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.
Committee Chair 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.”
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.
WTO 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 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.
