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12 March 2017

Open Britain: Trading relationships between the EU and G20 nations


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This research shows that no other G20 nation trades with the European Union entirely under World Trade Organisation rules. All have some preferential trading relationships in place, even if these fall short of a comprehensive Free Trade Agreement (FTA).


There is more than one type of trade ‘deal’. Even if countries do not have full FTAs, they can have weaker agreements, such as Mutual Recognition Agreements (bilateral agreements that aim to benefit industry by providing easier access), or Equivalence Agreements (for example, in financial services, where regulations allow for third countries outside the EU to be granted ‘equivalence’ and therefore market access). 

House of Commons Library research now shows that the EU does not trade with any member of the G20 without some sort of preferential trade arrangement in place, many of which are below the market access granted in an FTA. 

Despite having preferential agreements in place many of these countries still face significant barriers to trade, for example the US (see below). Many of these countries are therefore seeking formal FTAs with the EU in order to have superior access than they currently enjoy for example, of Australia or Japan. 

This shows how wrong the Brexiteers are when they say that if the UK leaves the EU without a deal we would trade on the same terms as other major trading nations. They are wrong. The EU does not trade with any member of the G20 without some sort of preferential trade arrangement in place. If the UK were to leave the EU without a deal in place at all we would be in an extreme position that no other major trading nation has voluntarily adopted.

This underlines the extreme risk of leaving the single market for no deal at all: whereas the UK may cut all trade ties completely, other major nations who have better trade terms than those we care considering adopting are seeking to negotiate even closer trade ties with the EU. 

The economic consequences of such a move would be deeply damaging. The Treasury has suggested it would reduce GDP by 7.5 per cent after 15 years and would shrink tax receipts by £45bn per year. The National Institute for Economic and Social Research has shown that under the WTO model real wages would be projected to fall, by between 4.6 per cent and 6.3 per cent. NIESR has also shown that all principal independent, expert economic studies have shown that the WTO scenario has the gravest consequences for trade, FDI and GDP. In short, the relationship that gives the UK the furthest distance from the single market does the most damage. 

Types of Agreement

The EU has, broadly, three types of agreement with trading partners that fall short of a full Free Trade Agreement. These are:

1.     Mutual Recognition Agreements

Mutual Recognition Agreements (MRAs) are bilateral agreements and aim to benefit industry by providing easier access to conformity assessment (e.g. testing or certification). They lay down the conditions under which one party will accept conformity assessment results performed by the another party's designated conformity assessment bodies to show compliance with the first party's requirements and vice-versa.[4]  The purpose of a MRA is to facilitate mutual market access by eliminating duplicative testing and certification or inspection.[5] These often cover specific sectors, which vary from agreement to agreement.  The EU-Australia Mutual Recognition Agreement for example covers automotive products, EMC (Electro-Magnetic Compatibility), Low Voltage Equipment, Machinery, Medical Devices, Pressure Equipment, TTE (Telecommunications Terminal Equipment), and GMP (Good Manufacturing Practice – this applies to medicinal products).[6]

2.     Financial Services Equivalence Agreements

As Open Europe explain, EU financial services equivalence agreements are available to third countries in certain areas, but tend to be narrow in scope:

“Certain EU financial regulations allow for third countries outside the EU to be granted ‘equivalence’, and consequently gain access to some of the advantages of membership of the Single Market. In some cases, gaining ‘equivalence’ can provide passport-like rights for firms based in the third-party country. A country can be granted equivalence if the Commission recognises that the legal, regulatory and/or supervisory regime of a third country is equivalent to the corresponding EU framework. Equivalence is not granted to individual firms but to countries. Crucially, it applies regulation by regulation.” [...]

Full research



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