After Brexit: Alternate forms of Brexit and their implications for the United Kingdom, the European Union and the United States.

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Publication Date December 2017
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Further information

Researchers at the nonprofit, nonpartisan RAND and its European affiliate RAND Europe built an economic model to measure the percentage and monetary changes in GDP growth, GDP per capita, trade and foreign direct investment for the UK, EU and US across the eight trade scenarios. A new calculator on the RAND website allows anyone to explore likely post-Brexit impacts under their own assumptions.

The WTO outcome would likely move the UK further from EU standards and over time significantly increase non-tariff barriers, harming the ability of UK businesses to sell goods and services to EU countries. The services sector, which includes financial and banking, was particularly important as it dominated the UK economy, contributing to around 80% of GDP.

The EU would also lose out under the WTO scenario, but the effect is relatively minor — a 0.7% drop in GDP 10 years after Brexit.

Of the scenarios analysed, the most beneficial to the UK economy would be a trilateral UK-EU-US agreement, a TTIP-like agreement under which UK GDP would be 2.2% higher—or 7.1% points better than under the WTO rules scenario. This was even slightly better than continued EU membership. The EU and US were also forecast to make significant economic gains under this trade scenario. However, a TTIP-like arrangement was seen as very unlikely in the current political environment on both sides of the Atlantic.

Other trade scenarios could be better for the UK than WTO rules but still lead to economic losses compared with EU membership. These include 'hard Brexit' scenarios, such as a UK-EU free trade agreement (net UK GDP decline of 1.9% 10 years after Brexit), UK-US free trade agreement (2.5% decline) or UK-EU transitional zero-tariff agreement (2.1% decline), and 'soft Brexit' scenarios, such as the Norway option (1.7% decline), Switzerland option (2.4% decline) or remaining part of the Customs Union (1.8% decline).

'The analysis clearly shows that the UK will be economically worse-off outside of the EU under most trade scenarios. The key question for the UK is how much worse-off,' said Charles Ries, Vice President, International at RAND and lead author of the report. 'It is in the best interests of the UK, and to a lesser extent the EU, to achieve some sort of open trading and investment relationship post-Brexit.'

The study used game theory insights to create a better understanding of how a wide variety of factors might affect the outcome of the Brexit negotiations between the UK and EU. Based on these insights, the report recommends that the UK seek to move away from a 'zero-sum game' and towards a 'positive sum game' as negotiations proceed, to ensure the best possible deal for all parties. A UK strategy of trying to pick apart European unity would be unlikely to work since it is in the best interests of all EU member states to work together.

The EU was likely to engage with the UK during Brexit negotiations, but may see benefit in adopting a 'zero sum game' approach. Europe's top political priority was to discourage other member states from withdrawing.

The study determined that after Brexit the political and security effects were likely to be more important to the US than the economic impact. The potential economic gains and losses for the US after Brexit were relatively small, apart from the TTIP-like arrangement which would result in substantial economic gains for the US.A study from the US think tank The RAND Corporation published in November 2017 projected that the United Kingdom economy was likely to suffer under the most probable post-Brexit trade scenarios.

Leaving the EU with no deal and operating under World Trade Organisation (WTO) rules would lead to the greatest economic loss for the UK, reducing GDP by nearly 5%, or $140 billion, 10 years after Brexit, compared with EU membership.

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Related Link(s)
Blog: Open Europe, 12.12.17: Rand suggests little difference between a CETA and EEA model for the British economy
ESO: In Focus: Brexit - The United Kingdom and the European Union
ESO: Find further information in ESO on After Brexit and Future Trading Relationship
EurActiv, 12.12.17: Study: UK economy likely to suffer post-Brexit
Rand Corporation: Press Release, 12.12.17: UK Likely to Be Economically Worse-Off Outside the EU Under Most Plausible Trade Scenarios
BBC News, 12.12.17: Fears grow across the Atlantic over Brexit fallout
The Guardian, 12.12.17: No-deal Brexit will cost everyone in UK £1,585, says US thinktank

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