In light of the upcoming EU Referendum Professor Ken Shadlen sheds some light on the implications for Britain’s trade

Shadlen, Kenneth C.

LSE Research Online

5/15/2017 LSE International Development – Market Access and the EU Referendumhttp://blogs.lse.ac.uk/internationaldevelopment/2016/06/18/market­access­and­the­eu­referendum/ 1/2Professor  KenShadlenMarket Access and the EU ReferendumIn light of the upcoming EU Referendum Professor Ken Shadlen sheds some light on theimplications for Britain’s trade.I’ve  read  and  heard  lots  of  discussions  about  the  referendum  andimplications for Britain’s trade, most of it misleading and incorrect. Let me tryto simplify (it sounds more confusing than it is):1. On any given product, countries have two tariffs, one they apply to all membersof the World Trade Organization (this is the “MFN” tariff) and one they apply topartners in trade agreements (this is the “preferential” tariff). Preferential tariffs are always, bydefinition, lower than MFN tariffs2. If Britain is part of the EU, then exports from Britain enter all the EU countries under the EU’spreferential tariff (zero percent)3. If Britain is not part of the EU, then the EU is not allowed to use the preferential tariff for British exports;the EU must, under WTO rules, subject British exports to the MFN tariff (different from product toproduct, but almost always greater than zero percent)4. One way for the EU to be able to continue to treat British exports with a zero tariff if Britain leaves theEU is for the EU to lower its MFN tariff to zero. The EU is unlikely to do this just for the sake of Britain, asthe new MFN tariff would apply not just to British exports but to exports from all countries that are inthe WTO5. The other way for the EU to be able to continue to treat British exports with a zero tariff if Britain leavesthe EU (there are only two ways), is for the EU and Britain to negotiate a new trade agreement. It’s thissecond way that’s being proposed: the UK will leave the EU and then negotiate a new agreement to re-obtain the preferential access it now has as a member of the EU6. Will Britain, outside the EU, be able to get the same market access it has now? Britain, as a non-member,certainly will not be able to get better market access than it has now, as an EU member; it is a questionof how close to equivalent (i.e. how much worse) market access Britain can obtain via negotiations of anew trade agreement. On market access terms, the outcome can only be worse than the status quo; thequestion is how much worse7. On what terms will Britain negotiate the new agreement? What concessions will Britain have to make inorder to re-obtain close to the same (or perhaps even the same) market access?8. Even if Britain can obtain market access that is equivalent to what it has now (believable), and even ifBritain can get this without making onerous concessions (less believable), that won’t happen overnight.Negotiations have to take place, agreements need to be ratified, domestic laws need to be altered, andso on. For at least some period of time (a year, two years, five years, ten years…?) Britain will haveworse access to the EU than it does now9. Roughly 40-50 percent of Britain’s exports go to the EU10. Market access is hardly the only thing in the world that matters, and the EU is not the only market thatmatters, but on this issue the effects are clear. Anyone saying that Britain’s access to EU markets won’tbe worse after an exit is misinformed or misleadingIn this entry I’ve not written anything about Britain’s access to other markets outside the EU (forcountries  that have preferential  trade agreements with  the EU, pretty much all of  the above willapply there; for countries that are members of the WTO but don’t have trade agreements with theProfessor KenShadlen5/15/2017 LSE International Development – Market Access and the EU Referendumhttp://blogs.lse.ac.uk/internationaldevelopment/2016/06/18/market­access­and­the­eu­referendum/ 2/2June 18th, 2016 | Topical and Comment | 0 CommentsEU, nothing changes on account of Britain  leaving  the EU). Nor have  I addressed Britain’s owntariffs, once outside of the EU.For more information on the EU Referendum please see the LSE Brexit blog

Market Access and the EU Referendum

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