The trade impact of the UK’s exit from the EU Single Market

• Published in: IDEAS Working Paper Series from RePEc no. 1631; pp. 1 - 32
• Main Authors: Arriola, Christine, Benz, Sebastian, Mourougane, Annabelle, van Tongeren, Frank
• Format: Paper
• Language: English
• Published: Paris OECD Publishing 23.11.2020; Organisation for Economic Cooperation and Development (OECD); Federal Reserve Bank of St. Louis
• Series: OECD Economics Department Working Papers
• Subjects: Brexit; Business services; Coronaviruses; Costs; COVID-19; Equilibrium; EU membership; Financial services; Free trade; free-trade agreement; general-equilibrium model; International trade; Referendums; Tariffs; Trade agreements; Trade restrictions; United Kingdom > UK; Ireland
• ISSN: 1815-1973
• DOI: 10.1787/682c2995-en

This paper quantifies the sectoral trade impact in the United Kingdom and in EU countries of the UK’s exit from the Single Market, using the OECD general-equilibrium METRO model. A comprehensive free-trade agreement could lead to a fall by about 6.1% of UK exports and 7.8% of UK imports in the medium term compared to a situation where the United Kingdom would stay in the Single Market. Cost would come essentially from rising technical barriers and sanitary and phytosanitory measures on goods and rising trade costs on services. Rules of origin and border transition costs would have a small effect. Output losses in the European Union (0.4-0.5%) are expected to be less pronounced, but would vary markedly across individual countries. Ireland would experience the largest losses. Losses would also vary across sectors. Accounting for the regulatory impact of ending free movement of people for EU nationals on services trade is expected to bring some additional costs to the services economy. Those losses could be partly compensated by growth-enhancing changes to UK regulations, but only to a limited extent.