Greg Lance – Watkins
The Main Web Site:
The IEA “Plan A+” 24-Sep-2018 Shows BreXit To Be In A State Of Chaos Still Missing The Obvious which can be readily understood CLICK HERE
Brexit supporters have released their much-vaunted alternative Brexit plan this morning Monday 24-Sep-2018.
They have Dubbed it “Plan A+”, the plan attempts to set out a viable alternative to Chequers and respond to the common critiques of a Canada+ model.
The paper is written by Shanker Singham and Radomir Tylecote of the IEA and will be launched later this morning by a panel including David Davis and Jacob Rees-Mogg.
In the format I have published it, unaltered save in type style andsize, below it amounts to some 190 pages though in 10pt, as in the original text version it was some 40 pages shorter, though much too small for me to comfortably read.
I have scan read it and will later delve in greater depth but rather than publish uncommented I felt those with a serious interest would care to consider some comments from an assiciate of mine with a large and largely thinking and informed following – which I have published in full prior to the actual IEA “Plan A+”
Monday 24 September 2018
Having spent most of yesterday in the relatively sane environment of a Duxford air show (pictured, taken by Pete), I returned home to find the nation, politically, in a state of chaos over Brexit. Clearly leaving the scene for even this short period was a grave mistake.
Pre-eminent amongst the madness which has descended upon us, it appears, is a Cabinet with a majority determined to dragooning Mrs May into proposing a Canada-style deal for our exit settlement, despite Dominic Raab’s warning that this would leave Northern Ireland “subject to a wholly different economic regime”.
With the oaf blathering so inanely it is painful to read, we find we are to be treated today with some more insanity from “Snake oil” Singham, courtesy of the increasingly sinister IEA, supported by those intellectual titans, Johnson and David Davis.
I am not going to critique this fully until I have seen it, but the previews are sufficient for me to expect the worst. The only thing likely to be in its favour is that it will be so mad that not even Mrs May’s government would be quite so stupid as to take it to Brussels.
That will not, of course, relieve us from the waste of time involved in assessing it, but then that is a feature of this Brexit so-called “debate”, where we expend massive amounts of time on lunacy while perfectly good proposals largely ignored by the media and politicians.
The more the idiots thrash around ignoring the issue, trying to devise an ever madder range of alternatives, the more obvious it becomes that the so-called Norway option is the only way to manage a sensible Brexit.
What we need to be aware of, though, is that the EEA Agreement is what Pete dubbed an adaptive framework. There is no single agreement – each of the three Efta states which are party to it have adapted it to suit their own specific requirements. The UK too will need to make its own adaptations and, because it is a far more complex (and bigger) economy – with more sophisticated needs – the adaptations will have to be considerable.
Thus, in my advocacy for the Efta/EEA option, the biggest mistake I made in the early days was to argue that it was an “off-the-shelf” arrangement. It isn’t, and the process of negotiating the necessary adaptations would doubtless take a long time, with the expenditure of considerable diplomatic effort.
Furthermore, while the EEA Agreement would be a necessary step, it is not sufficient – even with adaptations covering such issues as freedom of movement, customs cooperation (with special reference to Northern Ireland), and technical matters such as rules of origin and external tariffs.
In addition, we will need separate agreements on a wide range of other issues. Norway, the largest of the Efta/EEA states, has 56 recorded bilateral (and more than 20 multilateral) treaties with the EU, including an all-important agreement covering administrative cooperation on VAT. In fact, on this one subject, we will need to go much further than Norway if we are to secure frictionless borders.
If we also include the negotiations required for us to rejoin Efta – which will be necessary in order for us to access the institutional structures of the EEA Agreement, without re-inventing the wheel – then it is unarguable that we do not have sufficient time between now and 29 March to conclude the necessary arrangements.
That really leaves us with only one realistic option. That is for Mrs May to bite the bullet and accept the draft withdrawal agreement, as it stands, complete with the (as yet unfinished) protocol on Northern Ireland.
The political declaration on our future relationship, however, should be very much simplified. It can be distilled down to a few sentences, based on a commitment to facilitate negotiations on adapting the EEA Agreement, with all parties acknowledging that UK participation would continue. This would then define our future relationship – although it would not preclude future changes to the nature of the EEA.
This notwithstanding, as long as we have legally withdrawn from the EU on 29 March – which would be the case if this option was taken – then the referendum vote is being honoured. The vote concerned leaving the EU – nothing more and nothing less. The official leave campaign ostentatiously avoided committing to a specific withdrawal plan, and was content to leave the mechanics of leaving to the government. So be it. It is time for government to govern.
The crucial thing is that we secure a legal separation, but do so with that all-important transition period. That will give us the space to secure Efta membership, the EEA adaptations and the additional agreements necessary to make for a successful working arrangement with the EU and its Member States.
Hopefully, it will also buy us time to organise and agree continuity with our global trading partners, to ensure that the current arrangements enjoyed as members of the EU are able to continue. The idea that we are going to be able to negotiate a whole raft of new trade deals with the rest of the world, in time for the ending of the transition period (which is what we would otherwise need to do), is facile to the point of being dangerous.
Furthermore, if we convey any sense that we are in competition with the EU for deals with the rest of the world, in an attempt to use them as leverage for a better deal with the EU, then we will be setting the scene for economic disaster. If they have a choice forced upon them, more of our trading partners will opt for the EU rather than the very much smaller UK market.
Nor can we assume that the Efta negotiations are going to be straightforward. To avoid complications arising from a mismatch with the EU’s external tariffs (which, for the moment, we plan to adopt via the WTO and the tariff schedules), then we will need a special dispensation from the Efta states.
It maybe that we actually need a novel form of associate membership of Efta, sufficient to give us access to the institutional structures of the EEA, without being bound by the detailed provisions of the Efta convention.
All of this is complicated. But then leaving the EU was always going to be complicated, despite the asinine assertions of diverse pundits, ranging from Peter Lilley to Gerald Batten and Liam Fox. This much Mrs May will need to recognise. If that risks having her government collapses around her, she can put to her party that any seeking alternative will precipitate a general election. And does the Conservative Party really want another election just now?
But then, what do we do about the Labour Party – apart from shake our collective heads in wonderment? If the Tories are in chaos, a new word much be coined to describe the turmoil afflicting the UK’s second party.
Looking at the disease corrupting the entire UK political process, though, Mrs May could probably get away with ignoring the opposition parties, and make her appeal directly to opposition MPs, as individuals. Here, she needs to grip the situation in a way that she has not done, and make clear to the nation the consequences of a “no deal” Brexit, inviting MPs of all parties to join her in fending off certain disaster.
Sadly, in her Friday statement she reaffirmed her original claim that “no deal is better than a bad deal”, giving herself little room for manoeuvre.
Somehow, using whatever form of words necessary, she needs to claw back on that and make it clear that the actual consequences of leaving without a deal is not something that this country can afford. She may be assisted in this endeavour by the latest trance of “technical notices” on the consequences of a “no deal” Brexit, due out today, including the long-awaited aviation paper.
