The Legatum Institute has launched a new Special Trade Commission (STC), created in the wake of the British vote to leave the European Union. The STC aims to present a roadmap for the many trade negotiations which the UK will need to undertake at this critical historical juncture.
Speaking at the launch, Shanker Singham, Director of Economic Policy and Prosperity Studies—and Chairman of the Commission—elaborated on his vision for what the UK might look like in a post-Brexit world, emphasising potential opportunities in trade and competition.
However, Singham also acknowledged the risks posed by Brexit, where he used the analogy that to get to the “sunny uplands”, we must be extremely diligent, as “one false move and we could fall off the cliff”.
Following his testimony at the Treasury Select Committee in July 2016, Singham highlighted that the Legatum Institute had already recommended the government introduce a Department for International Trade, and it was pleasing to see this recommendation adopted so promptly in the wake of Brexit.
Singham stressed that while the UK will remain part of the World Trade Organisation (WTO), it will need to renegotiate some specific technical schedules and measures. The conjecture surrounding the negotiation process for this development has been somewhat overblown.
The next process is the negotiation of free trade agreements with other like-minded countries such as Australia, New Zealand and Canada. While there has been success in removing tariffs and external barriers to trade competition, the major issue has been breaking down internal barriers like “anti-competitive market distortions”.
It would be dangerous to adopt a uniform approach to trade negotiations with all nations, as many countries (such as China) firmly oppose economic organisation on the basis of competition on the merits. This makes a trade negotiation with a nation like China dramatically different, and far more dangerous to the UK, than a negotiation with Australia.
Until the negotiations with the EU have concluded, the UK can’t improve its competitiveness through domestic regulatory reform. Barring the implementation of an EEA or EFTA model, there are certain areas of EU economic regulation which will be returned to the UK’s jurisdiction following the negotiation. The vital components of this process will be: harmonise all directives and regulation, improve the UK’s competitiveness and reduce the interventionist influence of EU regulations such as anti-dumping laws. Singham argued that negotiations with the EU and third party countries must be conducted in tandem so that negotiators have maximum latitude for reaching an agreement.
With respect to the EU negotiations, Singham outlined three eventualities that the UK could pursue:
- The first is the European Economic Area (EEA) option, which would be inviable due to the likelihood of increased contributions to the EU budget and inability to negotiate trade agreements with third party countries.
- The second is the European Free Trade Association (EFTA) option. Singham argued that because the EFTA model would require the UK to continue to be a ‘taker’ of EU regulation, it would not be suitable for the purposes of sovereignty or negotiating trade deals. Because the UK export market is comprised overwhelmingly of services, it must be able to negotiate on behalf of those services offerings, which would be impossible under the EFTA model.
- The third option is the UK-EFTA free trade agreement ‘plus’, which would use the Transatlantic Trade and Investment Partnership (TTIP) and Canada-EU Trade Agreement (CETA) as potential models. Enacting this option would likely result in a highly expansive negotiation that would cover areas like competition, standards, technical barriers and other domestic regulations.
Several countries have already begun formalising their own strategy towards Brexit, with the Australian government creating their own department to deal with the issue. Indian government officials have also indicated their desire to negotiate a bi-lateral agreement with the UK.
Singham also briefly discussed the impact of anti-competitive market distortions, specifically in regards to consumer welfare. The impact of price-increasing ACMDs if an “inconvenience” for the wealthy, but “catastrophic” for the poor. Brexit does create an opportunity to do something about this.
About the Special Trade Commission
The Legatum Institute Special Trade Commission (STC) forms part of the Economics of Prosperity programme. It seeks to re-focus the public discussion on Brexit towards a positive conversation about potential opportunities, rather than challenges, while presenting empirical evidence of the dangers of not following an expansive trade negotiating path. The STC and its commissioners will draw upon the talent of experienced former trade negotiators from the US, Canada, Mexico, Australia, New Zealand, and Singapore, among other nations.
- The UK Needs a Special Trade Representative, by Shanker Singham, 7 July 2016, Reaction [View]
- Trading Up: New Ideas for UK Exports, report by Emily Redding, July 2016 [View]