The Future of UK-EU Trade: An Overview

Akin Gump Strauss Hauer & Feld LLP

Akin Gump Strauss Hauer & Feld LLP

[co-author: Sarah Williamson, Summer Associate]

In the aftermath of Brexit, the United Kingdom is faced with the challenge of negotiating a relationship with the European Union that balances Single Market access with national control over the movement of goods and workers. This article is the first of a four-part series examining the three models for a future U.K.-EU relationship.

This article provides a brief overview and assessment of each possible model—the “Norway Model,” the “Swiss Model” and the “Bilateral Trade Agreement Model.” We then consider what course the United Kingdom might wish to chart as the negotiation preparations begin. Our three upcoming articles will dive deeper into each of the models.

The Norway Model

The “Norway Model” is built on membership in the European Economic Area (EEA). The EEA Agreement joins the 28 EU member states1, Norway, Iceland and Liechtenstein in the Single Market. It implements the four fundamental freedoms—free movement of goods, services, workers and capital—throughout the participating states. In return for Single Market access, Norway (and other signatories) must implement all EU laws and regulations affecting the Single Market such as financial services, product standards, social and employment laws, energy and climate change.

If the United Kingdom joined the EEA, the country would maintain access to the Single Market for both goods and services. It could also continue to participate in the European Union’s trade agreements with other nations. However, access comes with a cost. Without formal EU membership, the United Kingdom would have no meaningful representation in the drafting process for regulations that it would be compelled to implement. Regulatory costs could actually increase because the United Kingdom would no longer have a bargaining position to ensure that regulations are proportionate for domestic industry. The United Kingdom would still be required to make significant contributions to the EU budget. It would also be required to agree to maintain free movement of workers.

The Swiss Model

The “Swiss Model” is a patchwork quilt of dozens of ad hoc sectoral trade agreements with the European Union. The most critical agreements are in two packages—Bilaterals I and II—executed in 1999 and 2004, respectively. These agreements provide Switzerland with partial access to the Single Market in return for accepting the EU fundamental principle of free movement of workers. Single Market access is limited to goods falling within the various sectoral agreements. Switzerland has no comprehensive agreement with the European Union covering services or capital. The trade agreements are continually revised and renegotiated, and the Swiss Parliament develops domestic legislation with EU compatibility in mind, a condition of Single Market access.

Bilateral negotiations and agreements are possibly more palatable to the United Kingdom than the stricter implementation requirements of the Norway Model. However, the political and administrative process for such an arrangement would be very burdensome. EU representatives have become increasingly more frustrated with the slow Swiss renegotiation process as EU regulation steadily progresses. Self-determination gained under this model would be limited by the necessity of aligning with many EU policies in return for Single Market access. The lack of a template agreement for services, particularly financial services, would also leave U.K. industries with an uphill battle. The United Kingdom would be free to negotiate independently bilateral trade agreements with non-EU countries, but its negotiating position could be significantly weaker standing alone.

The Bilateral Trade Agreement Model

Under the “Bilateral Trade Agreement Model,” the United Kingdom would negotiate a comprehensive free trade agreement (FTA) with the European Union, as opposed to a series of bilateral treaties. Recent examples include the EU-South Korea FTA and the EU-Canada Comprehensive Economic Trade Agreement (CETA). An agreement would at least likely include tariff-free trade in goods. The United Kingdom would probably also push for liberalized trade in services, particularly financial services.

This model may provide some flexibility to address the United Kingdom’s immediate concerns about the European Union. In addition to retaining at least some degree of preferential trade status, the United Kingdom would regain control over its immigration policies and overall regulatory policies. The United Kingdom would also have no obligation to contribute to the EU budget. FTAs require lengthy negotiations, but they are unlikely to be significantly longer than those required for any other potential model. The status of the United Kingdom relative to existing EU FTAs with other countries is an open question.

1 The remaining EU member states after a formal U.K. exit are Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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