But, it is probably there that the “bloody difficult woman” will fail. I cannot see her rising to the challenge. She has truly boxed herself into a corner, leaving herself no escape route.
And that leaves us in precisely the same place I found us in when I got home yesterday – in a state of chaos. Worse still, we can see the way out, but we are lacking the politicians who are capable of taking us there. The chaos of their making is so profound that they are incapable of resolving it.
To view the original of the article above CLICK HERE
I will publish Dr. Richard North’s eventual analysis in full, when it is available, at the end of the IEA article which follows.
Read the IEA Plan A+ in full for yourself and draw your own conclusions here:
Creating a prosperous
Shanker A. Singham
IEA Discussion Paper 95
With some exceptions, such as with the publication of lectures, IEA
Discussion Papers are blind peer-reviewed by at least one academic or
researcher who is an expert in the field. As with all IEA publications, the
views expressed in IEA Discussion Papers are those of the authors and not
those of the Institute (which has no corporate view), its managing trustees,
Academic Advisory Council or senior staff.
Executive Summary 13
1: Keeping Our Eyes on the Prize 23
2: How Independent Trade and Regulatory Policy Delivers 39
the Brexit Prize
3: Why the Chequers Proposal Removes Independent 45
Trade and Regulatory Policy
4: A Deeper Dive into the Four Pillars of Independent 59
Trade and Regulatory Policy
5: Strategic Approach 113
6: Domestic Reforms for the UK 127
Annex: Regulatory Coherence 131
The authors are grateful for the contributions and advice of the many people
who have contributed to this document. We would especially like to thank
Catherine McBride, Victoria Hewson, Julian Jessop, Jamie Whyte, Mark
Littlewood, Kate Andrews, Darren Grimes, among others at the IEA, Prof
David Collins at City University, as well as the members of our Advisory
Council: Sir Lockwood Smith, Eduardo Perez Motta, John Cooke, Srini
Rangan, Alan Oxley, Razeen Sally, John Weekes, Peter Allgeier, and Stuart
Shanker Singham, Director, International Trade and Competition Unit
Shanker Singham is the Director of the International Trade and Competition
Unit of the Institute of Economic Affairs. The Unit is focussed on providing
advice to the UK government, industry and media on the Brexit negotiations,
among other trade policy issues. As one of the world’s leading trade and
competition lawyers, he has worked on the privatisation of the UK electricity
market, the transition of the Soviet, Central and Eastern European economies
and the apertura in Latin America, as well as the WTO accessions of a
number of countries, including China and Russia. Shanker was educated at
St. Paul’s School, London and has an M.A in Chemistry from Balliol College,
Oxford, and postgraduate legal degrees in both the UK and US.
Dr Radomir Tylecote, Senior Research Analyst, International Trade and
Dr Radomir Tylecote is the Senior Research Analyst for the IEA’s Trade and
International Competition Unit. He has a background in trade and high-tech
sectors, and was formerly at the Behavioural Insights Team (BIT), where he
was an external advisor to HM Treasury and helped develop the Industrial
Strategy Challenge Fund, launched in the Industrial Strategy 2017. He has
an MPhil from Cambridge University, and his double-scholarship PhD from
Imperial College London Business School studied the impact of China’s
innovation policies and regulation on its technology firms and growth.
ACITA: Association for International Trade
ACMD: Anti-Competitive Market Distortion
AEO: Authorised Economic Operator
AMS: Aggregate Measure of Support
AVMSD: Audiovisual Media Services Directive
BEIS: Department for Business, Energy and Industrial Strategy
BIP: Border Inspection Post
CAP: Common Agricultural Policy
CET: Common External Tariff
CETA: EU-Canada Comprehensive Economic and Trade Agreement
CEN: European Committee for Standardisation
CENELEC: European Committee for Electrotechnical Standardisation
CFP: Common Fisheries Policy
CFSP: Customs Freight Simplified Procedures
CMA: Competition and Markets Authority
COREPER: Committee of Permanent Representatives of the European
CPTPP: Comprehensive and Progressive Agreement for Trans-Pacific
CSA: Customs Self-Assessment
CTA: Common Travel Area
DEFRA: Department for Environment, Food and Rural Affairs
DIT: Department for International Trade
EBA: Everything But Arms
EEA: European Economic Area
EEZ: Exclusive Economic Zone
EFTA: European Free Trade Association
ETSI: European Telecommunications Standards Institute
FCA: Facilitated Customs Agreement
FTA: Free Trade Agreement
G7: Group of Seven
GATS: General Agreement on Trade in Services
GATT: General Agreement on Tariffs and Trade
GDPR: General Data Protection Regulation
GPA: Agreement on Government Procurement
GRP: Good Regulatory Practice
GSP: Generalised System of Preferences
HMRC: Her Majesty’s Revenue and Customs
ICES: International Council for the Exploration of the Sea
ICJ: International Court of Justice
ICN: International Competition Network
ILO: International Labour Organisation
IMF: International Monetary Fund
ITRP: Independent Trade and Regulatory Policy
MiFID II: Markets in Financial Instruments Directive II
MFP: Multilateral Framework on Procedures
MFN: Most Favoured Nation
MRA: Mutual Recognition Agreement
NAFTA: North American Free Trade Agreement
NATO: North Atlantic Treaty Organisation
NCP: New Customs Partnership
NEAFC: North East Atlantic Fisheries Commission
NTB: Non-Tariff Barrier
OECD: Organisation for Economic Co-operation and Development
PESCO: Permanent Structured Cooperation
QMV: Qualified Majority Voting
REACH: Registration, Evaluation, Authorisation and Restriction of
REX: Registered Exporter System
RFMO: Regional Fisheries Management Organisation
SEM: Single Electricity Market
SFPA: Sustainable Fisheries Partnership Agreements
SOE: State-Owned Enterprise
SPS: Sanitary and Phytosanitary
TAC: Total Allowable Catch
TBT: Technical Barriers to Trade
TiSA: Trade in Services Agreement
TRQ: Tariff-Rate Quota
TTIP: Transatlantic Trade and Investment Partnership
UCC: Union Customs Code
UKFP: United Kingdom Fisheries Policy
UNCITRAL: United Nations Commission on International Trade Law
UNCLOS: United Nations Convention on the Law of the Sea
UNFSA: United Nations Fish Stocks Agreement
USTR: United States Trade Representative
VIES: VAT Information Exchange System
The United Kingdom’s relationship with the European Union has been
a divisive issue in political and economic debate for many years, but
particularly so in the referendum of 2016 and in the two years thereafter.
Divisions in opinion have gone far beyond the wisdom of us staying in the
EU or leaving it and now encompass a whole raft of issues about what
a sensible departure might look like, whether a temporary or transitional
arrangement would be open to rapid revision or would effectively be an
end state and even the circumstances in which the decision to exit the EU
could be revisited.
