There is general confusion over who is in charge of Britain’s trade negotiations with the EU. The trio of ministers potentially involved are Boris Johnson, the foreign secretary, Liam Fox, international trade secretary and David Davis, Brexit secretary. As the Financial Times recently asked: “What are Mr Johnson, Mr Davis and Dr Fox all supposed to do?” Clarity is needed over both the roles of ministers and the sequencing of tasks if the eventual outcome is to be the best negotiated deal for Britain.
Fundamentally, there are two alternative structures for the UK’s post-Brexit trade relations with the rest of the world.
The first is for it to remain a member of the EU customs union. This preserves tariff-free trade with other EU members. It also requires Britain to continue to impose the EU’s tariffs on non-EU members such as the US, China, Japan, Australia and so on. The UK would not be able to negotiate separate trade agreements with those countries. Instead, its trade policy would continue to be set by the EU.
Negotiation with Brussels will determine the concessions that the UK would need to agree for remaining a member of the customs union. These are likely to include some form of free movement of EU citizens and payments into the EU budget. Those talks should be led by Mr Davis, the Brexit secretary, as they are a central plank of the country’s post-Brexit relationship with the Union.
The other track is for Britain to revert to its individual World Trade Organisation membership augmented by whatever bilateral free-trade agreements it might negotiate with like-minded countries not in the EU. Britain’s exports to the Union would be subject to the latter’s tariff regime, which averaged 2.7 per cent in 2011. The effect of higher tariffs would be more than offset by the 9.9 per cent depreciation of sterling against the euro if it persists.
But reactivating WTO membership is not as automatic or straightforward as some Brexiters have claimed. It, too, requires careful examination and negotiation. This should be undertaken by a separate arm of the government, presumably led by Mr Fox, the international trade secretary.
Work on the WTO track should not await the outcome of EU negotiations as suggested by the FT leader article last week. Instead, the two work streams should proceed in parallel and start immediately. Both are complex and are best explored by dedicated teams. They involve discussions and negotiations with different partners. Both would take time to implement after Britain’s exit from the EU is finalised, so preparations should start now. Most importantly, the country’s negotiations with the EU will be strengthened by a detailed understanding of what the alternative WTO track would offer.
A twin-track approach requires clarity and communication between the two teams and with their partners in the trade talks. To avoid misunderstanding or seeming contradictions, this strategy needs to be spelt out by the prime minister and supported by the foreign secretary.
A fundamental principle of negotiations is to know your bottom line. In a complex matter where the status quo is not on offer, the bottom line is your contingency plan in case the primary talks fail or the concessions required are unacceptable. Without a solid contingency plan your negotiating stance is weak. If it turns out that the contingency plan looks quite attractive, then the prospect of a successful outcome is enhanced, whichever track wins.
This commentary appeared in The Exchange on FT.com on 9th August 2016