Brexit: What’s Next for Trade?
At the moment, Britain is still a member of the European Union, and therefore its trade arrangements are subject to the terms of the EU’s customs union. However, new Prime Minister Teresa May has appointed Liam Fox MP, a committed Atlanticist, to head up a new Department for International Trade. This department will presumably start to conduct informal trade negotiations with other countries in advance of the UK’s formal exit from the European Union.
One thing that must be at the front of Dr. Fox’s mind is a free trade agreement with the United States. He is not alone. Speaker Paul Ryan told a TV audience shortly after the Brexit vote that the administration “should begin discussions with Great Britain . . . so that we do have a smooth trade relationship with Great Britain, because they are our indispensable ally.” Senator Mike Lee has gone further and introduced a bill – the United Kingdom Trade Continuity Act – to ensure a smooth transition to trading with the UK outside the EU and to instruct the administration to begin trade discussions shortly after the bill becomes law.
What sort of form might a UK-US trade deal take? There is actually largely free trade between the two countries already, at least in terms of tariff barriers. It’s therefore likely that any trade deal between the US and UK would focus on non-tariff barriers – regulation, in other words.
In our roadmap for Britain leaving the EU, Cutting the Gordian Knot, Rory Broomfield and I examine the issue of non-tariff barriers and recommend that the UK seeks to address this problem through a process of mutual recognition of regulatory equivalence. In this system, the two parties would recognize that they have similar regulatory aims and that therefore anything that meets the standard of one party would be recognized as having met the standard of the other.
Not only would this greatly facilitate trade, it would produce a form of regulatory competition whereby superior or more efficient regulatory systems could be discovered. This is in contrast to the EU’s method of regulatory harmonization, which has imposed a one-size-fits-all system of regulation on 28 different nations, allowing little room for experimentation.
Our report also suggests that the UK could examine various forms of multilateral trade partnerships. We look briefly at the idea of expanding NAFTA into a North Atlantic Free Trade Agreement, a potential CANZUK (Canada, Australia, UK, New Zealand) arrangement, and, perhaps most interestingly, a Global Free Trade Alliance that could be started simply by act of the UK Parliament.
Finally, should trade deals prove difficult to arrange owing to any retreat of the world into neo-mercantilism, we suggest that the UK should consider unilateral free trade, something that benefitted the nation greatly in the 19th century. As Professor Patrick Minford of Cardiff University puts it, “the importance of being unimportant” may be the ace up the sleeve of Liam Fox should other approaches fail.
However, with nations as diverse as Australia, Brazil, Canada, China, Ghana, India, Mexico, New Zealand, South Korea, and Switzerland lining up to talk to Dr. Fox, it should be apparent that Britain’s future as a premier trading nation is assured after Brexit.