Theresa May’s new Brexit team is being remarkably coy about explaining the differences for UK business of the alternative templates for trade we might adopt once we leave the EU. The three principal options are striking a deal that keeps us essentially part of the single market, as Norway and Iceland are; a relationship like the one that Canada negotiated with the EU, which covers free trade in goods but not services; or simply falling back on our WTO membership.
Brexiteers like to take cover in slippery phrases like “access to the EU’s market”, which could apply to any of these three options. And yet they are as different as chalk and cheese. The previous government’s April 2016 White Paper estimated that the three alternatives would reduce the UK’s GDP, compared with the baseline case of remaining in the EU, by 3.8%, 6.2% and 7.5% respectively after 15 years. These are substantial shortfalls which cannot just be wished away or glossed over.
So here are eight questions the government should be prepared to answer ahead of any decision about our aim in the exit negotiations:
1. Does the government accept that neither the free trade nor the WTO option would be likely to cover the 80% of our economy which is made up of services (or very little of that sector, as is the case for Canada)?
2. The average level of the EU’s Common External Tariff, which would apply to the UK if the WTO option were chosen, is quite low. But does the government recognise that the average is of no relevance to individual manufacturers, who need to know the tariffs applicable to their specific products? If so, what sectoral analyses has the government conducted?
3. Does the government take account of the near-certainty that the free trade option would not cover agricultural and fisheries products, both growing UK exports?
4. Does the government accept that the free trade option might not reduce tariffs to zero (as EU membership and the single market options do)?
5. Does the government accept that the free trade option will likely require exporters from the UK to go through complex, costly and time-consuming rules of origin tests to ensure that third-country goods or parts are not transiting through the UK to avoid paying the EU’s Common External Tariff?
6. Does the government recognise that single market membership has exempted our exports not just from tariffs but also from border, behind-the-border and regulatory formalities which would apply again when we are a third country?
7. Has the government made any assessment of the extent to which complex cross-border supply chains, which are integral to modern manufacturing, would be disrupted by the re-introduction of customs checks and tariffs in the free trade and WTO options?
8. Can the government explain why so many US, Japanese, Swiss and other third-country manufacturers and banks chose to establish and invest in the UK unless it was to avoid paying the EU’s tariffs and submitting to its customs and regulatory controls?
Do the answers to all these questions matter? You bet they do. They will determine whether investors, either from outside the EU or from within it, consider it worthwhile investing in the UK as they have done on such a massive scale while we have been a member of the EU.
Edited by Alan Wheatley
Whilst your points/questions are relevant to our future trading relationship with the EU they are irrelevant to the current government’s position.
We are where we are as a result of a referendum which voted to leave the EU.
The government is negotiating the terms of our exit and future relationship in the near certainty that the terms will be worse than those we currently enjoy and in the case of services possibly non-existent.
We are in this position because 17m voted to leave and this is one of the consequences.