The debate has not merely divided public opinion in the country at the
large, but has also been the principal focus of contemporary debate
between politicians and policy makers both within political parties and
The Institute of Economic Affairs is an educational charity which seeks to
improve the understanding of the positive role free markets can play. It
takes no corporate view on any specific policy matter, including the merits
or the precise nature of the UK’s departure from the European Union.
Similarly, the IEA takes no view of the politics involved in determining the
Brexit process. It may be that one particular course of action has political
or electoral implications for a specific politician or political party, but this is
a matter of indifference for the Institute.
However, what is undeniable is that the nature and form of the UK’s
departure from the European Union – as well as our future relationship with
the EU and the rest of the world – are likely to have substantial implications
for the UK’s economy, its ability to trade as freely as possible across the
globe and its domestic regulatory environment.
These are all matters of considerable interest to the Institute and our hope
is that this document provides an informative and educational template
of the steps the United Kingdom could take and the strategy it should
implement if the benefits of a more market-orientated economy are to be
Mark Littlewood, Director General & Ralph Harris Fellow, Institute of
Delivering the Brexit Prize
The opportunity before the UK as a result of Brexit is huge: but if we
squander it, the “new normal” of limited economic growth will prevail, with
an EU system that is failing to respond to the challenges of the modern
In her Mansion House speech, the Prime Minister stated that the UK’s
regulations need not be identical to the EU’s, even if they would achieve the
same outcomes. But the Government White Paper (The future relationship
between the United Kingdom and the European Union) proposes that the
UK would have substantively harmonised regulations with the EU, which,
with the customs arrangement it outlined, would make an independent trade
policy all but impossible. It also described a swathe of other infringements
The UK running its own economy will not render a deal with the EU
impossible. It will bring back real growth, let the UK do other trade deals,
and create leverage to get positive results from EU negotiations. Political,
trade, and regulatory independence is therefore not just an ideological
position, but what makes the gains possible.
This proposal will set these out, and demonstrate what will be lost if the
UK Government maintains a model similar to the approach adopted at the
Chequers cabinet meeting in July 2018, further elaborated in the White
Paper, or one even more closely aligned to the EU. The economic scale
of the prize shows the opportunity to unleash prosperity when we liberate
ourselves from a system with such serious distortions. This is a framework
outlining how the UK can still attain the Brexit Prize.
The governing principle of this alternative approach is the pursuit of a
competitive and thriving UK economy. We have based the approach on
four fundamental ‘pillars’ of prosperity, to create a joined up trade and
regulatory policy. It is a central tenet of this paper that the UK’s bifurcation
of EU policy and rest of the world policy has damaged its ability to use the
interactions between these pillars to its advantage. The pillars are:
The UK should make unilateral moves in domestic policy and trade policy
terms. Many EU regulations are bad for growth: the UK needs the freedom
to do better, this includes:
- Improving the way regulations are made to better support
competitive markets: in particular to ensure a pro-
competitive environment in digital, financial services, and
other areas that are crucial to the UK’s economic success,
but where continued adherence to EU norms would
hold us back
- In agricultural policy, eliminating tariffs and quotas
on all products the UK does not produce; methods to
rebalance prices of imports of products whose costs are
reduced by distortions in other markets
- In fisheries policy, restoring sovereignty over UK waters
and sustainably addressing barriers to entry for new
In other non-trade areas:
- Defence and Security: cooperate with EU allies – but not
in the direction envisaged in the White Paper of participation
- Immigration: replace free movement of workers and EU
citizenship with an efficient and balanced framework for
movement of workers from the EU and the rest of the world
that recognises the economic and social benefits and costs
The UK must undertake bilateral agreements with others concurrently
during the EU negotiation. It should seek to replicate the EU’s agreements
with third countries to cover the UK bilaterally, and focus on major trading
partners with whom the EU does not yet have agreements. Negotiating
regulatory recognition with the EU will be challenging, but is too important
to abandon, with EU regulation damaging to growth. Tying the UK to future
EU regulation is a major threat to the UK economy.
As the negotiations pursuant to Article 50 stand, most of the legal
drafting of the agreement that will include any negotiated arrangements
(the Withdrawal Agreement) has been provisionally agreed. The most
fundamental outstanding elements are the framework for the future
relationship and the so-called backstop arrangement for the Irish border
(“Irish Backstop”). It was the desire to avoid the Irish Backstop being
invoked that informed the design of the White Paper – a way of preserving
free circulation of goods without either leaving Northern Ireland in the EU’s
customs union and single market, or having the whole of the UK stay in the
single market and a customs union.
The UK government has options available to it that would deliver varying
levels of autonomy, negotiability and associated risk. At one end of the
spectrum, terminating the negotiations in order to focus on ‘no deal’
preparations, including protecting the positions of EEA citizens by unilateral
measures, could deliver the most independence in the shortest time frame.
This option would not mean no exit arrangements at all, as the UK could
propose self-contained agreements with the EU in areas like aviation and
nuclear safety, enabling the Council to issue the necessary mandates to
the Commission to negotiate such matters, and refer the question of the
financial settlement to independent arbitration.
At the opposite end of the spectrum, the UK could request an extension of
the negotiating period to enable the outstanding provisions of the Withdrawal
Agreement to be completed, and to advance no deal preparations. Against
this option are the likely domestic political consequences, the possibility
that the extension would be declined and the protracted uncertainty for
businesses and individuals.
The option being pursued by the Government is being resisted by the EU,
due to the legal and practical challenges of the FCA and the disaggregation
of goods from other components of the single market. It may also be voted
down by the UK Parliament.
An option is therefore required to maximise the progress already made on
the terms of the Withdrawal Agreement but unblock the impasse over the
Irish border and future framework. The government should seek to retain
all of the agreed elements (the financial settlement, citizens’ rights, the
transition period of 21 months (the Transition Period) and withdrawal terms)
and propose a new backstop and framework for a future relationship. The
new backstop would comprise a basic free trade agreement between the
UK and the EU for goods, and a commitment by the parties to undertake all
necessary investment and cooperation mechanisms to enable formalities
on trade between Northern Ireland and Ireland to be overseen away from
the border. This would enable the completion of the Withdrawal Agreement
and incentivise the parties to agree a better FTA during the Transition
Period. It would also enable the UK to negotiate more effectively with rest-
of-world trading partners during the transition, with a baseline element of
the relationship with the EU known at the outset.
A UK-EU Free Trade Plus deal:
- Fully activating all of the pillars listed now will start to put
the UK on a stronger negotiating footing. Requests for
more time will make the UK look weak and cause more
delays before the UK activates the strategy outlined here.
- For an FTA with maximum regulatory recognition, the UK
should put text on the table in the form of best in class
chapters in all these areas: Zero tariffs in goods and
agriculture; customs and trade facilitation chapter and
Irish border protocol; government procurement; regulatory
coherence including specific sectoral annexes (e.g.
pharmaceuticals); competition policy and state aids; open
services chapter with maximum liberalisation; no restrictions
in all four modes of service supply in market access or
national treatment; mutual recognition of occupation
licensing; specific sectoral annexes in key areas including
telecoms, data and financial services; investment; dispute
FTAs with the US, India, China, and other partners:
Simultaneous discussions should include with partners for more difficult
FTAs in the longer term.
