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Abstract

This article takes a closer look into the pending question of how the UK might be affected by losing preferential access to Third Countries in the wake of Brexit. Although, as the formal date of divorce comes closer possibilities of losing these beneficial trade terms are not very present in the public debate. This is puzzling since as an EU member the UK has 40 trade agreements with over 70 non-European countries, covering about 15 % of its trade but legally those contracts are only valid for EU members and leaving the EU while retaining the status quo enshrined in the trade agreements would contradict with the MFN principle. Simulations of a ‘hard’ and a ‘soft’ Brexit scenario with a CGE model reveal that the additional loss in GDP is due to these changing trade relations with Third Countries are in the range of 2.5 % and 7.8% % of the total loss. Since most of the loss is associated with a changing trade environment with EFTA and Turkey the UK - if it aims to continue these deals - should focus its negotiation resources on these regions first. On the other hand the EU losses of a Brexit would be lower if the UK and Third Countries impose new tariffs on their trade flows since this would redirect trade flows toward the EU.

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