Free trade
Six steps to bring prosperity to all
Free trade and competitive markets have been the biggest force for poverty reduction since the Second World War. The UK must ensure that as it leaves the EU and re-engages with the world, it does so in such a way that allows free trade to benefit the British people, as well as peoples from other parts of the globe. The Government’s recently released customs paper seeks to ensure that free trade works for the British people by recommending an approach to customs arrangements between the UK and EU, while also allowing us to deepen our trade relationships with the rest of the world.
At the Legatum Institute, we made a series of recommendations in our earlier paper, Brexit and the Supply Chain. While there has been much focus on arrangements immediately after we exit the EU, the most important thing right now is that we stop negotiating with ourselves and engage with our European partners on the ultimate free-trade agreement with the EU. It is only once we start to engage that we will find common positions, and be able to put into practice shared solutions to real, commercial problems. I am convinced that as we embark on this process with our European colleagues, there is no reason we cannot advance quite quickly to the deep, comprehensive free-trade agreement that all our businesses need. As we do so, we must be mindful of preserving our ability to inter-operate with the rest of the world, and pursue highly liberalising agreements bilaterally, with large groups of countries and in the World Trade Organisation.
The Government’s paper highlights some of the things that we should do, and some of things we need to avoid in order to be able to execute an independent trade policy. In our view, we should avoid joining or creating a customs union (with the EU or otherwise). Even being in a partial customs union, such as the one that Turkey has, would mean the UK would have to take the burdens of EU negotiation and then have to negotiate for itself the things it needs. The language we use must be clear enough that trading partners understand the UK will be ready to sign a trade deal immediately on departure from the EU. It is vital we are not hobbled as we leave the EU, and unable to properly execute trade and domestic regulatory policy.
We should affirmatively seek to do the following in order to advance quickly to the ultimate end-state:
One, agree with the EU that tariffs and quotas will not apply to goods traded between the UK and the EU. This should be agreed on an interim basis for a limited period, with a view to a full free-trade agreement.
Two, enhance the use of technological solutions for customs clearance to ensure that customs procedures are as quick and frictionless as possible. The operations of the Canada Border Services Agency offer examples of how high volume, low friction trade between close trading partners can be managed. The technology to manage customs borders has advanced extraordinarily in the last few years.
Three, develop and then obtain mutual recognition of trusted trader schemes between the UK and the EU so that high volume traders can have as expedited customs clearance as
‘The most important thing right now is that we stop negotiating with ourselves and engage with the EU’
soon as possible. UK exporters will need to prove their products originate in the UK (so-called rules of origin) to benefit from tariff free trade with the EU. Processes exist for exporters to self-certify origin and agreeing these and ensuring as many businesses as possible sign up to them should be a priority.
Four, ensure that we agree in the end-state, and in the interim period, rules of origin that are the least restrictive to trade flows as possible.
Five, ensure the UK customs agency is adequately resourced to deal with the increase in customs activity. Six, raise awareness among businesses, especially those who currently trade with EU countries but not outside of the customs union, through information sharing and training programmes. There are over five million businesses in the UK, and we need to make sure they are fully aware of how to trade across borders. There are countless studies showing that companies that export are likely to pay their workers more. Many good jobs rest on our small businesses being better able to take advantage of the opportunities that export offers.
If the EU does not cooperate on this very reasonable list, there are other offers that the UK could make on a temporary basis to protect its businesses. For example, some companies have indicated that it will be very difficult for them to prove origin for the products they wish to export to the EU. We could consider a very short and strictly time limited interim period to allow traders to adjust, during which customs formalities between the UK and the EU could be waived, subject to the UK maintaining the same tariff that Europe does (the common external tariff) on imports from the rest of the world. If we do offer something like this, it is critical that we can negotiate, sign, conclude and ratify trade agreements, even if implementation follows this very short period (which would have to be considerably less than two years).
If the EU does not cooperate on the necessary interim measures in this short period, the UK is not completely powerless. It can always reduce its own tariffs to make itself more competitive and its imports cheaper, while unilaterally recognising European product approval processes, so British citizens need not fear that prices will go up or that products will not be available. It would be a pity if the EU denied its own citizens the same safeguards through some misguided desire to demonstrate that leaving the EU comes with a price. It would be ironic if the country of Richard Cobden and John Bright, the founders of the modern free-trade movement, was forced to adopt unilateral free trade because of European intransigence.
Shanker Singham is director of Economic Policy and Prosperity Studies at the Legatum Institute