Along with money and borders, “control of our trade” was one of the three concrete elements of the “take back control” slogan that won the EU referendum for Leave. As the UK reclaims a fully independent trade policy after 48 years of a customs union with Europe, it must decide how to use it.
The new era has started less than smoothly. Even with unusually low trade volumes thanks to stockpiling, UK businesses from seafood exporters to retail distribution hubs are struggling with new customs bureaucracy, regulatory checks, and rules of origin. That is despite the UK’s trade accord with the EU that maintains zero tariffs and quotas on all goods trade, without which things would be much worse.
Britain has rolled over many of its existing trade preferences with other countries. But as it assumes its trade policy independence, the nature of its EU deal leaves it facing new and unsatisfactory barriers to trade with Europe — roughly half the total — especially in services. EU equities trading emigrated to the continent on day one.
The insurmountable fact of Britain’s trading future, moreover, is that the EU will remain the UK’s biggest and closest market by far. Any sensible trade policy must take that as a starting point. A high priority must be to build on December’s thin deal, and seek over time to reduce the frictions it introduced — through add-on agreements on trade facilitation and market access. New trade deals with other partners must be weighed against a principle of “do no harm” to European trade.
Much can still be achieved with a smart independent trade policy. For conventional trade barriers — tariffs and quotas — the UK should pursue the maximum liberalisation it can reciprocally agree with potential partners. (Companies trading with Europe must now comply with rules of origin in any case, so there is no further trade-off there.) But these gains are limited: tariffs and quotas are not the big barriers to trade they once were, except in a few sectors such as agriculture and the carmaking supply chain.
With non-tariff barriers, priorities must be more carefully chosen. The UK will be free to accept other countries’ regulatory standards as good enough. But the more goods falling foul of EU standards are circulated, let alone produced, in the UK market, the greater the burden of border checks the EU can be expected to impose. Lowering non-tariff barriers to new trading partners may amount to raising them with Europe — and between Northern Ireland and Great Britain. And the December deal introduced a powerful mechanism for Brussels to withdraw trade privileges should British deregulation undercut EU businesses.
On services, the right choice will often be to hew closely enough to EU rules to secure “equivalence” judgments and gain market access. But not always. In particular, there is global appetite for a more liberal approach to digital trade than the EU’s. The UK is well placed to develop data trade models with Japan, New Zealand and other partners. But caution is needed: diverge too much and commercial data flows with the EU will suffer, once a six-month grace period expires.
The UK public may also not support trade deals that require deregulation or let trading partners undercut environmental or social standards. An essential element of a successful policy must be better domestic consultation so a national consensus can be built. A new trade agenda will produce winners and losers. Stakeholders and the public will only accept the consequences if their views on UK interests are taken into account. The post-Brexit trade agenda should be ambitious — but not rushed.