As the post-Brexit vote hangover sets in—the British pound hit a fresh 31-year low Monday—many are asking what the future of the United Kingdom’s relationship with the European Union might look like. There’s no question the two sides are important trading partners, with the EU accounting for a full 44 per cent of the U.K.’s exports and 53 per cent of its imports. But hammering out a new deal will be far from easy.
For one thing, access to the EU’s single market usually means submitting to EU directives and regulations. And the greater the access, the more autonomy that must be ceded—presumably including on immigration and freedom of movement, which polls suggested were key motivating factors among British “Leave” voters.
With that in mind, here are four models being touted for a post-Brexit relationship, each with pros and cons:
The Norway Model
What is it? Norway is currently a member of the European Economic Area, or EEA, but is not one of the EU’s 28—soon to be 27— members.
Advantages: Norway enjoys near full access to the EU’s single market, but retains the ability to negotiate trade deals independently with other countries.
Downsides: Norway is still required to implement single-market policies and pay into the EU’s budget. However, it doesn’t get any say in how EU rules are forged. In other words, it’s arguably a worse deal than the U.K. currently has with the EU.
Notable quote: “We are having special debates about arrangements on some issues, but basically we have left part of our democracy to Europe.” — Erna Solberg, Norway’s Prime Minister
The Swiss Model
What is it? Neither a member of the EU or the EEA, Switzerland negotiated a series of bilateral agreements with the single market that govern everything from air traffic to insurance.
Advantages: Switzerland enjoys substantial access to the EU’s single market and retains the ability to negotiate trade deals independently with other countries. Switzerland can also pick and choose which EU programs it wants to be involved with.
Downsides: It’s a cumbersome relationship. Switzerland is party to some 120 bilateral agreements with the EU. But it still doesn’t have full access to the single market—particularly when it comes to offering financial services, which is a key industry for the Swiss and even more important one for the U.K., given London’s status as a global financial hub. At the same time, Switzerland is still forced to implement many EU polices, including allowing free movement of people, and must pay into the EU budget without representation. It’s also possible the whole relationship might unravel after the Swiss voted two years ago in a referendum to restrict immigration, drawing immediate EU retaliation. Finally, it’s not clear the EU would want to pursue another Swiss-style agreement given the headaches involved.
Notable quote: “It would require the country to abide by the rules of a club from which it currently wants to withdraw.” — Wolfgang Schauble, Germany’s finance minister
The Canadian model
What is it? Canada and the EU have inked the Canada and European Union Comprehensive Economic and Trade Agreement, or CETA, which Ottawa describes as “Canada’s most ambitious trade initiative, broader in scope and deeper in ambition than the historic North American Free Trade Agreement.”
Advantages: The deal gives Canada significant access to the EU market by removing tariffs on the vast majority of products, but without subjecting itself to all the rules that Norway and Switzerland face. Canada is also free to pursue trade deals with other countries.
Downsides: It took seven years to negotiate CETA, which still hasn’t been ratified. Plus, the deal isn’t comprehensive: it doesn’t include chicken and eggs, for example, thanks to Canada’s supply management regimes. When it comes to financial services, a deal modeled on CETA wouldn’t give the U.K. the same access to the EU market that it currently enjoys.
Notable quote: “I think we can strike a deal as the Canadians have done based on trade and getting rid of tariffs. It’s a very, very bright future I see.”— Boris Johnson, former mayor of London and “Leave” campaigner
The WTO model
What is it? In the absence of a specific trade deal with the EU, the U.K. could simply follow the World Trade Organization’s framework. Under WTO rules, member nations must grant all WTO members “most favoured nation” status, including charging the same tariffs.
Advantages? The U.K. wouldn’t have to contribute to the EU budget or be bound by its policies and regulations. It could also freely negotiate trade deals with other countries. Some economists who campaigned for Brexit have even suggested the U.K. could unilaterally impose a free trade policy by ditching all of its tariffs in a bid to bring down the cost of imports and create a more dynamic economy.
Disadvantages? The cost of doing business would almost certainly rise for U.K. exporters since they would be subject to the tariffs the EU charges to the rest of the world, as well as any non-tariff barriers approved by the WTO.
Notable quote: “My experience has been that I haven’t seen a true free trader on this real earth yet. Everybody somewhere has some degree of protection or limitation in one sector or another.” — Roberto Azevedo, the WTO’s director general
Sources: London School of Economics, BBC