The Future of UK's Trade Policy

Speech delivered to Chatham House fringe event at Conservative Party conference, 1st October 2017

I don’t know about you, but I am mildly appalled at the myopic short term nature of the debate over Brexit and our nation’s future role in the world, not least our future trade policy.

Sure we have an exit negotiation to conclude and a new relationship with our neighbours to establish, but the relentless media and commentariat focus on the short term risks and threats is completely missing the long term strengths of the UK, and the opportunities now presented to us.

The opportunity is profound. To have a trade policy congruent with our values, strengths and role in the world.

We are a great trading nation. We have been at our best when committed to inventiveness, enterprise and entrepreneurship. This is all consistent with an internationalism that is global, committed to freedom, universal human rights protected by the rule of law, and functioning global bodies, such as the UN and WTO.

So shaping the UK’s trade policy is one of the most exciting aspects of Brexit. It offers us the chance to align our trade policy, and the agreements we make globally, with our ambition to be an open, free trading nation, and a people, culture and history that supports a global outlook.

We’ve had the debate about the ‘pros and cons’ of leaving the single market and customs union. We are leaving in 2019 or 2021 if we get a transition agreements but we are leaving.

Whilst in the trade negotiations we will be without the weight of the EU, the UK will be more nimble, more adaptable. We will be able to focus on the UK’s economic interests and strategic sectors such as financial services, international education and life sciences, without having to worry about the protection of olive oil makers or footwear manufacturers. Indeed, as an advocate for liberalised markets, the UK is going to be able to make a better offer in terms of access to the UK market. For example, French cultural concerns led to audio-visual services being excluded from the now stalled TTIP negotiations, whereas we would be prepared to compete on the basis of the strength of our thriving creative sector. So there will be speed and focus.

In framing policy for the decades to come, we now need to move the debate forward. We must now engage with the long term challenges, opportunities and complexities we will face. We are now going to have an independent trade policy outside the EU, we are building our capacity to conduct negotiations at the Department for International Trade. I was delighted, for example, that DIT recently appointed Crawford Falconer who has been New Zealand’s Chief trade Negotiator, as our Chief Trade Negotiation Adviser and number 2 at the department. But just as importantly we – as parliamentarians and policymakers – need to get to grips with trade, customs and investment issues, because there will be a multitude of choices and trade-offs as we develop our policy.

The first component of the UK’s future trade policy is, of course, the nature of our trading relationship with the EU. The obvious objective the Government has of a deep and comprehensive free trade agreement looks tricky to achieve in the remaining year or so of negotiations under Article 50, but looks eminently do-able in a three year timeframe, given that we are starting with identical regulation and mutual confidence in each other’s regulators.

In terms of the UK pursuing preferential trade agreements, many of the issues for many sectors will relate to non-tariff barriers, not least product regulation, data flows, procurement rules, intellectual property and trademarks, competition law, regulatory and research cooperation, recognition of professional qualifications, and labour mobility. With the EU and other developed markets, we will want to seek equivalence and mutual recognition agreements across much of the regulatory landscape based on identical or near-identical standards. In some cases, maximum access will mean the UK accepting EU standards and vice versa and agreeing not to introduce new rules which might be considered diverging too far, probably with an arbitration system for disputes. In other cases, a lower level of harmonisation and market integration will leave greater flexibility needed for developing distinct national policies, including deregulation, or needed for reaching agreement with other jurisdictions. These are the choices and trade-offs the Government and every sector will need to explore.

Outside the customs union, other issues to unpick will be around tariffs policy and the implications for consumers and different sectors of the economy. We will want to reduce tariffs on imports in exchange for tariff reductions or other market access benefits for our exporters. The most obvious difference will be the UK’s greater emphasis on obtaining services liberalisation in exchange for a much less protectionist approach in agriculture. Over time, we will want to eliminate tariffs on a whole range of goods like Hong Kong and Singapore have - to press home our advantages in services, marketing, education, and advanced manufacturing.

It is worth considering which features of the Singapore model we will want to emulate. We will maintain our relatively flexible labour laws, and to succeed as a high skills economy we will need a dynamic internationally open labour market, open to the world’s best and brightest. We will want an attractive investment climate, with competitive corporate tax rates and incentives such as the special tax regime, the patent box. We should also recognise that the Singaporean state invests far more in R&D to leverage private investment in science and technology. We will need to get serious about industrial strategy and investing in innovation. Switzerland, for example, has a thriving pharmaceutical industry because its low taxes attract investment and skilled labour, but also because it actually purchases the latest innovations in its health system unlike the NHS.

The exciting thing about Brexit is that it opens up so many of these debates! The UK has a great future as our trade policy develops to take advantage of the opportunities for trade, commerce and investment in the highly-interconnected global marketplace of the twenty first century.