Download publication

Policy Contribution

What consequences would a post-Brexit China-UK trade deal have for the EU?

A China-UK free trade agreement has been extensively discussed since the UK’s vote for Brexit. Many supporters of Brexit argue that the UK’s regained flexibility to strike trade deals with other partners, and in particular with China given its economic size, will be a key advantage. This analysis indicates that a China-UK FTA will be neither as easy nor as clearly advantageous as portrayed by Brexit supporters.

By: and Date: October 7, 2016 Global Economics & Governance Tags & Topics

Brexit means that the United Kingdom could be able to run its own trade policy, which opens the door for the potential negotiation of a free trade agreement between the UK and China. Alicia Garcia-Herrero and Hianwei Xu show that a UK-China FTA will be neither easy nor clearly advantageous for the UK:

  1. It will be difficult for the UK to reach an agreement with China without first establishing a new post-Brexit partnership with the EU. Negotiating tariffs with other WTO members will be a pre-condition if the UK exits the EU customs union, and this process will require time and effort.
  2. Even if the UK reaches an agreement with China, the UK cannot serve as a back door for Chinese products to enter the EU, because the EU is very likely use rules of origin to close any such loopholes.
  3. The UK and the other EU economies differ in most of their exports to China, so there would be very limited substitution between them.

It therefore seems that establishing a new trade relationship with the EU would be a more urgent task for the UK in the post-Brexit world, rather than an FTA with China. Under such circumstances, the UK might need to postpone its trade negotiations with other economies outside of EU, including China.

This goes beyond the current discussion of the illegality of the UK starting to negotiate trade deals before it leaves the EU. The issue is whether it makes economic sense for the UK to do so, and the answer is no. In fact, the more the UK reaches an independent favourable trade agreement with China after Brexit, the harder it will be for the UK to strike a good deal with EU.

In the meantime, it is also urgent for the UK to negotiate with the main WTO members on tariffs, because outside the EU, the UK might not participate in the EU schedule of concessions. The best strategy for the UK would be to negotiate with the other WTO members with the EU-based tariffs as a starting point, to avoid negotiating over terms separately and also to maintain a close relationship with the EU.

View comments
Read article More on this topic More by this author

Blog Post

André Sapir

Trump’s U-turn on trade with China is good news, but the EU should not be complacent

President Trump has so far been softer on China than his campaign promises predicted. This is welcome. However, the EU has a lot at stake, and should be ready to steer a tactical course between its two main trade partners.

By: André Sapir Topic: Global Economics & Governance Date: April 19, 2017
Read article More on this topic More by this author

Blog Post

Lagarde picture

Building a more resilient and inclusive global economy

Curtain raiser speech ahead of the 2017 IMF Spring Meetings delivered at Bruegel by the Managing Director of the International Monetary Fund.

By: Christine Lagarde Topic: Global Economics & Governance Date: April 12, 2017
Read article Download PDF More on this topic

Policy Contribution

PC 10 2017 cover

Europe’s role in North Africa: development, investment and migration

The authors of this Policy Contribution propose five ways in which EU policymakers can contribute to development in North Africa and build partnerships on trade, investment and migration.

By: Uri Dadush, Maria Demertzis and Guntram B. Wolff Topic: Global Economics & Governance Date: April 8, 2017
Read article More on this topic

External Publication

g20 insights cover

Key policy options for the G20 in 2017 to support an open and inclusive trade and investment system

In the face of exceptional challenges, the G20 should step up its efforts in 2017 to preserve the current global trade and investment system, including effective multilateral dispute settlement procedures, while not losing sight of medium-term reforms. The G20 should focus on (1) supporting the World Trade Organization, (2) being upfront about the mixed effects of trade and investment, (3) improving G20 measures to tackle protectionism and (4) promoting investment facilitation.

By: Sait Akman, Axel Berger, Uri Dadush, Simon Evenett, Lise Johnson, Maximiliano Mendez-Parra, Raul Ochoa and Claudia Schmucker Topic: Global Economics & Governance Date: April 3, 2017
Read article More by this author

Blog Post

OLYMPUS DIGITAL CAMERA

Is China’s innovation strategy a threat?

What’s at stake: A number of recent contributions accuse China of acquiring technology from abroad without respecting international rules. This blog reviews the current debate that focuses on China’s supposed push to modernise its industry and the challenges for advanced economies. By leapfrogging to high-tech manufacturing products, the strategy threatens the competitive advantage of the US and the EU. The international rules-based order is put to a test facing large-scale government support to high-value added sectors and anti-competitive behaviour.

By: Robert Kalcik Topic: Global Economics & Governance, Innovation & Competition Policy Date: April 3, 2017
Read article More on this topic

Blog Post

Zsolt Darvas
DSC_0798
dsc_1000

The UK’s Brexit bill: what are the possible liabilities?

The EU-UK financial settlement will be a complex part of the Brexit negotiations. Here the authors estimate that at end-2018 the EU will have outstanding commitments and liabilities totalling €724bn. Most of these relate to spending after the UK’s likely departure date, but are tied to commitments made during the UK’s EU membership.

By: Zsolt Darvas, Konstantinos Efstathiou and Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: March 30, 2017
Read article More on this topic

Blog Post

Zsolt Darvas
DSC_0798
dsc_1000

Brexit bill negotiators must answer these 12 questions

Is Brexit a divorce, or is the UK leaving a club? This is the first question to answer as negotatiors discuss the key aspects of the EU-UK financial settlement. The authors present various scenarios, and find that the UK could be expected to pay between €25.4 billion and €65.1 billion. But the final cost can only be calculated after extensive political negotiations.

By: Zsolt Darvas, Konstantinos Efstathiou and Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: March 30, 2017
Read article Download PDF More on this topic

Working Paper

WP_2017_03 cover

Divorce settlement or leaving the club? A breakdown of the Brexit bill

To bring transparency to the debate on the Brexit bill and to foster a quick agreement, the authors of this Working Paper make a comprehensive attempt to quantify the various assets and liabilities that might factor in the financial settlement.

By: Zsolt Darvas, Konstantinos Efstathiou and Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: March 30, 2017
Read article More by this author

Blog Post

Giuseppe Porcaro

29 charts that explain Brexit

From financial services to the creative industry, from trade to migration, this selection of charts maps out the troubled waters of Brexit, and provides a compass through blogs and publications Bruegel scholars have written on the topic.

By: Giuseppe Porcaro Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: March 28, 2017
Read article More on this topic More by this author

Opinion

Guntram B. Wolff

Europe should lead the way with multilateralism

Despite the unique partnership with the USA, Europe needs to reflect on its place in an unstable world. Especially if the US Administration moves towards protectionism, the EU will need to build and deepen relationships with other partners.

By: Guntram B. Wolff Topic: Global Economics & Governance Date: March 16, 2017
Read article More by this author

Parliamentary Testimony

House of Lords

Brexit: EU budget

On 25 January 2017 Zsolt Darvas appeared as a witness at the House of Lords Select Committee on the European Union, Financial Affairs Sub-Committee.

By: Zsolt Darvas Topic: European Macroeconomics & Governance, House of Lords, Testimonies Date: March 7, 2017
Read article More on this topic More by this author

Blog Post

photo2016

NAFTA in play: How President Trump could reshape trade in North America

How will the story of NAFTA unfold under the Trump presidency? Uri Dadush examines three possible scenarios and provides an overview of the policy implications for the various trading partners of the United States.

By: Uri Dadush Topic: Global Economics & Governance Date: March 1, 2017
Load more posts