Bilateral deals with countries where an EU FTA should be rolled over:
- Negotiations should be accelerated to roll over existing
agreements and agree a new FTA with EFTA. the
Department for International Trade (“DIT”) should seek
to conclude these negotiations provisionally, so they can
come into effect on 30 March 2019 in case of no Withdrawal
Agreement and no Transition Period.
Alternative model of bilateral relationships for developing countries:
- The UK has an historic opportunity to create genuine
Economic Partnership Agreements that do not hinder
growth, unlike the EU’s Generalised System of Preferences
model. But better models require the UK having tariff and
- The UK should seek membership of major arrangements
which involve a number of countries, including the
Comprehensive and Progressive Trans-Pacific Partnership
(CPTPP) and North American Free Trade Agreement
(NAFTA). Tariff and regulatory control would also be
needed to accede to CPTPP.
- There are two aspects to multilateral strategy: using the
WTO transition to reinforce the other pillars; and using a
fully-fledged WTO membership to promote wealth creation
for the UK economy and the world.
At the WTO
The UK can use its Aggregate Measure of Support (“AMS”) offer to
signal its free trade intent, seeking no or de minimis AMS to show it will
not pursue production subsidies in agriculture beyond what it has now,
and limit direct payments to allowed green box payments. In bilateral
negotiations with TRQ (Tariff-Rate Quota) partners, and parties with
whom it has negotiations through the EU, it is critical the UK negotiates
with partners by itself.
The UK should also join numerous WTO groups as soon as possible,
showing the UK is a committed liberaliser of trade & committed to open
domestic settings, for instance:
- The Cairns Group of agricultural exporters (the UK is not
a major agricultural exporter but is locked into EU supply
- The Manchester Group. Just as Australia launched the
Cairns Group, as the world’s second-largest services
exporter, the UK should launch the ‘Manchester Group
of Services Exporters’, named for the city’s role in the
Victorian free trade movement.
- The UK can join the e-commerce plurilateral initiative &
take a leadership role in services liberalisation.
It is not possible to lay out all the required steps, but an effective strategy
is only possible once the customs union or any variant of it (such as the
Facilitated Customs Arrangement (FCA) set out in the White Paper or its
predecessor the New Customs Partnership (NCP)) is off the table.
- If the EU does not cooperate with serious UK proposals,
the UK should move to a more aggressive footing; if the EU
refuses to recognise UK regulations on day one of Brexit,
the UK should be prepared to take action in the WTO for
violations of the General Agreement on Tariffs and Trade
(the GATT) and the Agreements on Technical Barriers to
Trade (TBT Agreement) and Sanitary and Phytosantiary
Measures (SPS Agreement).
- In the event of no agreement, the UK could elect not to
impose checks on goods trade at the Irish border, and apply
zero tariffs on agri-food, on an MFN basis for all imports,
and selectively reduce and eliminate tariffs on other goods.
Fundamentally, progress in one pillar reinforces the others. The UK should
be playing chess on multiple chess boards, maintaining freedom to pursue
all areas simultaneously.
This alternative approach aims to be a framework for the adoption of a UK
independent trade and regulatory policy, including in its relationship with
the EU. As a framework, many of the areas should be developed further,
and represent ongoing work streams.
We seek a UK economy which employs people in good jobs, where they
are able to succeed based on the merits of their ideas and their hard work.
An economic system based on competition as opposed to cronyism will
maximise wealth creation and lead to more money in the pockets of UK
consumers, and more money for essential services.
No plan can predict every possible future move that our trading partners
may or may not engage in. No plan can definitely say what final or
intermediate states in our relationship will look like. This alternative
approach sets out what the overall objectives of the UK government should
be (the four pillared trade policy which we outline below). It then makes
recommendations about what initial moves the UK could make to realise
the benefits of leaving the EU.
Membership of the European Union stifles prosperity just as it prevents
the UK governing itself. It saddles the UK with regulations that protect
large incumbent businesses from competition, harming innovation and
reducing efficiency. And it prevents the UK from entering into its own free
trade agreements (FTAs) with countries outside the EU. This increases the
prices paid by consumers and diverts capital and labour away from their
most productive uses. In short, it makes us poorer.
Brexit thus presents the UK with a rare opportunity to radically change
this: but the opportunity is a brief one. To take that opportunity, the UK’s
regulations and trade relations must become truly independent of the EU.
Until recently, the Prime Minister, Theresa May, seemed to envisage such
a Brexit. In her speech at Lancaster House last year, she said that Brexit
would set the UK free to have an independent trade policy, with the ability
to strike agreements outside the EU and the customs union’s Common
External Tariff. In her Mansion House speech in March this year, she
clarified that the UK’s regulations need not be identical to the EU’s, even if
they would achieve the same outcomes.
This summer, however, the Government’s White Paper proposed
substantially harmonising UK regulations with those of the EU after Brexit.
Combined with the customs arrangement it also outlined, this would make
an independent trade policy all but impossible. Keen to avoid potential
disruption in our trading relationship with the EU, the Prime Minister is now
set to throw away the potential gains of Brexit. Given that the latter are
greater than the former, this is a profound mistake.
This paper therefore proposes an alternative to the Chequers plan, one
through which the UK has genuine independence after Brexit – which must
include regulatory freedom and trade independence.
Many of the actions we recommend can be taken unilaterally: that is, the
UK government can act without needing to win the agreement of other
governments, inside or outside the EU. Regulatory reforms, import tariffs
and border controls (on the UK side) are obvious examples. Then there are
measures that will need agreement with individual foreign governments
(bilateral arrangements), such as the Brexit deal with the EU and, ideally,
an EU-UK FTA. Other recommended measures are plurilateral, such as
joining NAFTA, while yet others, pursued through the WTO, are multilateral.
We call these different ways of pursuing improved regulation and trading
relations – unilateral, bilateral, plurilateral and multilateral – the four “pillars”
of our alternative plan.
We begin by explaining the gains to be had by taking advantage of
independence from EU rule-making to improve the UK’s regulatory and
trading arrangements. From this, we show in Chapter 3, that the White
Paper would forgo these gains. Having made our general case, we use
Chapter 4 to look more closely at each of our four pillars; Chapter 5
considers strategic questions associated with the UK’s negotiations with
the EU, and Chapter 6 domestic reforms.
Brexit is an historic opportunity for the UK of the highest order. To benefit,
the UK must once again become a self-governing, free-trading nation.
Keeping Our Eyes on the Prize
A major G7 economy has the chance to embrace independent trade and
regulatory policy for the first time in forty years. This is unprecedented
and could lead to huge opportunities for the UK and the world. The Prime
Minister spoke about a Brexit Prize in the Lancaster House speech and
clearly that prize takes many dimensions. A free people exercising
their sovereign rights is a prize in and of itself; we will focus on the
economic dimensions of the prize. Its scale depends on three contextual
points. First, the direction of travel of the global trading system. Second, the
direction of travel of the European regulatory system. Third, the direction of
travel of the global regulatory system. If the prize is large, then pursuit of
this prize should drive the UK’s strategy. If it is small, then minimising the
disruptions of leaving the EU’s institutions would instead drive the strategy.
