The article below was written by Dylan Lobo and published on Wealth Manager on 10th August 2016
With so much uncertainty on what Brexit means, a report has warned of major financial costs if the UK fails to negotiate full membership of the single market.
The study by the Institute of Fiscal Studies (IFS) outlined the crucial difference between having ‘membership’ and simply ‘access’ to the trade zone.
The IFS described access to the single market as ‘meaningless as a concept’. ‘Any country in the World Trade Organisation – from Afghanistan to Zimbabwe – has ‘access’ to the EU as an export destination,’ it said.
In contrast membership involves the elimination of barriers to trade in a way that no existing trade deal, customs union or free trade area achieves, the IFS noted.
‘In particular it means reducing “non-tariff” barriers like licensing and other regulatory constraints to supplying goods or services.’
‘These sorts of barriers have become relatively more important to trade than tariffs (taxes on trade), and especially so for services.’
Overall the IFS claims single market membership could add 4% to UK GDP.
The body does not believe new individual trade deals will have the capacity to compensate fully for EU trade.
‘The EU accounts for 44% of our exports and 39% of our service exports,’ the IFS highlighted.
‘If the UK we are able to access the European Free Trade Association’s existing deals they would cover over 10% of UK exports which is more than the EU’s current third-country deals.’
Meanwhile the likes of China and India together account for 4.6% of all exports and 2.6% on services.
‘Even small proportionate losses in trade (or lost growth in trade) with the EU would require quite dramatic – and probably implausible – increases in trade with such countries.’
The IFS admits membership may come at a cost with the UK having to continue contributing to the EU budget and accepting future regulations designed in the EU.
This is bound to cause indignation among Brexiteers, many of whom said they voted out ‘get control back’ from the EU.
In May Brexit champion Boris Johnson said: ‘We should get out of the empire of EU law making and what we should have instead is access to the single market.’
IFS research associate Ian Mitchell said. ‘From an economic point of view we still face some very big choices indeed in terms of our future relationship with the EU.’
He added: ‘There is all the difference in the world between “access to” and “membership of” the single market. Membership is likely to offer significant economic benefits particularly for trade in services’
‘[But] outside the EU, single market membership also comes at the cost of accepting future regulations designed in the EU without UK input. This may be seriously problematic for some parts of the financial services sector.’