The Trade-Related Impact of a UK Exit from the EU Single Market

37 Pages Posted: 21 Jun 2015

See all articles by Dan Ciuriak

Dan Ciuriak

Ciuriak Consulting Inc.; C.D. Howe Institute; Centre for International Governance Innovation (CIGI); BKP Development Research & Consulting GmbH; Asia Pacific Foundation of Canada

Jingliang Xiao

Infinite-Sum Modeling Inc.; Ciuriak Consulting Inc.

Natassia Ciuriak

Ciuriak Consulting Inc.

Ali Dadkhah

Ciuriak Consulting Inc.; Infinity Law

Dmitry Lysenko

Nova Scotia Government

G. Badri Narayanan

Purdue University - Center for Global Trade Analysis

Date Written: April 23, 2015

Abstract

This note develops estimates of the trade-related costs of an exit by the United Kingdom from the European Union and compares these to the potential benefits of the alternative trade policies to which a fully independent UK would have access. An exit scenario that re-sets the UK’s relationship with the rest of the EU to a WTO-rules most favoured nation basis (“Brexit”) would involve significant costs. A negotiated change in the UK’s status that largely preserves UK integration with the rest of the EU at a level similar to that of the European Free Trade Association (“Brefta”) is much less costly relative to the status quo. The trade policy options available to the UK post-exit would not cover Brexit-level costs, but, in our estimation, provide sufficient liberalization potential to cover the Brefta-level costs. While unilateral liberalization alone would fall short, if it is coupled with an ambitious post-exit trade policy focussed on securing free trade agreements with major trading partners, it would leave the UK essentially neutral and possibly modestly ahead on trade policy grounds. This depends on exactly how low the costs of the post-Brefta UK-REU trade border would be and on the level of ambition that the alternative trade policies would actually achieve. In a long-term perspective, if the world moves to a similar free trade equilibrium, the EU included, the first mover advantages to the UK of full liberalization against the rest of the world would eventually be eroded. In this case, the present value of the benefits of continued participation in the borderless single market would likely dominate, since the additional trade costs imposed by a Brefta border would continue to be incurred indefinitely.

Keywords: United Kingdom, European Union, Brexit, Brefta, TTIP, single market, exit, unilateral free trade, CGE

JEL Classification: F13, F14

Suggested Citation

Ciuriak, Dan and Xiao, Jingliang and Ciuriak, Natassia and Dadkhah, Ali and Lysenko, Dmitry and Narayanan, G. Badri, The Trade-Related Impact of a UK Exit from the EU Single Market (April 23, 2015). Available at SSRN: https://ssrn.com/abstract=2620718 or http://dx.doi.org/10.2139/ssrn.2620718

Dan Ciuriak (Contact Author)

Ciuriak Consulting Inc. ( email )

83 Stewart St.
Ottawa, Ontario K1N 6H9
Canada

C.D. Howe Institute ( email )

67 Yonge St., Suite 300
Toronto, Ontario M5E 1J8
Canada

Centre for International Governance Innovation (CIGI) ( email )

57 Erb Street West
Waterloo, Ontario N2L 6C2
Canada

BKP Development Research & Consulting GmbH ( email )

Romanstrasse 74
München, 80639
Germany

Asia Pacific Foundation of Canada ( email )

Canada

HOME PAGE: http://ciuriakconsulting.com/

Jingliang Xiao

Infinite-Sum Modeling Inc. ( email )

16167,Glenbrooks Pl
Vancouver, BC - British Columbia v4n1t3
Canada
6047245981 (Phone)
6047245981 (Fax)

HOME PAGE: http://www.infsum.com/en/

Ciuriak Consulting Inc. ( email )

83 Stewart St.
Ottawa, Ontario K1N 6H9
Canada

Natassia Ciuriak

Ciuriak Consulting Inc. ( email )

83 Stewart St.
Ottawa, Ontario K1N 6H9
Canada

Ali Dadkhah

Ciuriak Consulting Inc. ( email )

83 Stewart St.
Ottawa, Ontario K1N 6H9
Canada

Infinity Law ( email )

200-931 Fort St.
Victoria, V8V 3K3
Canada

Dmitry Lysenko

Nova Scotia Government ( email )

Canada

G. Badri Narayanan

Purdue University - Center for Global Trade Analysis ( email )

403 W State Street KRAN 562
Department of Agri Economics Purdue University
West Lafayette, IN Tippecanoe County 47907
United States

HOME PAGE: http://www.gtap.agecon.purdue.edu

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