Brexit: trading uncertainties for third countries: What Brexit means for trade relations between third countries, the UK and the EU.

• Author: Bilal, San
• Position: SPECIAL REPORT

The simple answer to how the United Kingdom of Great Britain and Northern Ireland's proposed withdrawal from the European Union (EU) will affect trade is increasing uncertainty. As we know, markets do not like uncertainty, nor do policymakers. All European Union (EU) trade partners are on the alert. However, specific consideration is needed for developing countries. Brexit could significantly impact their economic development through its impact on their trade relations.

Until 29 March 2019, the United Kingdom of Great Britain and Northern Ireland continues to be an EU member and thus current EU trade and regulatory regimes apply. However, economic operators and traders have started adjusting their activities in anticipation of Brexit, so trade and investment flows have already been partly affected.

The United Kingdom and EU negotiators have concluded a transition withdrawal agreement covering the period from 30 March 2019 until the end of 2020, according to which the UK will remain in the custom union with the EU, but not the EU Single Market, except for Northern Ireland (the backstop plan). The transition period can be extended to a maximum of two years, i.e. until the end of 2022. This means trade relations between third parties and the UK should continue to be determined by the EU's various trade regimes: its bilateral free trade agreements (FTAs), unilateral trade preferences (GSP, GSP+ and EBA) and most favoured nation (MFN) tariffs at the World Trade Organization (WTO).

However, some trade partners might object to this arrangement, arguing that EU FTAs and WTO obligations apply only to EU member states, which the UK would no longer be as of 30 March 2019. The UK would not be able to adopt alternative trade regimes with these third countries as long as it remains in the EU customs union, which is the case during the transition period. The point is that third countries do not have to accept the transition agreement between the UK and EU as a fait accompli, at least with respect to trade.

Should the UK Parliament fail to ratify such an agreement, it will generate huge uncertainty: there will probably be a hard -no-deal-Brexit; or the UK could still opt to abandon Brexit and remain in the EU. In terms of trade, a no-deal Brexit means the UK will be out of the EU customs union and out of the single market, will have no trade agreement in place with the EU 27 and will have to establish its own trade regimes with third countries.

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