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Government still unclear on trade after Brexit

7 March 2017

The International Trade Committee's first report identifies central issues for the Government to resolve as it prepares to trigger Brexit negotiations.

The Committee says the Government must act quickly to bolster confidence and put the UK in the best position to forge new trading relationships after 2019.

Chair's comment

Committee Chair Angus MacNeil commented:

"The Government is about to embark on a process that will transform our trading relationships in Europe and across the globe. They must set out their vision for UK trade after Brexit—and provide reassurance that contingency plans will be in place for the eventuality that we don't get an agreement with the EU.

We are entering uncharted waters. The trading relationship we have had with Europe for almost 50 years will be transformed. World trade is often in a state of change, for example from 1948 to 1973 UK-Commonwealth trade fell from 38% to 18% of both parties' total trade; that trading network was in decline long before the UK joined the EU.

We are now in a very new phase and the Government has to give us more information on what this means for UK trade and the economy.

Key industries will want to know as soon as possible what the likely outcomes are and their consequences. The Society of Motor Manufacturers and Traders predict that, under WTO tariffs, the price of an imported car would rise, on average, by £1,500. The National Farmers Union foresee a possible fall in farm incomes of €17,000 a year, if combined with the full abolition of direct support."

Future trade possibilities

Re-joining EFTA

The Committee calls on the Government to publish a White Paper about the possibility of the UK re-joining the European Free Trade Association (EFTA).

This is a group of countries outside the EU to which the UK belonged before it became a member of the EU's predecessor in 1973. EFTA has 27 Free Trade Agreements, covering 38 countries, which the UK might stand to benefit from if it were to re-join the Association.

The Committee was impressed by the potential benefits of EFTA membership, given the close alignment between the UK's economy and those of EFTA members, although the Government has not proposed this as an option.

Free Trade Agreement with the EU

The Government aims to negotiate a "comprehensive, bold and ambitious Free Trade Agreement" with the EU during the two years of "Article 50" negotiations up to 2019, but opinions are mixed on how achievable this is.

The Committee sets out some of the terms that the Government should be seeking in negotiations with the EU over trade. In addition, it calls on the Government to clarify what exactly it means when it says that it doesn't want a customs union with the EU but is looking for a "customs arrangement".

Even with a Free Trade Agreement, key businesses, such as the car industry, could still face costly and cumbersome rules at the EU border in some scenarios. Above all, the Committee says, businesses need certainty to allow them to plan ahead.

World Trade Organization rules

The Government says that "no deal for the UK is better than a bad deal for the UK". This means that, if the Government doesn't get the agreement it wants from the EU, the UK will default to trading with the remaining EU members under World Trade Organization (WTO) rules at the point of Brexit in 2019.

The Committee points out that this will mean certain industries (such as car-making and agriculture) facing steep tariffs and many goods exporters facing non-tariff barriers. In addition, service providers (including the crucial financial services sector) will face significant regulatory barriers.

The Committee urges the Government to set out as clearly as possible the likely consequences of this scenario—and to ensure it makes contingency plans for that eventuality.

Free Trade Agreements with the rest of the world

The Government is also seeking to conclude Free Trade Agreements as soon as possible with a range of non-EU countries—although it remains unclear how far it can go in this direction while the UK is still an EU member. The Committee calls on the Government to clarify this situation.

Another key aspect of the Government's trade policy is to try and seek "grandfathering" arrangements in respect of the EU's Free Trade Agreements—so that the UK can continue to benefit from these even after Brexit. Here too, however, there is legal uncertainty and the Committee calls on the Government to clear this up as soon as possible.

Establishing the UK's position at the WTO

As part of leaving the EU, the UK will have to establish its position as a member of the World Trade Organization in its own right. Some aspects of this may prove to be complex and the Committee calls on the Government to report regularly on progress.

Further information

Image: Hafen Hamburg / Ingo Bölter