Britain’s Post-Brexit Options: Alternative Lifestyles (Digest Summary)

The EU is not going anywhere any time soon. If Britain does not opt for full membership in the union, it will have to reckon with the advantages and disadvantages of numerous trading and institutional relationship “solutions.”

Economic trading relationships that attempt to circumvent membership in the EU have certain advantages but are often, if not always, fraught with challenges. There are basically five models Britain can consider.

1. Membership in the European Economic Area gives member states complete access to the EU single market for goods and services. But visibility of what laws the EU proposes or adopts is limited. Special interests often receive little consideration. Currently, Norway, Iceland, and Liechtenstein are the only countries with this model.
2. The model Switzerland follows gives it partial access to EU markets. The setup is static and requires separate negotiation and implementation of any rule changes. It also lacks a process for dispute adjudication and the imposition of any sanctions. As with Norway, Switzerland has no input on or visibility of regulatory design and implementation. It also does not have free access to the single market, particularly for services, which means its financial services industry must establish separate capitalized subsidiaries in the EU. For Britain’s large financial industry, such an arrangement would be unwieldy.
3. A customs union like Turkey has, which was designed as a first step toward potential EU membership, would subject any state in such an arrangement to a lack of any dialog with Brussels on tariffs and trade rules, require adherence to EU trade rules, and exclude services.
4. Taking the approach of applying the World Trade Organization trading rules would not obligate Britain to implement EU regulations, accept free movement of people across its borders, or pay into the EU budget. But the tariffs on clothing, food, and cars, as well as the exclusion of financial services, would be drawbacks.
5. A personalized arrangement unique to Britain’s size and economic significance could give it complete single market access without requiring it to follow all EU rules or make major contributions to the EU budget. But Britain runs a large trade deficit with the EU, principally with Germany and the Netherlands, and is a small fraction of the EU’s export market. The reverse is not the same.

The relationship between Britain and the EU would be filled with uncertainty if Britain decided to leave the union and deprive it of funds. Most of the models Britain would consider are based on the country eventually becoming an EU member. Using them to move in the opposite direction could lead to both sides being unhappy.

If membership in the EU is complex and burdensome, then exit from it could be of an inestimable cost and risk. Of the five options, only the one customized to Britain’s economic heft might be feasible. Complexity is a common thread running through all the possibilities. But this concise review of the options is worthy of further study.