Risk & Economy » Brexit » Business would face ‘non-tariff’ barriers outside of EU single market

THE costs of membership with the European Union single market are negligible compared with the potential loss of trade, a new report from the Institute of Fiscal Studies said on Wednesday.

The IFS report argues that access to the single market is entirely different to membership because any country in the world can have access to the EU as an export destination. But membership ensures the “elimination of barriers to trade in a way that no existing trade deal, customs union or free trade area achieves”.

The report said that although leaving the EU will free the UK from paying the £8bn budgetary contribution, the loss of trade could depress tax receipts by a larger amount.

Non-tariff barriers

Without membership British companies wishing to access EU markets would face “non-tariff” barriers like licensing and other regulatory constraints to supplying goods and services. The report says these sorts of barriers have become “relatively more important” to trade than tariffs such as taxes on trade – in particular for  the services sector, which is the UK’s largest sector.

UK service exports are important because they account for 44% of exports in 2015. The UK runs a trade surplus in services and the EU is the UK’s largest service export destination, accounting for 40% of service exports. Collectively, Brazil, Russia, India and China account for less than 5% for UK service exports.

“Even if UK exports to China grow in line with strong Chinese economic growth through to 2030, export levels are unlikely to reach anywhere near current levels with the US or EU,” the report said

For financial services firms EU membership is critical. Passporting rights allow UK financial services institutions to service EU businesses and customers directly. But to retain these rights it is likely the UK will have to become a membership of the European Economic Area, which would involve paying into the EU and accepting the four freedoms – of goods, persons, services and capital – but without having any influence over the design and application of EU rules and regulations.

Overall, the IFS report calculates that membership to the single market could be worth 4% on GDP relative to reliance on World Trade Organisation terms.

The UK voted to leave the EU on 23 June, although the government has not yet begun the formal process of leaving yet.

“From an economic point of view we still face some very big choices indeed in terms of our future relationship with the EU. 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”, Ian Mitchell, IFS research associate and a report author, said.

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