The Global Trading System is in crisis
It is uncontroversial to note that the global trading system is in crisis.
Since the Uruguay Round of 1994, no significant global round has
been negotiated. This is one third of the lifetime of the entire GATT/
WTO system: it is unprecedented. In 1997, when the Basic Telecoms
Agreement was signed, the outlook for further world trade liberalisation
looked bright. Financial services and then energy services were next on
the agenda. In services, countries were expected to open their services
markets for further negotiation. But as the backlash against liberalisation
and globalisation gathered steam in the 1990s, none of this agenda was
realised. It has been said that trade negotiations are like riding a bike.
You need to keep doing it or you fall off. As a result, key indicators are
showing the weakness of the global system. Measures of global industrial
output have been stalled since before the financial crisis.1 Global trade as
a percentage of global GDP also dipped, and global trade growth stalled
in 2015 in an unprecedented fashion.2 Christine Lagarde at the IMF has
1 International Monetary Fund, Global Industrial Output Growth, Data from 1980-2017. See
(Singham, S., “How the World can benefit from the Network Effects of the Commonwealth”,
Institute of Economic Affairs, April 20189) for analysis.
2 Speech by Christine Lagarde at the ECB Forum on Central Banking, “Monetary Policy in a
Changing Financial Landscape”, May 25, 2014.
called this a new normal3 where we can expect low growth in developed
markets for the foreseeable future. WTO Director General Azevedo has
noted that in terms of trade liberalisation we are not only going in the wrong
direction but doing so with increased rapidity.4
Opening the report, DG Azevedo said:
“The message of the Report before us today is serious. We are heading
in the wrong direction, and we seem to be speeding up. Growth, jobs and
recovery are at stake. I call on members to recognise the gravity of this
report and its findings. We need to see immediate steps which de-escalate
the situation. I will continue working with all members to this end.”
Most recently, the US administration has made its own threats to the global
system, in particular to the WTO’s dispute settlement mechanism (and
appellate body), once the crown jewels of the international trading system.
The lack of countries willing to support the global system allows more and
more pernicious activities to develop.
But this means a vital opportunity for the UK. The re-emergence of a G7
country and the world’s second-largest services exporter on the trade
policy stage should mean that the UK can act to lower market distortions
around the world and start to help reverse these damaging trends, if it
maintains its traditional open and free market orientation.
The EU regulatory system is moving in the wrong direction
The direction of travel of the EU economy from which the UK is emerging
is crucial to this analysis. If the EU was moving in a pro-competitive and
liberalising direction, then this analysis would be very different. We believe
that the EU is moving in an ever more prescriptive and anti-competitive
The following brief examples outline various major EU-originated anti-
competitive regulations in the UK.5 The point is not that ‘deregulation’
is needed, but regulation that is pro-competitive, increasing consumer
3 Speech by Christine Lagarde at the ECB Forum on Central Banking, “Monetary Policy in a
Changing Financial Landscape”, May 25, 2014.
4 Roberto Azevedo presenting the WTO’s “2018 Trade Monitoring Report”, July 25, 2018.
5 Singham, S. A., Tylecote, R. & Hewson, V., 2018. “Freedom to Flourish – UK regulatory
autonomy, recognition, and a productive economy”, IEA Discussion Paper No.91, London,
welfare. Anti-competitive regulations can raise costs for businesses or,
unlike tariffs, actually prevent products and services being created at all.
- General Data Protection Regulation (GDPR)
(Regulation (EU) 2016/679)
GDPR has extra-territorial reach wherever the EU citizens’
personal data is processed. It is suspicious of innovation, and
its complex requirements mean small entrants find it harder
to comply. Fines can range from €10m or 2 per cent of global
turnover to up to €20m, or 4 per cent. Smaller firms lack the
resources to monitor compliance, and may risk sanction to
avoid the compliance costs, making GDPR self-defeating.
Firms exiting the market because of GDPR means an anti-
- Registration, Evaluation, Authorisation & Restriction
of Chemicals (2006) (REACH) (Regulation (EC) No
REACH is a framework for chemicals manufacture and use in the
- Its stated aim is to ensure chemicals produced, imported,
sold, and used in the EU are safe. It obliges manufacturers to
gather information on new and existing chemicals they use,
submitting the information to the European Chemicals Agency
(ECHA) for review and inclusion in a central database; the UK
has the second highest number of registrations.
The regulation reduces third country exports to the EU by
increasing cost and, in some cases, barring products from
the single market. In the National Trade Estimate Report on
Foreign Trade Barriers (2017), the US Trade Representative
“REACH impacts virtually every industrial sector… It imposes
extensive registration, testing and data requirements on tens
of thousands of chemicals. REACH also subjects certain
identified hazardous chemicals to an authorisation process
that would prohibit them from being placed on the EU market
unless a manufacturer or user has obtained permission from
the Commission… REACH appears to impose requirements
that are either more onerous on foreign producers than EU
producers or simply unnecessary.” Its report added: “WTO
Members have emphasised [the] problems producers have
in understanding and complying with REACH’s extensive
registration and safety data information requirements”.
The Commission itself admits this is: “one of the most difficult
pieces of legislation for industry to deal with — in particular
SMEs”. Some businesses have moved production overseas to
avoid it, or exited the market completely, while testing costs are
often high, harming profitability and cutting smaller firms out of
the market. The result has been to drive some production out
of the EU to avoid the regulations or for companies to leave the
market altogether, thereby lowering competition and eventually
pushing up consumer prices.
- Port Services Regulation (EU 2017/352)
The EU’s Port Services Regulation (EU 2017/352) was
designed to improve competition and financial transparency
between continental EU ports, 80% of which are state owned.
The regulation seeks to achieve fair competition in the sector,
especially between the larger container ports. Few doubt
that the use of public infrastructure funding has distorted
competition in EU ports. For instance:
- Dutch ports are exempt from corporation tax
- Antwerp, Bremerhaven, and Hamburg’s
infrastructure costs are covered by the state
- French and Belgian ports receive tax breaks
All these are contrary to EU state aid rules and create a
competitive advantage over ports in other member states.
The UK’s much smaller and almost all privately-owned port
operators are already extremely competitive; there are over
80 ports in the UK. This EU regulation however would add to
cost pressures on UK operators, while eroding their ability to
control prices. UK port operators believe that the new rules are
unnecessary as they are already competitively managed.
The Ports services regulation is a good example of EU “one
size fits all” regulation: while the rules will ensure improved
competition in continental EU container ports, the additional
compliance costs the regulation imposes will make UK ports
less competitive against their continental counterparts, forcing
them to pass on costs to the consumer.
The EU is also pushing its regulatory system on the rest of the world.
