Don’t rush feet-first into an EU trade deal

Across the UK, businesses with international interests are thinking hard about their trading strategies in a post-EU world. It goes without saying that all of them hope that eventual negotiations deliver the best possible terms of trade for British firms.

Yet in the parallel universe that is Westminster, the debate seems to have leapfrogged the steady, logical, and principles-based consideration required at a time of fundamental transition and change.

Politicians, policy wonks and some lobbyists are lining up to proclaim the relative merits of joining the European Economic Area (EEA), or the Norwegian, Swiss, Canadian, Turkish and even Albanian models.

Many have never run exporting or importing businesses themselves, but seem certain they already know the right answer.

The Prime Minister and her Government should ignore them all – and start from the ground up.

They need to put principles before models, and resist the temptation to leap feet-first into an existing set of trade arrangements that may in the fullness of time prove ill-suited to British business.

Crucially, they must work with a wide array of firms and business organisations – not just a hand-picked group of well-known multinationals in a few obvious sectors.

I do not remotely underestimate the scale of this challenge. The negotiation of our trade with the EU – source of 53pc of UK imports and destination of 45pc of British exports in recent years – is perhaps the single most important element of the transition we now face.

There is also the challenge of assembling an experienced team to assess our national interests, the likely positions and offers of the EU27, and a strategy for conducting what promises to be an extremely tough and complex negotiation. The recent remodelling of Whitehall is an important first step.

We should not be bound by existing models, or by the clock that begins ticking when Article 50 is triggered, signalling the start of the withdrawal process from the EU.

Some, particularly in large corporates and the City, will argue loudly for an immediate application from the Government to join the EEA. Yet a decision like this, which could be immediately attractive to many businesses, should not be rushed.

While a UK in the EEA could negotiate its own free trade deals, it would be bound by rules agreed by the EU for access to the single market – including most of the regulations and directives we would no longer have a say in drafting. If the EU were then to become more protectionist in outlook, our EEA membership could leave us with less room for manoeuvre than we might have expected.

My point here is that there are no quick fixes. While the diverse businesses I represent all want reasonable, low-tariff or tariff-free access to traditional and new markets across Europe, they are not all repeating the shibboleth of “full access to the single market” that is so in vogue in Westminster. They are thinking much more pragmatically about the terms of trade – which is exactly what government should also be doing.

Many are also thinking about imports, as well as exports — since trade is a two-way street. Negotiations on trading are also about the prices businesses pay for imported goods, components, and services. Given that firms have had to absorb relentless upward pressure on costs as a result of government policies, as well as the costs generated by the weakness of sterling, the impact of trade policy on firms’ import costs also requires careful consideration.

A similar level of pragmatism should also be applied to the skills gaps that businesses face. The Prime Minister should swiftly guarantee the rights of EU nationals already living and working productively in the UK, something she has been reluctant to do to date, and clarifying how EU hires would be treated in a transition period.

Mrs May and her team have a real chance to craft a bespoke set of arrangements advantageous to UK firms and, crucially, acceptable to our trading partners in the EU and beyond.

In contrast, the Westminster types offering definitive answers at this early stage are well and truly putting the cart before the horse.

Calm, rational consideration – something the Prime Minister has a reputation for – is very much the order of the day.

‘Westminster types offering definitive answers at this early stage are putting the cart before the horse’