A lot of water still needs to flow under the Brexit bridge. We do not yet know when exactly it will happen, or what precise form it will take. Following the UK election in June 2017 a wide range of outcomes still seems to be possible –from the United Kingdom leaving the European Union customs union and single market in late March 2019 with or without a deal with the EU, to (increasingly likely) a transitional period of undetermined length before or after Brexit, to the UK joining the European Economic Area, and to (a longer shot) possibly even ditching Brexit and remaining in the EU.
The current UK Government policy is to exit the European Union in late March 2019, having negotiated an ambitious free trade agreement. This is taken as the working hypothesis, even if a transitional period may mean that the timetable is extended.
Since the UK joined the European Union (then the European Communities) in 1973, its trade policy has been aligned with, and subsumed into, that of the EU. This was necessary for institutional reasons to do with both WTO rules, which state that the external commercial relations of constituent members of a custom union have to be aligned, and the EU, which has granted competence to the European Commission in the area of trade policy.
This has always rankled with the UK, which has almost always been on the trade-liberal wing of internal EU trade policy discussions. EU trade policy is essentially, and necessarily, a compromise between the interests of all of its Member States.
One of the institutional consequences of leaving the EU customs union and single market would be that the UK would, after over 40 years, once again be able to pursue its own international trade policies. A Department of International Trade has been set up in London to plan for this new phase.
What might we expect from a future “independent” UK trade policy over the medium to long term, and what are the implications for the Asia Pacific region?
UK trade and trade policy
The UK was the world’s ninth largest exporter of merchandise goods in 2015 ($460b) and the second largest importer ($626b). In trade in commercial services, it was the second largest exporter ($345b) and the fifth largest importer ($208b). These figures include intra-EU trade. About 44 per cent of UK exports of goods and services go to the EU, which also supplies about 55 per cent of its imports.
As a current member of the EU, the UK applies the EU’s common external tariffs. The simple average applied tariff is low – 4.8 per cent. However there are tariff peaks in some sectors such as clothing, footwear, fisheries products and agriculture, with a number of tariff rate quotas in the latter. The UK is towards the liberal end of the OECD’s services trade restrictiveness index, with a lower than average score in most sectors.
Not surprisingly, the UK’s top priority upon Brexit is to put in place an ambitious free trade agreement with the EU, enabling the freest and most frictionless trade possible. According to a February 2017 Government White Paper, the UK will also seek to forge ambitious free trade agreements around the world. It will be a champion of free trade driving forward liberalization bilaterally, as well as in wider groupings, and will continue to support the international rules-based system.
It appears from this that there would be three prongs to future UK international trade policy – involving moving forward bilaterally, plurilaterally and multilaterally. How might the Asia-Pacific dimension develop?
First in a three-part series on Brexit. The views expressed in the reports featured are the author’s own and do not necessarily reflect Asia Global Institute’s editorial policy.