When we speak to some of the 75,000 Chambers of Commerce member businesses across the UK, the message that comes through is loud and clear: the UK must agree a deal with the European Union that minimises costs, delays and additional administration around our future trade.
Yet we also often get the question: “What are the upsides of Brexit, and how can we take advantage of them?”
An independent trade policy, allowing us to forge trading links and formal trade agreements separately from the European Union, is seen by many as one of the positives of Brexit. The publication of the Trade Bill White Paper this week outlines some of the many practical steps required to achieve this, such as establishing an independent trade remedies regime, as well as setting out the role of Parliament and devolved administrations in trade negotiations.
However, even with all these preparations in train, the future scope of the UK’s trade policy is still beholden to the outcome of the ongoing negotiations with the European Union. This is because there is still no clarity on how closely UK regulation will mirror EU regulation post-Brexit, which has significant implications for the depth and breadth of trade agreements we can strike in the future.
On day one of Brexit, the UK will start from a point of regulatory alignment with the EU. The very same regulations that are perceived by some as a loss of sovereignty to the UK are what allow us to trade with the EU without facing the same barriers as other nations around the globe.
Let us take the example of EU phytosanitary (SPS) checks for foods, animals and plants. These present a significant barrier for a country looking to strike a trade deal with the European Union, and even those that do reach an agreement often see their agri-producers having to introduce new handling logistics, which is a costly commitment.
Another approach is that of Switzerland, which has decided to fully align its SPS regime with the EU – which limits its flexibility to strike deals with other parties. On SPS, the UK will need to decide the trade-off between imposing new burdens for agri-producers exporting to the EU (particularly in the case of Northern Ireland) and the attraction that a more flexible, independent regime could present to new trading partners.
However, the latter approach could pose a problem. Liberalising a country’s domestic regulation is one of the greatest challenges in trade negotiations. There is an attempt at the World Trade Organisation to address this on a multilateral level for qualifications, technical standards and licensing – but this is proving unpopular, due to many members feeling that these guidelines would impact on their national sovereignty.
The UK must be lucid about the fact that gains on liberalising regulation with new partners will take hard work to realise. In the case of the US, one of the UK’s most highly prioritised countries for a potential new trade agreement, this is very challenging – due to the fact that its domestic regulation is set on a state-by-state level.
For other markets, regulatory liberalisation (particularly on services) is more achievable, but may be a slow burn. For example, the EU’s free trade agreement with South Korea has delivered gains in this regard: UK businesses are no longer required to enter into a joint venture with a local company. Yet there is still strict domestic regulation on recruitment, meaning that local firms have an advantage over new market entrants.
These sorts of detailed considerations may sound a bit dull, but they are vitally important for the UK’s future trade horizons.
Do we decide to maintain close regulatory alignment with the EU, and preserve future access to a critical market, but reduce our flexibility to strike trade deals elsewhere? Or do we cut a number of the regulatory ties that bind us to the EU, therefore accepting additional barriers for our European trade, but leaving more options open for future negotiations with third countries?
Despite months of negotiations, and now concrete steps being taken towards establishing an independent trade policy, we have no further clarity on the Government’s intentions in this regard. Business understands the trade-offs that may need to be made in this area – and want political parties and government to recognise that tough choices and leadership will be needed ahead.
The simple fact is that trade deals always represent a trade-off between sovereignty and market access. The question is: which markets do we want to prioritise? And is the UK Government ready to fully acknowledge and discuss the consequences, as well as benefits, these choices will entail?
The Government has made some important initial moves in recent weeks to reassure business about the immediate future, by coalescing around a status-quo transition period. But for most companies, it’s the details of the final deal that matter. An independent trade policy is established step by step – and the very first step we must take is to finally decide what we want our future regulatory relationship with the EU to look like.
Anastassia Beliakova is the head of trade policy at the British Chambers of Commerce