The Trade Costs of Leaving the EU

BRUSSELS – The “Brexiteers” – those who want Britain to leave the European Union – argue that their goal would be virtually cost-free and have no effect on the United Kingdom’s global trade. They are wrong. On June 23, when voters in Britain cast their ballots in the referendum on the question, they need to consider what is actually involved in leaving the EU – and how the free-trade benefits they now enjoy (and take for granted) could be maintained after Brexit.

Start with the basics. Leaving the EU means that the UK would exit the EU’s Customs Union, which is the basis for cross-border free trade among the EU’s 28 members (and establishes a common external tariff vis-à-vis third countries). It also means exit from the Single Market – the basis for the free movement of goods and services among EU members. By definition, non-members of the EU cannot belong to the Single Market.

So what would happen next? During the two-year period before Britain’s withdrawal takes final effect, there would be UK-EU negotiations on many points – sovereignty, the legal order, immigration, finances, and economic matters. The assumption is that a crucial goal for Britain would be to negotiate a trading relationship as close as possible to the free-trade relationships that exist today.

That is easier said than done. The best result would be if all players agreed to maintain the free trade already achieved, with the UK setting a new external tariff on a duty-free basis, applicable to all comers. This is what happened in the 1970s after Britain and Denmark left the European Free Trade Association: Free-trade agreements were negotiated among EFTA members and between them and the EU (or the EEC as it was then known).