Brexit no trade exit

New Prime Minister May seeks to reengage on trade, but will the EU comply?

By: Chris Gillis
Photo: Delpixel/Shutterstock
   The United Kingdom’s decision in 2016 to leave the European Union doesn’t mean it will abandon global trade, British Prime Minister Theresa May said in an address last week.
   The UK will return to its “internationalist” roots in trade, May said in a Jan. 17 address.
   “Many in Britain have always felt that the United Kingdom's place in the European Union came at the expense of our global ties, and of a bolder embrace of free trade with the wider world,” she said.
   Almost six months ago, the UK put its proposed exit of the EU, known as Brexit, to a national referendum, which passed by a narrow majority, much to surprise of pundits and bookmakers.
   The UK Supreme Court ruled Monday that the prime minister must now receive the approval of parliament before progressing with the split from the EU single market, which could delay the process. However, it’s expected that, when asked, parliament will go along with it due to the fact that the majority of British voters called for leaving the EU.
   May has attempted to assure EU leaders that it’s not the UK’s intention to abandon its long-held economic relationship with the European continent.
   “We will continue to be reliable partners, willing allies and close friends,” she said. “We want to buy your goods and services, sell you ours, trade with you as freely as possible, and work with one another to make sure we are all safer, more secure and more prosperous through continued friendship.
   “We are leaving the European Union, but we are not leaving Europe,” she added.
   However, the split means the UK will negotiate a new free trade agreement with the European Union, since it’s no longer a part of the single market.
   “That agreement may take in elements of current single market arrangements in certain areas—on the export of cars and lorries, for example, or the freedom to provide financial services across national borders—as it makes no sense to start again from scratch when Britain and the remaining (EU) member states have adhered to the same rules for so many years,” May said.
   “So an important part of the new strategic partnership we seek with the EU will be the pursuit of the greatest possible access to the single market, on a fully reciprocal basis, through a comprehensive free trade agreement.”
   One of the UK’s deep frustrations with the EU’s single market and customs union was its inability to negotiate individual free trade agreements with other countries. Before Brexit, all FTAs were negotiated collectively through the European Union.
   “The point of a customs union is that all its members operate a single unified system of customs tariffs so that any particular category of goods will be charged the same tariff whether it enters the EU via, say, Rotterdam or via Felixstowe,” the association Lawyers for Britain explained.
   “Because the external tariff wall is identical for all members, the members of a customs union need to operate as a bloc when they enter into trade agreements involving tariffs with other countries. An agreement to reduce or get rid of tariffs on imports from another country necessarily involves the customs union as a whole.”
   With the follow through on Brexit, the UK is no longer a party to any EU free trade agreements, such as the one reached by the European Union with South Korea in 2011. However, the UK could continue to trade with South Korea under the same tenants of that FTA by maintaining the substantive provisions of the agreement, Lawyers for Britain said.
   The British government is now eager to start negotiating new bilateral agreements with other countries outside the European Union.
   “It is clear that the UK needs to increase significantly its trade with the fastest growing export markets in the world,” May said. “Since joining the EU, trade as a percentage of GDP has broadly stagnated in the UK. That is why it is time for Britain to get out into the world and rediscover its role as a great, global, trading nation.”
   To lead this effort, May appointed Liam Fox to lead a new Department for International Trade. Fox is a member of the British Conservative party and has served in parliament since 1992. From 2010 to 2011 he was Britain’s secretary of state for defense.
   Countries such as China, Brazil, the Gulf Cooperation Council states, as well as the United States, have already expressed interested in striking bilateral agreements with the UK, post-Brexit. Newly inaugurated U.S. President Donald Trump is due to meet with May Friday – his first formal visit from a foreign leader.
   But striking bilateral agreements outside the confines of the European Union means that the UK can no longer be a part of the EU Customs Union.
   May said the British government still wants to maintain certain qualities of the customs union, such as tariff-free trade with Europe, and ensure cross-border trade with the European mainland continues “as frictionless as possible.”
   “Whether that means we must reach a completely new customs agreement, become an associate member of the Customs Union in some way, or remain a signatory to some elements of it, I hold no preconceived position,” she said. “I have an open mind on how we do it. It is not the means that matter, but the ends.”
   Some EU government officials have hinted at imposing retaliatory tariffs and other trade-related punishments against the UK for exiting the single market, but that would likely spark a dangerous trade war. For instance, it would jeopardize EU exports to the UK market, valued at about 290 British pounds annually, and many UK and EU companies are already intricately entwined through their supply chains.
   “We are a crucial—profitable—export market for Europe's automotive industry, as well as sectors including energy, food and drink, chemicals, pharmaceuticals, and agriculture,” May said. “These sectors employ millions of people around Europe. And I do not believe that the EU's leaders will seriously tell German exporters, French farmers, Spanish fishermen, the young unemployed of the Eurozone, and millions of others, that they want to make them poorer, just to punish Britain and make a political point.”
   Despite the prime minister’s promise to maintain a friendly economic relationship with the EU, British industry officials remain extremely concerned about how their business interactions with the European mainland transform in the next two years.
   “Freight forwarding executives are none the wiser on the actual mechanics of Britain’s future trading relationships and how they might affect the freight forwarding sector,” said Robert Keen, director general of the British International Freight Association, following May’s Jan. 17 speech.
   “Will customs reintroduce EU transaction border controls? Will the replacement for CHIEF (U.K. Customs’ computer system) go ahead and will the new system be able to handle the millions of extra transactions? How will controls on dual-use items be managed?” he said.
   “Mrs. May has made reference to maintaining the common travel arrangements between the U.K. and the Republic of Ireland, but how will freight be managed between the two countries?”
   Britain and Ireland share an active, although contentious trade border via Northern Ireland.
   “What our members need from government is some answers to those questions,” Keen said. “As the old saying goes, the devil is in the details.”