GDPR is one example of this. Another example includes the sector-specific
Agreement on Conformity Assessment and Acceptance (ACAA) with Israel
for pharmaceuticals: this requires full alignment with EU rules. Through the
EU-Switzerland relationship in market integration, Switzerland applies EU
product standards to its own market.6
6 European Scrutiny Committee, 2018
xxvi/30104.htm p. 1.44
- The Solvency II Directive (Directive 2009/138/EC Jan-
Solvency II is the EU’s prescriptive prudential regime for
insurance. The Directive puts considerable emphasis on
unreliable data for infrequent events, thus increasing capital
required, which in turn excludes new entrants from the market
and has forced operators out of some product lines. Higher
capital requirements create higher operating costs, which
become higher premiums for consumers.
- The Markets in Financial Instruments Directive (MiFID
- II) (Directive on Markets in Financial Instruments,
repealing Directive 2004/39/EC of the European
Parliament and of the Council)
MiFID II took effect in the UK in January 2018. Its stated aim
was increased transparency across EU financial markets, and
standardised regulatory disclosures. It covers almost all trading,
including bonds and securities, reporting requirements, large
transaction limits, brokers, exchanges, and retail clients. It has
created a major compliance burden for the industry, increasing
the transaction data-gathering requirement by 270%, as well
as adding best execution policies and onerous private client
regulations. MiFID II has made off-exchange trading in volume
more difficult for large clients and forced investors to pay for
company research reports. All this has increased compliance
costs and complexity, reduced the number of firms willing to
provide private client services and decreased end-user choice
but it has not improved liquidity in the markets which most
participants believe is the major problem. The requirement
to pay for research has encouraged analysts to move their
coverage to larger companies, cutting investment in small and
Furthermore, the regulation requires transaction reports
containing 65 data fields to be stored for every investment and
every client, and by buying agent, selling agent and market,
which is particularly onerous for firms dealing for private clients.
This will mean, for example, that a private client wealth manager
with 2,700 clients will create 175,500 data fields (65 × 2700)
every time they invest in a company. Trades are timestamped
to 100 microseconds and transaction data must be stored for
at least five years; under the best execution requirements,
banks and brokers must be able to show customers that their
orders were filled at the best available price. This is expensive
for brokers: some orders cannot be filled at this best price,
while the broker must make up the shortfall.
These examples illustrate that it will be increasingly important for the UK to
have the ability to diverge from EU regulation in order to capture the Brexit
Prize, and that any locking in to the EU regulatory system will prevent these
gains from being realised. It should also be noted that the direction of travel
of EU regulation is likely to accelerate as a result of the UK not having a
significant say in these regulations. The move to Qualified Majority Voting
in 20097 has meant that the UK has been finding it increasingly difficult
to win regulatory battles in COREPER (the Committee of Permanent
Representatives to the European Union responsible for preparing the work
of the Council of Ministers). This does not include the many occasions
when the UK has chosen not to fight, knowing that they would likely lose a
vote under QMV. Therefore, any harmonisation to the EU rule-book would
be harmonisation to the rule book now, and as it will be in the future.
In this context, the UK government must think carefully not just about
the next five or ten years, but the next several decades, and not make
decisions now, that lock the UK into a permanent arrangement from which
it will be difficult to depart.
The global regulatory system is moving in the wrong direction
There has been a marked increase in the volume of global regulatory
barriers and distortions since the Global Financial Crisis.8 While the EU is
moving in the wrong direction, and imposing its regulatory system on the
7 European Parliament (2018). Fact Sheets on the European Union 2018: The Treaty of
Lisbon. Retrieved on 17th September 2018
8 Evenett, S., and Fritz, J., “The Tide Turns? Trade, Protectionism, and Slowing Global
Growth”, Global Trade Alert, Centre for Economic Policy Research, London, 2015.
Available at: https://www.globaltradealert.org/reports/21
rest of the world, other countries, like China, are in this case adding Chinese
characteristics to global standards and pushing these on the rest of the
world. The net effect is an increase in prescriptive regulation, which leads
to wealth destruction, pushing people into poverty. In this environment, the
UK has the opportunity to advocate pro-competitive regulatory policies,
and so reverse the tide of anti-competitive regulation that is sweeping the
world. If the UK can execute its independent trade and regulatory policy in
such a way as to lower these market distortions both at home and in other
countries, there could be a significant gain for the world and for the UK.
Trade policy is not only about commercial considerations, but forms a vital
part of a nation’s geo-strategic and geopolitical approach. Here, also,
there are significant gains. There is a battle going on in the world between
a system of competition-based capitalism, such as is found in the US, UK,
Hong Kong, Singapore, New Zealand and others, and more cronyist systems
of capitalism, which we have seen in the former Soviet Union and China,
for instance. At the heart of competition-based economies is the market
structure – where competition on the merits is the organising economic
principle. Cronyism is carried by a network of anti-competitive regulation
– on the basis that such regulations are used to damage competitors. But
there is also movement between the two. Latin America for the most part
(with the spectacular exceptions of Venezuela, Cuba and Bolivia) has been
moving away from a fundamentally anti-competitive system towards more
competitive systems (especially the CPTPP members, Colombia, Peru and
Chile). India is moving slowly away from its anti-competitive past. China
initially moved away from its cronyist past after its WTO accession in 2001,
only to seem to re-embrace anti-competitive and prescriptive regulation
now. The UK can play a major part in this battle, where wealth creation
is at stake and where either the new normal will continue, or growth and
economic opportunity for all can be created. If it follows the increasingly
anti-competitive EU direction in a host of areas, then those countries which
do embrace competitive regulatory frameworks will become increasingly
isolated, and global firms will increasingly accept the burdens of anti-
competitive regulation. The result will be wealth destruction.. Innovation
will stall, and those voices who claim that the era of innovation is over will
be proved correct.9
9 Gordon, R.J., CEPR Policy Insight No 63: Is US economic growth over? Faltering
innovation confronts the six headwinds. London: Northwestern University and CEPR, 2012.
What is the Role of Business?
Ensuring as positive outcome from Brexit as possible is not just the job
of government, it is the job of all of us. This includes the private sector.
Business consists of many different categories – global supply chain
managers, small businesses, businesses of the future, and new and
innovative, entrepreneurial firms. The Brexit narrative seems to have been
captured by one part of one of these groups – managers of EU-UK supply
chains. Naturally these entities will always wish to preserve the status
quo. Many of the gains we have described are not part of their jurisdiction,
but are still the concern of the global firms they are part of, and perhaps
most critically of the shareholders of those firms. All firms should ask not
what the EU-UK supply chain needs, but what do they want the world to
look like. If there is, as we describe, an opportunity to unblock stalled
trade agendas, and unlock wealth by making global supply chains more
competitive, then global firms and their shareholders’ interests are best
served by recognising these opportunities. It is business that should be
most concerned about the rise of anti-competitive regulatory frameworks
as this will ultimately mean a market of ever decreasing size. Incumbent
businesses may prefer to have an increasing share of a declining market,
but this is a small corner of the total private sector. All businesses are also
consumers of something, and lowering their costs by greater competition is
a benefit for all. Shifting the discussion to one focused on consumers and
consumer welfare will be very important.
