A Brexit wish list

The UK prime minister proposes to trigger Article 50 of the Treaty on European Union (EU) by the end of March 2017 to launch the Brexit process. Before doing so, the government needs a clear vision for the way forward in trade policy. Here are seven priorities for the UK.

1. Develop a strategic plan for trade liberalisation. The objective should be to achieve a net gain in UK market access globally within a decade. Negotiating bilateral accords can take years, so a selective, strategic approach is needed, building on the UK’s World Trade Organization (WTO) membership. The UK and its partners face capacity constraints in trade negotiations, so focus is required. That means targeting markets that offer scale, that fit well with Britain’s areas of competitive advantage, and that serve as key suppliers.

2. Sort out the UK’s standing in the WTO, before exiting the EU. On joining the EU, the UK ceded sovereignty to Brussels on trade matters. Through the EU, the UK enjoys ‘most-favoured nation’ status with other WTO members. Yet, key EU authorities insist trade will not be discussed before concluding the Article 50 negotiations. A way forward must be found.

   The UK needs EU cooperation to settle its own WTO membership terms with the 163 other WTO members, before exiting the EU. Otherwise, post-Brexit, the UK could temporarily lose WTO benefits and face arbitrary or discriminatory trade barriers.

3. Agree a preferential trade agreement with the EU. Ideally, the UK needs this prior to exiting to minimise disruption to trade relations with the other 27 EU members – a $13.4 trillion market and the UK’s nearest and largest trading partner. Absent an agreement, the cost to trade could rise significantly.

   The agreement should cover market access for most goods and services, addressing non-tariff barriers, intellectual-property rights and dispute settlement among other areas. Access should match or exceed that of the newly-signed EU trade agreement with Canada.

Even so, the UK would probably face reduced EU market access. To negotiate trade agreements with non-EU partners like the US or China, the UK has to leave the EU customs union. And to restrict immigration, it must probably exit the single market.

4. Early on, settle a free-trade agreement with a friendly, like-minded non-EU partner. Such as Australia, Canada or New Zealand. This experience would prepare UK authorities for negotiations with more difficult partners.

5. Negotiate with top-priority economies as soon as possible after EU exit. Maybe start with Japan, using the anticipated EU-Japan agreement as a basis to shorten the process. The US or China – top-five UK trading partners – might be other priority candidates.

6. Join the Trade in Services Agreement (TISA) negotiations. (Or accede to the agreement, if it is already complete.) TISA covers 70 per cent of the global market, including the EU, US and 16 other partners. The UK’s comparative advantage in services trade could mean significant benefits.

7. Strengthen policies that support adjustment in the UK economy. UK firms must reorient to sell to new export markets and face new import competition. Transport, telecoms or other infrastructure may need upgrading and the workforce may need new skills and adjustment assistance.