Understanding UK trade agreements with the EU and other countries
Recent work has exposed the extent of EU protectionism within the single market Customs Union. If the UK leaves the EU customs union for unilateral free trade, as a small country within the world market, it will therefore make gains according to the standard trade model. Should it do so, trade agreements with other small countries would simply divert UK trade to these markets without affecting UK trade or output overall – hence while harmless they are also pointless. Trade agreements with large countries or country-blocs should be treated with care, since while they might give scope for UK industries to enjoy higher prices on all their output by diverting trade to these markets, they could come at a cost in higher prices for imports as in the case of the EU customs union. If having left the EU the UK finds a large country willing to offer a beneficial free trade agreement, it is likely to be easier to conclude with the UK outside the EU than with it as part of the EU, because of the complex and varied industrial interests of the EU as whole compared with the more limited interests of the UK. Already in services which are in general not governed by EU trade rules UK trade takes place under WTO rules and is also closely integrated with other countries’ markets such as the US and most Commonwealth countries.
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