Possible scenarios for a future trade agreement with the UK and the economic effects for Denmark

On June 23 2016, the UK held a referendum where the majority voted to leave the EU’s Single Market. On 29 March 2017, the UK government formally initiated the withdrawal process, which according to article 50 in the Lisbon Treaty will take two years.

The UK is an important market for Danish goods and services with exports reaching 73 mia. DKK in 2015. Danish firms and consumers benefit from UK imports worth 64 mia. DKK. The new trade relationship between the EU and the UK after Brexit will have severe consequences for the Danish economy.

The study analyses three scenarios for a future EU-UK trade agreement: An EEA-like agreement, a free trade agreement and a WTO scenario (no agreement). All scenarios show a negative impact on Denmark, with smallest negative impact in the EEA-like scenario and largest negative impact in the WTO scenario.

The main conclusions of the study are:

• Tariffs, border procedures, regulatory divergence and new barriers to trade in services after Brexit will increase trade costs between the EU and UK by 8-29% in the long term
• Increased trade costs will cause Denmark’s exports to the UK to drop by 10-35% and total Danish exports to drop by 0.6-2.6%
• Brexit will permanently lower Denmark’s GDP by 0.2-1.2% depending on the outcome of the EU-UK negotiations 

The study focuses on the future trade arrangement with the UK and relies on model-simulations with a large scale global model (so-called CGE-model). The study does not provide specific assessments on taxation, state aid regulation, agriculture subsidies, public procurement, IPR, labour migration and fishing rights.

The study is commissioned by the Ministry of Foreign Affairs of Denmark