• The Brexit Inflection Point: The Pathway to Prosperity [PDF]
  • By Shanker Singham, Victoria Hewson & Dr Radomir Tylecote 
  • November 2017
  • Published by the Legatum Institute

 
Executive Summary

Historically, the British system of free trade made Britain, Europe and the world richer. The EU system that has replaced it—of protectionism and harmonised regulation—has constrained economic growth for Britain and the world. There is now a brief opportunity for Britain to restore her freedom to trade, liberalising the global trading system itself

But for the UK to be fully independent in its capacity to trade, it must be fully independent politically. This paper outlines what is needed in an interim period and beyond for the UK to be able to make independent trade deals having left the EU, reflecting the will of the British people expressed in the referendum on 23 June 2016.

We describe what is at stake: how the UK and the world will benefit from trade liberalisation, but conversely how failure to secure the right terms in the interim will leave the UK without the leverage needed to secure the right trade deals, placing it in a permanent rule-taking position, only halfway out of the EU.

The Interim

Britain’s government has stated that it will implement an interim period, to minimise disruption for businesses, that will follow Britain’s formal date of exit from the EU on March 30th 2019.

This paper argues that the nature of this interim arrangement is vital for Britain’s ability to resume its place as an independent trading nation. However, many of the options currently being proposed would prevent this.

First, the interim arrangement must make clear what will replace it; it must be an implementation period towards an established destination. Without this, any potential trading partners will assume we will not be in full control of our trade afterwards. Trade leadership requires demonstrating this. It should also last a maximum of two years

This destination requires control in two areas: we call these customs and regulations.

In the first area, the known end of the interim must be tariff-free trade. The Common External Tariff (CET) can be maintained as a transitional measure so businesses need not prove they meet Rules of Origin during this time; otherwise there should be a zero for-zero tariff agreement, before a Free Trade Agreement (FTA) is agreed by the end of the interim period. This FTA needs to include liberal Rules of Origin (preferred, or if not a waiver of Rules of Origin based on a temporary alignment of the UK tariff to the Common External Tariff), expedited customs arrangements, and commitment to reduce anti-competitive barriers.

In the second area, future regulatory flexibility must be ensured. Any agreement to maintain harmonised regulations within the interim must allow divergence afterwards—without this we will have only partial freedom to negotiate with other countries. This requires a mutual recognition agreement (MRA) or sector-specific MRAs. However, these MRAs need to be in place by the beginning of the interim period, allowing Britain’s government and business to devise new regulations to be implemented freely after this period. It will take early discussion of these areas for the financial settlement to be achieved.

For an FTA to be possible afterwards, the period must also mean no membership of the Customs Union, EEA or EFTA, and freedom to negotiate all future tariff schedules with third countries.

The Immediate Action

This requires action now by the UK government, including:

  • Moving to substantive negotiations as soon as possible—leverage is much higher before exit.
  • Taking the lead in World Trade Organisation (WTO) membership and explaining why the UK and WTO members now share a trade liberalising agenda.
  • Enhancing domestic regulatory bodies to be capable of MRAs with the EU and others.
  • Instructing UK customs agencies to talk to EU member state counterparts and enhance domestic business awareness.
  • Evaluating and expediting US-UK, NAFTA and TPP agreements and accessions.

Taking the right decisions now will allow the UK to embrace the world as an independently trading sovereign state; the wrong decisions in the name of short-term stability will create a worst-of-all-worlds Brexit, rendering the UK a rule-taker, bypassed in trade negotiations. From the low-income consumer who pays unnecessarily high food bills because of tariffs; to the developing world producer whose products these tariffs prevent from entering our market; to the innovative entrepreneur who cannot sell their product because technical standards have been set by incumbents, often abroad: the opportunity to restore our trading independence represents an opportunity to turn poverty into prosperity for all.

About the Special Trade Commission

The Legatum Institute Special Trade Commission (STC) was created in the wake of the British vote to leave the European Union. At this critical historical juncture, the STC aims to present a roadmap for the many trade negotiations which the UK will need to undertake now. It seeks to re-focus the public discussion on Brexit to a positive conversation on opportunities, rather than challenges, while presenting empirical evidence of the dangers of not following an expansive trade negotiating path.

Read the paper here.