Determining the Scale of the Prize
The prize is determined by the operation of the UK’s independent trade and
regulatory policy. While the gains from tariff reductions can be modelled
relatively easily, the gains from a reduction of behind the border barriers –
the new barriers in trade – are more difficult to model.
Governments usually massively underestimate the gains of international
trade agreements. In New Zealand, for example, the authorities
underestimated the benefits of the New Zealand-China FTA by some
500% (including estimating a level of exports for twenty years after the
deal, which was in fact reached in just twenty months)10. The US ITC noted
the difficulties they encountered in modelling the TPP.
Meanwhile, it has become possible over the last twenty years to model
the costs of the ‘anti-competitive market distortions’ that burden otherwise
prosperous nations when they are encumbered by the needlessly
10 New Zealand Ministry of Foreign Affairs and Trade (2008), National Interest Analysis:
New Zealand – China Free Trade Agreement, Wellington.
burdensome and growth restricting regulations that issue forth from political
systems like the EU in particular, and, conversely, the opportunities to
realise prosperity that can be realised by leaving such a system. To take
just one example, the OECD has shown that the ability to reform regulations
– in essence, a country’s economic ecosystem – in the direction of pro-
competitive reform, adds as much as 10-12% to the GDP of developing
countries. Similarly, analysis by the Australian Productivity Commission has
found that pro-competitive reform of regulation could boost Australian GDP
by between 2.5% and 5.5%. This does not necessarily mean deregulation,
but to the contrary and as we will describe, means reform that improves
consumer welfare and releases growth.
There is significant evidence that a reduction of distortions can lead to
very large economic gains.13 14 15 16 17 18 Of course, there are many cases
where government intervention is needed, where failure to act would
indeed increase distortions in the economy, including such precautions as
ensuring clean air and water. But no modern economy can thrive if groups
of firms are given unfair advantages over others by government action
instead of their innate advantages.
Modelling the Brexit Prize
Beware the consensus
The consensus on modelling Brexit, including assessments by the OECD,
IMF, LSE and NIESR, as well as the government’s own published analysis,
is that the long-term economic impact will be negative. However, this
observation is not as persuasive as it may first appear.
For a start, these studies make similar assumptions and judgements
about what Brexit will mean in practice, and apply these inputs using
similar methodologies to similar models. There is clearly a risk of “group
think” here. If these inputs and tools are wrong, or simply incomplete, the
conclusions are likely to be wrong too.
What’s more, the upfront costs of Brexit (notably any increase in barriers
13 Shanker A. Singham and Alden F. Abbott, “Enhancing Welfare by Attacking
Anticompetitive Market Distortions”, Revue Concurrences, No. 4–2011 (November 2011).
14 Shanker A. Singham, U. Srinivasa Rangan, and Robert Bradley, “The Effect of
Anticompetitive Market Distortions (ACMDs) on Global Markets”, Revue Concurrences, No.
4–2014 (October 2014).
15 Shanker A. Singham, A. Molly Kiniry, Dr U. Srinivasa Rangan and Robert Bradley,
“Introduction to Anti-Competitive Market Distortions and the Distortions Index”, Legatum
Institute, London, 2016
16 Bhagwati, J. Weltwirtschaftliches Archiv (1989) 125: 17. https://doi.org/10.1007/
BF02707517. This thinking builds on a body of work on domestic distortions in the 1980s by
Bhagwati and Krugman.
17 Krugman, P., “A ‘reciprocal dumping’ model of international trade”, Journal of
International Economics, Volume 15, Issues 3–4, November 1983, Pages 313-321
18 Bhagavati, J., “Shifting Comparative Advantage, Protectionist Demands, and Policy
Response”, in “Import Competition and Response”, University of Chicago (1982), 151-196.
to trade with the EU) are easier to identify and quantify than the benefits
(gains from lowering barriers to trade with the rest of the world and
regulatory optimisation at home), which, although potentially larger, may
also take longer to materialise. On top of this, the potential costs may be
concentrated among a relatively small number of losers, who are better
able to mobilise in lobby groups. In contrast, the potential benefits are
spread across a much more diverse range of people, usually consumers
rather than producers, without such a strong voice. This reinforces the
unfortunate tendency to regard the UK’s departure from the EU as an
exercise in ‘damage limitation’, rather than a set of opportunities to be
The debate many years ago about whether the UK should join the euro
illustrates both these points. It’s easy to forget, but there was a strong
consensus both among academic economists19 and business leaders20
that the UK should adopt the single currency. The CBI21 and auto sector
lobbied particularly hard in favour, prompting headlines such as “Britain
must join euro, says car industry”.22 Most people surely now accept that
what was then conventional wisdom has proved to be wrong.
Now, many of the same voices are arguing that it is essential to keep
trade with the EU as ‘frictionless’ as possible, by retaining membership
of the single market and/or customs union. But if frictionless trade were
indeed the overriding concern, the UK should also still adopt the euro,
which would reduce transactions costs, eliminate currency fluctuations
against the euro area, and improve price transparency. These would all be
relatively tangible benefits.
But again, most people surely still accept that these benefits of euro
membership would be outweighed by the costs, even though these costs
are harder to quantify. The costs of euro membership include the loss
of independence on monetary policy, lack of flexibility against non-euro
currencies, and a raft of additional obligations to other members of monetary
union. There is a simple parallel here with the loss of independence on
trade policy and regulatory autonomy that comes with membership of the
Finally, it is important to keep a sense of perspective. People like specific
numbers (all the better to paint on the side of a bus). But these need to be
19 The Economist (1999). Economists for EMU. Available at https://www.economist.com/
20 Morgan, O. “CBI survey shows strong support for euro” , The Observer (1999). Available
21 Trefgarne, G. “CBI tells Blair to get off the fence and back euro”, The Telegraph (2000).
22 White, M. “Britain must join euro, says car industry”,. The Guardian (2001). Available at
put in context. For example, let’s suppose that conventional modelling of
all the easier-to-quantify costs and benefits of Brexit suggests that the level
of GDP would be 5% lower than otherwise over a 15-year period.
However, this would be relative to a baseline where GDP might be 25%
higher (if trend growth is assumed to be 1.5% per annum), or 30% higher
(1.75%). In other words, GDP would still increase by between 20% and
25% over this period, even without allowing for the harder-to-quantify
gains, both economic and non-economic, that the departure from the EU
Weaknesses in the Whitehall analysis
Turning to the modelling of Brexit itself, it makes sense to start with the
government’s own analysis.
The latest official analysis of the long-term economic implications of Brexit
is the Whitehall briefing23 of January 2018. This is actually no more than a
set of PowerPoint slides and the briefing itself acknowledges that this work
is preliminary and incomplete (every page is stamped ‘draft provisional
results’). Nonetheless, this has not stopped the results from being taken by
some as definitive proof that GDP will be lower in all scenarios.
