Does the UK need access to the Single Market? What trade alternatives are there?


Academic Paper, 2016
13 Pages, Grade: 18 (90%)

Excerpt

Table of Content

Table of Figures

1. Introduction

2. The UK and the Single Market
2.1. The dependency of the United Kingdom on the Single Market

3. Possible Alternatives
3.1. Three core models
3.1.1. Soft Brexit
3.1.2. Bilateral Trade Agreements
3.1.3. Hard Brexit

4. Conclusion

5. Bibliography

Executive Summary

In 1973 the United Kingdom joined the European Union and the Single Market. Through this partnership, both economies grew and benefited from each other. However, recently politicians have questioned the United Kingdom’s membership in the European Union and the Single Market, which led to political events such as the referendum for the Brexit. As the majority of the population decided to vote in favor of the Brexit, the necessity to analyze the dependency of the United Kingdom on the Single Market has increased. This report provides an analysis of that dependency with respect to different groups of stakeholders, including companies in the industrial and service sectors as well as communities. The analysis is followed by an identification and evaluation of the most plausible trade alternatives. The findings of the report state that the United Kingdom highly depends on access to the Single Market on the short-term perspective, might be able to reduce it on the long-term perspective, but will unlikely become completely independent from the access to the Single Market.

Table of Figures

Figure 1: UK trade with the EU and percentages of World Total, 2000 to 2015

Figure 2: Value of UK trade in services, August 2014 to August 2016

Figure 3: UK exports and imports to EU and Non-EU

1. Introduction

Since the United Kingdom (UK) joined the European Union (EU) and the Single Market in 1973, the trade between the UK and the EU increased significantly, boosting both trading partners’ economy. The four founding principles of the Single Market, which are, free movements of goods, persons, services and capital (European Parliament, 2016), have brought numerous advantages to the UK. For example, the free movement of people helps to boost employment and the free movement of goods helps increasing deals within the Single Market. As demonstrated in Figure 1, from 2000 to 2015, UK’s imports from and exports to the EU account for around 50% of UK’s world trade in total and the percentage is consistent over the past 15 years (Office for National Statistics, 2016).

illustration not visible in this excerpt

Figure 1: UK trade with the EU and percentages of World Total, 2000 to 2015.1

It is recognizable from Figure 2 that services are a major part of UK’s trade with the EU, which depends primarily on the free movement of people. This indicates that the EU is UK’s biggest trade partner and the access to the Single Market is essential to UK’s economy.

illustration not visible in this excerpt

Figure 2: Value of UK trade in services, August 2014 to August 2016 . 2

However, the limitations come hand in hand with the benefits of EU membership. According to the BBC (2016), the UK contributes to 13% of the EU budget every year and parts of the population complain that the EU bureaucracy is not only inefficient but also wastes money. Additionally, there are also concerns that the European debts and current refugee crisis would negatively influence the UK’s economic and social stability.

On the 23rd of June 2016, the UK held a referendum to decide whether to leave or stay in the EU. The result turned out that 52% of the population voted to leave the EU and the prime minister resigned because he supported the UK to stay in the EU (BBC, 2016). Following the referendum, a heated debate rose about whether the UK needs access to the Single Market, leading to different pessimistic predictions about the UK’s future economic development. For example, PwC (2016) predicted a slowdown of UK’s GDP growth rate to 1.7% and a decline in consumer spending in 2017. However, UK’s GDP growth rate increased by 0.6% in the second quarter of 2016 (Office for National Statistics, 2016). Nonetheless, the referendum caused a lot of uncertainty regarding the future of UK’s economy and it requires a long period of negotiation between the UK and the EU to decide on the trade terms.

2. The UK and the Single Market

2.1. The dependency of the United Kingdom on the Single Market

After the UK voted to leave the European Union, the future between the two parties with respect to their trade has become uncertain (Farrel, 2016). When analyzing the dependency of the UK on the Single Market, different perspectives of the affected stakeholders need to be taken into consideration. The trade figures of the UK (see Figure 3) indicate that the overall amount of trade between the UK and EU countries as well as the UK and non-EU countries, are almost equal to 550 billion pounds in 2014. The trade of the UK with EU countries resulted in a trade deficit and a trade surplus with non-EU countries of around 62 billion pounds and 28 billion pounds respectively (Office for National Statistics, 2016).

illustration not visible in this excerpt

Figure 3: UK exports and imports to EU and Non-EU.3

Due to the overall balanced trade figures of the UK with and without the EU, UK’s dependency and independency of the single market highly varies depending on the considered stakeholders. Though, since the EU accounts for a significant portion, slightly more than the half of UK’s total trade, it displays a significant portion in terms of imports as well as exports for many companies operating in the UK (Finch, 2016). The business models of those companies are built or operate on the fundamentals and the opportunities that the EU provides such as the four founding principles. For example, manufacturing companies’ benefit from those principles as no visas for human resources are necessary, no import or export barriers exist as well as capital transactions among corporate branches without fees (Cadman & Tetlow 2016). Another major sector that significantly benefits from the founding principles is the service sector, which accounts for almost 80% of the total economy of the UK. The service sector includes especially the financial sector as well as artists or even musicians. The UK’s financial sector is particularly strong, operates intensively in the EU market and satisfies a tremendous amount of the total demand (Giles, 2016). Additionally, artists and musicians etc. do not just benefit from the founding principles of the EU but also absolutely depend on it in order to access and export their services to the single market (Office for National Statistics, 2015). Several communities, customers and workers (domestic and international) need the single market in terms of free movement, capital transaction and consumption (The Guardian, 2016). On the contrary, some stakeholders are independent of the single market as they use the business opportunities offered outside the EU. These stakeholders are mainly companies that operate in the UK and are not at all or only slightly involved in business with the EU as in general, their revenues are mainly generated outside the EU (Walker, 2016).

