: Reuters[/attach]
As British Prime Minister David Cameron struggles to accommodate eurosceptics in his own party, trade experts warn that quitting the EU 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 Organisation.
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 per cent in 2011, and 13.9 per cent in agriculture.
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
“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 (€277 billion) in 2011. Imports were £261 billion (€309 billion).
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 US and China.
The EU is currently pursuing deals with the US and Japan, too. The US deal, championed by Cameron, seeks to go far beyond tariff cuts and make it much easier for European and US 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 prioritise the UK ahead of others is probably going to shrink,” said Fredrik Erixon, who heads the European Centre for International Political Economy in Brussels.
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 of the €72.2 billion 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 US, 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 (€20.8 billion) in 2011, and EU banks in Britain held £1.4 trillion (€1.6 trillion) in assets, 17 per cent 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 on to eurozone territory, Erixon said.
“It’s going to force a lot of financial activity to move outside London and inside the eurozone,” said Erixon.