When the British people voted to leave the European Union on June 23rd, 2016, the economic backdrop was not positive.
Measures of actual wealth creation had been down since before the financial crisis. Growth in industrial output has been down for over ten years. The elevated growth of the 1990s in developed countries collapsed with the 2001 recession, and then started to increase once more until 2004 when it started to slow. The Global Financial Crisis significantly worsened what was already a deteriorating situation. This was partly because the global trade agenda had been stalled. The only multilateral agreement since the 1995 launch of the World Trade Organization (“WTO”) itself was the WTO Agreement on Trade Facilitation. This agreement which relates simply to ensuring better customs processes to facilitate trade movements took fifteen years to agree in the WTO. The more difficult discussions on services, investment, competition and the like have been stalled since 1997.
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Twenty years later, it is fitting that the UK, a new chess piece on the trade policy chessboard will emerge. How effective that piece will be, and precisely what moves it can make will determine the economic future not only of the UK but also the rest of the world. There is an opportunity for this unfrozen moment, or inflection point to be used to create a global economic engine as a result of unblocking the trade agenda and dealing better with barriers inside the border which are the modern impediments to trade. Before we can understand what kind of trade policy the UK should have, it is important to understand the nature and structure of the UK economy. Since 80% of the UK’s GDP is accounted for by services, and because much of its exports are services, it is critical that the UK is able to negotiate on those issues that impede services trade. These are the behind the border barriers, regulatory protection and anti-competitive market distortions that particularly thwart services exports.