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Expert View

Brexit dream of independent trade is no prize at all

by David Hannay | 13.09.2018

David Hannay is a member of the House of Lords and former UK ambassador to the EU and UN.

The Institute for Economic Affairs, a pro-Brexit think tank, recently described an independent trade policy for the UK as “the only prize remaining from Brexit”. But is it a prize? And is the game really worth the candle? No one listening to the House of Lords debate on the government’s Trade Bill earlier this week could be encouraged to think that the answer to either of those questions is positive.

First, nearly half of our overseas trade is with the other 27 EU countries. The prime minister herself admitted some time ago that, even under the Chequers proposal, trade would not be as frictionless and free of barriers and bureaucracy as it is now, or even as it would have been if she had not ruled out staying in a customs union and the single market. And that Chequers proposal is probably not going to fly anyway.

So you start off straight away with an unquantifiable minus on the ledger which would need to be compensated by an increase in our trade outside the EU before any talk of a prize would be in order.

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Then there is our trade with a large range of countries around the world, which already have trade liberalisation agreements of one kind or another with the EU, and are thus available to us if we are in a customs union or stay in the EU. Such countries include Japan, South Korea, Turkey, Mexico, Colombia, Chile, several nations in Africa, the Caribbean and the Pacific, as well as countries around the Mediterranean and in the Caucasus. Additional free trade agreements with the countries of the Mercosur bloc in Latin America and with Australia and New Zealand are under negotiation. Our government is currently scrambling to negotiate roll-over arrangements with all these countries so that we do not lose out on our access to their markets in March 2019. So we find ourselves running just to stand still; no prize there either.

The US, China, India and Brazil fall under none of these categories, it is true. But does anyone seriously believe that a trade agreement with the US will be a free lunch? With a narrowly transactional US president at the helm, far more likely that we would be asked to pay dearly in concessions – on food standards, on access to health care – to get a deal. Ask the Mexicans or the Canadians about that as they are forced to re-negotiate NAFTA.

And while China does do free trade deals, the one with Switzerland phases out Swiss tariffs immediately and Chinese tariffs rather slowly. India and Brazil are both likely to ask for concessions on our visa policy for their students, researchers and businessmen. And Australia and New Zealand will seek concessions on beef and lamb which will hurt our farmers, already at risk of losing their valuable continental European markets.

With the multilateral world trade system, embodied in the WTO, under daily assault from US unilateral protectionist measures, this is, in any case, hardly a brilliant moment to be launching our fragile barque of an independent trade policy, committed to liberalising world trade. Even if the WTO survives, as we must hope it will and do our best to ensure that it does, we will hardly be a heavy hitter in its councils. When last we were going it alone, in the 1960s, we were not. Then deals were cut between the US, Japan and the European Communities. In future it will be between the US, China, Japan, the EU and India.

So the case for putting our eggs in the basket of an independent trade policy does not stack up. Staying in a customs union looks like a far better bet. But the real prize is staying in the EU full stop.

Edited by Luke Lythgoe

Tags: , , Categories: Economy

One Response to “Brexit dream of independent trade is no prize at all”

  • I never seem to hear about the difficulties of having a container filled with lots of different products. This can be from one company, who sell a variety of products to one overseas customer or smaller companies filling only part of a container and sharing it with another small company selling different products (LCL) ie less than a container load. The majority Small/Medium UK manufacturers or suppliers do this. Each item has a different Tariff code and a different rate of duty. Currently there is no duty paid if exporting to other EU countries or many other countries with agreements with the EU. However can you imagine the time it will take for a customs clearance on a container with 30 or 40 different product lines in it post Brexit? – The thought that it is only a small duty to be paid is irrelevant and also not necessary true. The big money is the cost of the hold ups.