UK trade options beyond 2019 Contents


1.The International Trade Committee was appointed in October 2016 to scrutinise the work of the new Department for International Trade (DIT), which was created in the machinery of government changes that took place after the UK vote to leave the European Union (EU) at the referendum on 23 June 2016. On 17 November 2016 we announced our first inquiry, into “UK trade options beyond 2019”, seeking to understand the different potential models for UK international trade after the UK leaves the EU.

2.At the inception of DIT, in July 2016, the Government stated that the Department had:

overall responsibility for promoting British trade across the world. It will develop, coordinate and deliver a new trade policy for the UK, including preparing for and then negotiating Free Trade Agreements [FTAs]1 and market access deals with non-EU countries.2

According to an accompanying Explanatory Note, the Department would “work side by side with the new Department for Exiting the EU [DExEU], which will negotiate the UK’s new relationship with the EU in tandem.”3 When DIT officials gave evidence to us in November 2016, they told us:

DExEU […] is responsible for the exit negotiations with the EU and also the future relationship with the EU. We are responsible for the trade relationship with the rest of the world […] We are working closely with DExEU to input and understand the analysis that they are doing, but we are not leading on arrangements for negotiations with the EU or how long that will take or whether or not there will be transition periods and things like that.4

Given that the nature of the UK’s post-Brexit trading relationship with non-EU countries will depend on its future relationship with the EU, we chose to consider the latter in our inquiry—notwithstanding the fact that it lies within the remit of DExEU rather than DIT. This report, therefore, considers the potential benefits and risks of different models for UK trade with the EU alongside some of the issues that DIT needs to resolve as it pursues its programme of work over the remainder of the Parliament and beyond. In any event, it would be a mistake to consider the UK’s trade policies with the EU and the rest of the world in isolation; it is vital that the Government has a coherent strategy.

3.When we began our inquiry, a broad range of options for the UK’s future trading relationship with the EU appeared to be on the table. Our terms of reference (see Annex 1) consequently sought views on this full spectrum of options, including those which have been described as involving continued “membership” of the EU Single Market.5 Since then, however, the Government has clarified its position, with a number of options effectively being ruled out. Consequently, this report focuses on the options that remain likely given the Government’s position, and we have not commented on those options that the Government has now excluded from consideration.

4.The Government has said that it is aiming to establish a comprehensive FTA with the EU, without a customs union6 (but with a “customs arrangement”). It expects the essential features of this new trade relationship to be agreed as part of the two years of Brexit negotiations (up to 2019) under Article 50 of the Treaty on European Union (TEU),7 along with “a phased process of implementation” following Brexit.8 In the event that these “negotiating objectives” cannot be achieved, the UK will, at the point of Brexit, default to trading with the EU under World Trade Organization (WTO)9 rules alone.10 While the Government has chosen to pose the question simply in terms of “deal” or “no deal”,11 there are many options available as regards the form that an FTA might take, as we set out in this report.

5.Among the public, civil society, Parliament—and indeed this Committee—there remains a range of views about which approach to the UK’s future trading relationships will cause it to prosper. We do not in this report aim to pick an option. We have attempted in our inquiry to understand the factual implications for the UK’s future trading relationships of the UK’s different options for trade after Brexit, and the issues that the Government will need to resolve in each case.

6.In the report we first consider the UK’s relationship with the WTO. Regardless of the path that the Government takes with respect to trade, the UK’s membership of the WTO will form the basis of its future trading relationships. We then go on to consider the FTA the Government plans to strike with the EU, its possible features and their implications for trade. Next we consider the implications of the UK falling back on trading with the EU under WTO rules alone. Finally, we consider the UK’s future trading relationship with non-EU countries and some of the questions that it needs to resolve before embarking upon a programme of striking new trade agreements across the world.

7.During the course of our inquiry, we have taken oral evidence from 33 witnesses at nine evidence sessions and received 46 pieces of written evidence. We are grateful to everyone who has contributed to this inquiry. We also wish to record our gratitude to our Specialist Advisors: Dr Lorand Bartels, Reader in International Law and Fellow of Trinity Hall at the University of Cambridge; and Dr Angus Armstrong, Director of Macroeconomics at the National Institute of Economic and Social Research.

1 An FTA allows for the mutual lowering or removal of tariffs (taxes levied on goods crossing a border; also referred to as customs or duty) and non-tariff barriers (factors impeding trade that do not involve levying a tariff, such as regulatory measures). Such an agreement may be bilateral or it may involve more than two trading partners.

2 Machinery of Government Changes, Written Ministerial Statement, 18 July 2016, HCWS94

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5 Strictly speaking, the only members of the Single Market are the member states of the EU. However, the non-EU members of the European Economic Area are also often regarded as members, since they have a level of access to the Single Market akin to that enjoyed by EU members. Switzerland also has a high degree of access to the Single Market without actually being an EU member. On the relationship of these countries to the Single Market, see Annex 2.

6 A customs union allows for the setting of a common external tariff between two or more trading partners, as well as a common trade policy (so that the parties to the customs union conclude FTAs with third countries as a bloc).

7 The TEU is one of two treaties that form the constitutional basis of the EU. Article 50, which sets out a formal process for the voluntary exit of an EU member state, was added in 2007 under the Treaty of Lisbon.

8 The Prime Minister stated in her speech to the Conservative Party conference on 2 October 2016 that Article 50 would be invoked “no later than the end of March next year”—Prime Minister: Britain after Brexit: A Vision of a Global Britain, Conservative Party website, 2 October 2016. Notwithstanding the subsequent complication of having to secure the passing of the European Union (Notification of Withdrawal) Bill, it remains the Government’s intention to stick to this timetable. Article 50 provides for a two-year negotiating period. This may be extended, subject to the unanimous consent of the European Council (on which the heads of state or government of all member states sit), but the UK Government does not intend to prolong the Article 50 process beyond two years.

9 The WTO is a global organisation of 164 members (states and autonomous customs territories) which deals with the rules of trade between nations.

10 The government’s negotiating objectives for exiting the EU: PM speech, Prime Minister’s Office, 17 January 2017; HM Government, The United Kingdom’s exit from and new partnership with the European Union, Cm 9417, February 2017

11 The government’s negotiating objectives for exiting the EU: PM speech, Prime Minister’s Office, 17 January 2017; HM Government, The United Kingdom’s exit from and new partnership with the European Union, Cm 9417, February 2017

6 March 2017