The Treasury must not send global trade to the back of the queue

The Treasury must not send global trade to the back of the queue

The Government has published two new Brexit white papers – a customs paper from the Treasury and a trade paper from the Department of International Trade. They set out the framework for the UK to operate its own independent trade and customs policies after it leaves the EU, in preparation for two Bills which will be brought before Parliament in the coming months to enact the changes in UK law.

They are also significant as the first Government documents to talk directly about the need to plan for a ‘no deal’ outcome to the negotiations, or “contingency scenario” as the papers call it. At present, these plans amount to little more than rudimentary logistical preparations the UK will need to take in any case upon leaving the Customs Union. A vast amount more work will be required to ensure that the UK is ready for this scenario should it arise, but it is positive to see the Government putting pen to paper to acknowledge that such an outcome is within the realms of possibility and requires proper consideration. While both sides continue to be clear that reaching a negotiated settlement is their preferred option, the EU’s continued stalling in the face of significant concessions from the UK underlines the fact that failing to start serious plans for this outcome now would be a highly risky and irresponsible course of action to take.

There is plenty to welcome in both papers. The key legal structures for the UK regaining its own independent trade policy are all there. Much of the trade paper is devoted to making the broad case for how free trade widely boosts prosperity and improves living standards, both in the UK and around the world, while recognising the need to ameliorate any negative effects from trade – which tend to be more localised and concentrated. Proponents of free trade should not underestimate the importance of consistently restating the general case for free trade to the public, as well as engaging in the nitty-gritty of trade policy detail.

The customs paper explores aspects of the ‘highly streamlined customs arrangement’ – the only realistic option of the Government’s two proposals for the UK-EU customs relationship after Brexit – outlining a range of technological and other solutions to minimise the logistical challenges arising around the new customs border. Pre-arrival notification, mutual recognition schemes of authorised traders and waivers are discussed alongside measures the UK can implement unilaterally, including self-assessment for traders and automation of data, as part of a range of measures to keep direct physical checks at the borders to a minimum.

More contentious is the confirmation in the trade paper of what Theresa May said in the House of Commons on Monday, that new trade deals could be negotiated but not implemented during a transition period:

“The UK would intend to pursue new trade negotiations with others during the implementation period, having left the EU, though it would not bring into effect any new arrangements that were not consistent with the terms of its agreement on an implementation period with the EU.”

This has not gone down well with some Brexit supporters, but it has been inevitable since May announced her intention to seek essentially a ‘standstill’ transition period on the single market and Customs Union in the Florence Speech. If the UK accepts, as proposed in the Treasury’s customs paper: “a new time-limited customs union between the UK and the EU Customs Union… based on a shared external tariff”, then this automatically rules out the UK implementing any trade deals which involve modifying tariffs, as the UK will not be in control of them.

Trade experts, including Shanker Singham of the Legatum Institute, have also raised concerns that this delay will significantly hamper the UK’s efforts to seize this unique opportunity to become a leader in global trade, with the world looking on to see what the UK will do at the moment of its emergence from the European Union. But ultimately, it is the end state – after any transition is over – which Leave supporters should be paying the most careful attention to.

While these papers do set out the foundations that are necessary for the UK to have an independent trade policy once again, the fact that these legal frameworks exist is not sufficient in itself to automatically give Britain back full control over its global trade policy. Both papers are ambitious in setting out the potential for free trade after Brexit, but there is the recurring caveat that, while the UK would like to be able to negotiate new trade agreements, it will only make these deals if they are consistent with the terms of any agreement it signs with the EU.

This key constraint leaves the UK in limbo anywhere on the spectrum between a fully independent trade policy – as voted for in the referendum – or one so heavily constrained by a future deal with the EU as to be independent in name alone. The more tightly the UK is bound to the EU’s body of rules and regulations, the less freedom it will have to sign trade deals to suit the UK’s own interests.

This is a question which the Government will have to provide clarity on sooner or later. However, parts of this customs paper will not have helped to alleviate concerns among Leave supporters that there are elements within the Treasury which are still intent on watering Brexit down to homeopathic levels in any areas they can. If anything, it reinforces them.

Paragraph 2.5 of the Treasury paper, ensconced in a lengthy section on the Customs Union that would not have looked wholly out of place in a Remain campaign press release, makes it clear that the UK’s independent trade policy will only be as “independent” as the deal with the EU allows:

“The government is exploring options for both the future relationship with Europe and trade with the rest of the world. The UK’s approach to future customs arrangements with the EU will be a critical building block of its independent trade policy.”

Rather than being a central part of the UK’s outward-looking and globally-minded approach after Brexit, international trade deals are at risk of being sent to the back of the queue.

If the UK and the EU agree to continue cooperating closely and maintaining a high degree of free trade but as independent partners with full legal autonomy, this should not place major obstacles in the way of the UK pursuing new free trade agreements around the world.

If, however, the UK ends up in an EEA-lite agreement which traps the UK in some form of shadow membership, mirroring EU rules and regulations in an attempt to preserve the status quo to the maximum degree possible, this would severely curtail the UK’s ability to conduct trade on its own terms and render talk of a new “independent trade policy” largely meaningless.

The problem with the ‘no deal’ plans set out by the Treasury in the customs paper is that the “contingency scenario” they describe sounds less like a ‘no deal’ Brexit than it simply sounds like… Brexit. For instance, the remarkable line that:

“In a contingency scenario where an interim period cannot be agreed, customs declarations would be required for UK-EU trade once the UK leaves the EU.”

seems almost to wilfully ignore the fact that customs controls of some form, however smooth and streamlined, will be required whether there is a deal or not, not just in the ‘no deal’ contingency scenario. This is a simple fact of Brexit.

Alternatively, the implication is that customs controls somehow won’t be needed as long as the UK can secure an interim period. This will do little to quell Brexiteer fears that a transition is being used to engineer a ‘Hotel California’ Brexit, where the transitional state, including association with the Customs Union, seamlessly morphs into a permanent arrangement from which the UK never leaves.

Most of the rest of the contingency measures outlined at this stage are essentially limited to the parts of the ‘streamlined customs arrangement’ plans which can be implemented unilaterally – that is, they are measures which are going to have to be implemented anyway if Britain does secure a comprehensive deal. This makes the report in The Times today that the Chancellor is unwilling to sanction spending on making these preparations now all the more perplexing.

New customs systems and land for lorry parks in Kent are not “emergency measures”, they are basic logistical necessities that are the very minimum of what will be required to ensure a new streamlined customs regime after Brexit – even with a good deal with the EU. If the Brexit talks do break down for whatever reason, frantically announcing these measures in next year’s budget, a mere four months before exit day, will be far too late.

It is crucial now that all Government departments start pulling together in the same direction on Brexit. A specially appointed ‘Secretary of State for No Deal Preparations’, as has been suggested recently, could help to bring about the cross-government coordination and proactivity required.

Hoping that a never-ending transition period will allow these issues to be kicked into the long grass indefinitely is neither realistic nor responsible. Failing to put serious resources into preparations now is either planning for a messy Brexit, or planning for no Brexit at all. There is a democratic duty to deliver.

Meanwhile, clarification that the Government will prioritise global trade in its own right, not treat it as something to be locked in or traded away in the course of any negotiations with the EU, will ensure that the UK does regain a fully independent trade policy once again and is able to maximise the opportunities that brings.