The UK has a bright future as a global trading nation outside of the EU

The UK has a bright future as a global trading nation outside of the EU

The UK should embrace its future trade prospects outside of the EU with positivity and enthusiasm as there is every chance that it will prosper once outside the customs union, particularly in the likely event that a full Free Trade Agreement (FTA) with Europe is achieved within the next few years. Even without such an agreement, the UK stands to do very well as a member of the World Trade Organisation (WTO) and will be able to form mutually advantageous trading arrangements with a broad range of countries around the world.

Although it is now clear that FTA negotiations will not proceed in tandem with the Brexit negotiations, a comprehensive FTA with Europe covering goods, services, investment and matters such as intellectual property and e-commerce will most likely be concluded within a few years. Contrary to widespread negative coverage in the press, the average length for finalising an FTA is just over two years. While it might be expected that progress will be somewhat slower when dealing with the EU because of the requirement to have comprehensive trade agreements ratified by its 27 member states, there is every reason to believe that it won’t take as long with the UK. This is because there is already deep regulatory convergence and zero tariffs between the two parties.

Moreover, a UK-EU FTA need not involve either free movement of people or require the jurisdiction of the ECJ. The CETA agreement with Canada contained neither of these. Dispute settlement for a broad range of matters can be dealt with through arbitration panels, which are quite common in international agreements. In fact, the EU is a leading proponent of international arbitration, as evidenced in both CETA and the Vietnamese FTA. If, for political reasons, an FTA with the EU cannot be concluded within a few years, there is a good chance that the parties will be able to operate under some kind of an interim agreement, which could preserve aspects of EU membership for a time, in preparation for either a formal FTA or, if the political will does not materialise, no bespoke trading relationship with the EU.

Far from the nightmarish ‘no deal’ scenario that has been pushed by much of the media, the UK will be able to enjoy Most Favoured Nation status with the EU as a member of the WTO. The UK will be able to re-join the WTO quite easily, simply duplicating its schedule of commitments under the GATT and extracting its commitments for services under GATS. There are some minor issues relating to the UK’s share of tariff rate quotas which should be resolved without difficulty.

The UK will also want to join the Government Procurement Agreement, which it can do by issuing a declaration to that effect to the WTO. As long as the UK preserves the rights of other WTO members vis-à-vis market access, then there is no reason to expect a complaint from any other members. There is every indication that this is exactly what the UK intends to do. In fact, going forward the UK will likely lower its trade barriers towards other WTO members beyond those of the EU. This should result in economic gains across many sectors, including several which had been protected on behalf of suppliers in other EU member states.

In terms of dealing with the EU itself through the WTO, while tariffs will be higher on some goods, there are already reasonably low under the WTO. Economists such as Patrick Minford have suggested that currency depreciation will be enough to negate these disadvantages. Again, contrary to the doom and gloom narrative seen in the mainstream media, there will be no problems with conformity assessment for UK goods entering the EU: since we already have regulatory convergence (and will keep it thanks to the Great Repeal Bill), the EU will not lawfully be able to discriminate against UK goods entering the EU on these grounds. To do so would violate the Technical Barriers to Trade Agreement of the WTO. So there will be no queues of trucks lining up at Dover being denied entry, as many have tried to suggest. Trade in services with the EU under WTO terms will be more problematic given that the EU has made very few commitments under the WTO’s General Agreement on Trade in Services treaty. But the UK should be able to conclude some Mutual Recognition Agreements to enhance existing market access, particularly in financial services. Switzerland already has made these arrangements with the EU, as does the US.

Of course the greatest advantage to the UK post-Brexit will be that it will be free to conclude its own FTAs with third countries. Although formal negotiations cannot happen while the UK is still a member of the EU, nothing prevents the UK from engaging in informal discussions, and many of these will be commencing shortly. The US and many Commonwealth countries have indicated a willingness to proceed with FTAs and the UK will pursue all of these aggressively, maximising the gains from free trade around the world. On services, the Trade in Services Agreement, currently being negotiated by 23 WTO members, should help achieve greater market access for services in the EU and other leading developed nations. Finally, the UK will also undoubtedly take on a leadership position at the WTO as a champion of free trade.