The UK’s future trading relationship with the EU is a key issue, given that nearly half of the UK’s trade is with other EU Member States. At the moment, as a member of the EU, the UK is part of the EU single market and the customs union. This means no tariffs, customs duties or quotas on trade between Member States. It also means elimination of non-tariff barriers, such as differing technical specifications and rules on labelling of products. Given that average tariffs are now low, these non-tariffs barriers are considered to be a more important barrier to trade, although tariffs on some individual products are still high. The EU tariff on cars is around 10%. Agricultural tariffs are generally higher than those on non-agricultural products. The single market also extends to services although progress here is generally thought to be slower than for goods. The key feature of the customs union is that all EU member states set the same tariff on goods imported into the EU from non-EU countries. This facilitates trade between Member States by removing the need for rules of origin checks. However, being part of the customs union makes it very difficult for a country to negotiate its own free trade agreements. While the Government has said it does not want an off the shelf option, existing trade arrangements provide a starting point for considering what the UK’s future trading relationship with the EU might look like. Three options are considered in this note: membership of the EEA, a FTA and trading under WTO rules. The Government’s negotiating objectives were set out by the Prime Minister in a speech in January. The Prime Minister said that the UK would “pursue a bold and ambitious free trade agreement” with the EU. This would involve “the freest possible trade in goods and services”. However, the UK would not seek continued membership of the EU single market, as this would mean complying with the EU’s four freedoms. It would mean a continuing role for the European Court of Justice. The proposed trade agreement might “take in elements of current single market arrangements in certain areas” such as cars and financial services. On the customs union, the Prime Minister said that she wanted the UK to be able to negotiate its own trade deals. This would mean not being bound by the common external tariff. However, “a customs agreement” with the EU would be sought. The Prime Minister said that she wanted an agreement about the future relationship with the EU to be concluded within the two year timetable set out by Article 50. After that, a “phased process of implementation” was proposed. While the Government was hopeful that such a deal could be reached as it would be in the economic interest of both the UK and the EU, the Prime Minister said that “no deal for Britain is better than a bad deal for Britain. The speech raised a number of issues including the effect on the economy, whether a trade deal could be negotiated within two years, and how the proposed customs agreement would work.
European Parliament