3. Possible Alternatives

3.1. Three core models

Today’s existing trade agreements between the EU and third countries suggest that there are three core models of relationships that the UK could adopt as an alternative to the Single Market (Office for National Statistics, 2016). Each of these core models consists of alternatives that already exist today. These three core models are: Soft Brexit, bilateral trade agreements and Hard Brexit.

3.1.1. Soft Brexit

In the case of a soft Brexit, the UK could negotiate a comparable trade model to the Norwegian one. If the UK would adopt the Norwegian model as an alternative to the EU- membership, it would become integrated into the Single Market as a member of the European Economic Area (EEA) and of the European Free Trade Association (EFTA) (Office for National Statistics, 2016). In return to that access to the Single Market, the UK would be obliged to contribute to the EU budget (Office for National Statistics, 2016). On the one hand, the UK would be required to accept around 75% of the EU laws and regulations, though without any influence on the considered laws and regulations (BBC, 2016). On the other hand, the UK would be exempt from EU rules on agriculture, fisheries, justice and home affairs, which is a key element for the UK as it is surrounded by sea (Office for National Statistics, 2016). Furthermore, it is important to mention that Norway pays the same amount to the EU as the UK does per capita as a member of the EU. Therefore, this would not result in major savings for the UK compared to EU membership (Cabinet Office, 2016). Besides, in 2016, 6% of the total workforce in Norway is composed of EU habitants, compared to 4% in the UK. If the UK adopted this scenario, it would have to accept the free movement of people, since this is part of the Schengen Area (Office for National Statistics, 2016). Therefore, the European citizens would retain their freedom to live and work in the UK.

3.1.2. Bilateral Trade Agreements

3.1.2.1. The Turkish Model

The first possible bilateral trade agreement is based on the Turkish Model. With the Turkish model, the UK would participate in the European Customs Union. Furthermore, the UK would have partial access to the Single Market for industrial- and processed goods. The Turkish model does not cover services, agricultural goods and public procurement (Cabinet Office, 2016). However, this would be a significant disadvantage for the UK, as its service sector contributes to nearly 80% of its total GDP (Cadman, 2016). While the UK would be able to negotiate and agree on several trade agreements with countries outside the EU, it would still have to align external tariffs with the EU tariffs. The UK would have no benefits from the EU trade deals with third countries, since under this model the UK would be obliged to open its market to any trading partner of the EU. However it does not give the UK the right to access the EU’s trading partners’ market on the same terms. Therefore it would have to negotiate its own trade agreements (Cabinet Office, 2016). In addition, the UK would benefit from some limited migration rights for UK nationals to reside in the EU. Free from social and employment regulation (Office for National Statistics, 2016).

3.1.2.2. The Swiss Model

The second possible bilateral trade agreement would be the Swiss Model. Through this bilateral agreement the UK would have to agree on free trade in all non-agricultural goods, but excluding services (Wold, 2016). This would be extremely harmful for the UK as services account for 80% of UK’s total GDP (Cadman, 2016). Furthermore, the UK would benefit, as it would reduce its current financial contribution to the EU by nearly 60% (Wold, 2016). Moreover, the UK would forfeit the right to regain full control of its borders, as this agreement includes the free movement of people (Cabinet Office, 2016).

[...]


1 Office for National Statistics (2016) accessed 16 October 2016 from: http://www.ons.gov.uk/economy/national accounts/balanceofpayments/bulletins/uktrade/aug2016.

2 Office for National Statistics (2016) accessed 16 October 2016 from: http://www.ons.gov.uk/economy/national accounts/balanceofpayments/bulletins/uktrade/aug2016.

3 Office for National Statistics (2016) accessed 3 October 2016 from:http://www.ons.gov.uk/ons/rel/internatio nal-transactions/outward-foreign-affiliates-statistics/how-important-is-the-european-union-to-uk-trade-and- investment-/sty-eu.html.

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Details

Title
Does the UK need access to the Single Market? What trade alternatives are there?
College
Grenoble Ecole de Management
Grade
18 (90%)
Author
Year
2016
Pages
13
Catalog Number
V369746
ISBN (eBook)
9783668472891
ISBN (Book)
9783668472907
File size
721 KB
Language
English
Tags
Brexit, European Union, Single Market, Trade Relations
Quote paper
Jan Kachelmaier (Author), 2016, Does the UK need access to the Single Market? What trade alternatives are there?, Munich, GRIN Verlag, https://www.grin.com/document/369746

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