In short, the report modelled three arrangements for future trade between
the UK and the EU, each based on existing precedents:
- A European Economic Area (EEA) scenario (similar to
the ‘Norway option’), where the UK keeps most of the
rights and obligations of the single market, but leaves the
- An FTA, where the UK leaves both the single market and
customs union and settles for a standard ‘low access’ free
trade agreement (similar to, but not necessarily as good as,
the EU-Canada deal);
- A ‘no deal’ WTO scenario, where the UK and EU simply
trade on World Trade Organisation rules, without an FTA.
The results are presented in terms of the impact on cumulative GDP over
a 15-year horizon, relative to a baseline scenario (the ‘status quo’) where
the UK effectively remains in the EU. The central estimates are that GDP
23 Exiting the European Union Committee, “EU Exit Analysis – Cross Whitehall Briefing”,
House of Commons, January 2018.
would be 1.6% lower than otherwise in the EEA scenario, 4.8% lower in the
FTA scenario, and 7.7% lower in the WTO scenario (the range on the last
of these being -5.0% to -10.3%).
There are, however, many weaknesses in the analysis. Some of these
are not necessarily critical. For example, the Whitehall Briefing does not
model actual government policy (whether this was the Canada plus model
favoured at the time, or the new Chequers Plan). But it is not unreasonable
to argue that, if the report’s assumptions and methodology are correct, the
UK would land somewhere in the range of the three scenarios that it does
There are six more serious problems. First, the Whitehall Briefing assumes
that there will be a large increase in non-tariff barriers (NTBs) between the
UK and the EU, especially in a ‘no deal’ WTO scenario, and that these will
have a large negative impact on trade and productivity. Indeed, this a key
assumption in most such studies.
This can be challenged in many ways. Technology is continually reducing
the costs of customs NTBs, so it is wrong to assume that the costs in future
would be the same as they would be now. This is a good example of the
risks in extrapolating current thinking to make forecasts over a period as
long as 15 years. The UK and EU will also have the same regulations and
standards at the point of departure. This should mitigate the impact even
in a ‘no deal’ WTO scenario, where the EU would treat the UK in the same
way as any other third country with whom it does not have an FTA. Finally,
estimates of the costs of erecting new trade barriers are typically based on
the assumption that most, if not all, of the benefits of previous reductions in
trade barriers and closer integration would be lost, even where these have
been locked in.
Second, the results of the FTA and (especially) the WTO scenarios in the
Whitehall Briefing are made worse by the assumption that the UK would
choose to impose tariffs on imports from the EU, rather than maintain the
level playing field required under WTO rules by lowering tariffs on imports
from the rest of the world. This assumption, again common to most of
these studies, turns a potential opportunity for gain into a loss.
Third, the results of these two scenarios are also made worse by the
assumption that the UK government would restrict EU migration (with no
offsetting increase in migration from the rest of the world) in ways that
exacerbate skills shortages and undermine productivity. Like the decision
on tariffs, that’s a mistake that the government can avoid.
Fourth, the Whitehall Briefing is skimpy on its assessment of the benefits
of new free trade deals. The headline numbers only include the boost to
GDP from a deal with the US, itself estimated at a low 0.2% of GDP. It
does mention that the inclusion of other deals would provide a total long-
term increase of up to 0.7%, but again this seems small. Many previous
studies have underestimated the benefits of liberalisation, especially when
extended to NTBs that the Whitehall Briefing assumes will remain high.
Fifth, the Whitehall Briefing makes little allowance for gains from regulatory
optimisation. To be clear, the UK is already one of the more liberalised
economies in the OECD, let alone the EU. But this does not mean it cannot
do better still.
Sixth, the savings on contributions to the EU budget are excluded from the
headline analysis (presumably because they may not translate 1-to-1 to
an increase in GDP). Instead they are considered separately in a section
on fiscal implications, which concludes they would be dwarfed by the fiscal
costs. But these costs mainly follow from the finding that the economy
would be a lot weaker. If that is wrong, the fiscal numbers are wrong too. It
certainly seems odd not to allow any credit for savings which might amount
to 0.5% of GDP each year, or a cumulative 7.5% of GDP over a 15-year
A brief comparison with other studies
The Whitehall Briefing also cites studies by other organisations which
arrive at a wide range of estimates. Some of these suggest that the long-
run impact of Brexit would be a much smaller negative than the official
figures, or that it would be positive:
- Oxford Economics24 estimated the loss in GDP at between
0.1% and 3.9%;
- PWC25 estimated the loss at between 1.2% to 3.5%;
- Open Europe26 estimated the loss at 2.2% in a worst-case
scenario, but with a potential gain of 1.6% in a best-case
- Economists for Free Trade27 have estimated a gain of 7%
even in a WTO scenario (comprising a 4% gain from a net
reduction in trade barriers, 2% from regulatory optimisation,
and a further 1% from fiscal savings).
24 Oxford Economics, “Assessing the Economic Implications of Brexit”, 2016.
Available at: https://www.oxfordeconomics.com/brexit
26 Open Europe, “Where next? A liberal, free-market guide to Brexit”, 2016.
27 Economists for Free Trade, A World Trade Deal: The Complete Guide”, 2018
The IEA’s own modelling work28 is focusing on the benefits of regulatory
optimisation and the reduction of anti-competitive market distortions.
(This does not mean abandoning safety or quality standards that are
proportionate and science-based, and which apply equally to domestically-
produced goods and services.) Preliminary results suggest that a 30%
reduction in these sorts of distortions between key trading partners by 2034
could increase the GDP of the US, CPTPP-11 plus UK by up to 7.25%,
compared to where it would otherwise have been.29
There are four key points to take away.
First, modelling the economic impact of Brexit is inherently difficult, partly
because the longer-term benefits are harder to quantify than the initial
costs. This reinforces the danger that policy-makers focus too much on
keeping as close as possible to the status quo, rather than seeking an
outcome that makes the most of the opportunities created by the UK’s
departure from the EU.
Second, the conventional wisdom has often been wrong (for example, on
the case for joining the euro, and even the immediate economic impact
of a vote to leave the EU, which, although negative has been much less
than many feared30). This does not mean, of course, that the consensus is
wrong this time too, but it should be taken with large pinch of salt.
Third, estimates for the impact need to be put in their proper context –
recognising the uncertainties and kept in perspective, especially when they
represent relatively small changes in the level of GDP compared to the
growth that might otherwise be expected over long periods.
Finally, it is important not to pin too much on any number. As the Whitehall
Briefing itself notes, “excessive weight should not be given to single-point
estimates, given uncertainties, ranges of opinion on assumptions, global
and sector trends and a variety of potential end states”. Instead, it should
be recognised that alternative modelling of the economic impact of Brexit
can produce very different results – both positive as well as negative.
Given that all the major contexts in which the Brexit process sits are moving
in a negative direction, the UK may be able to make significant gains if it
adopts an aggressive independent trade and regulatory policy designed
to knock down barriers at home and abroad. This, then, points us to the
prize that the Prime Minister once spoke of: an economy typified once
more by high growth, a world of global trade with barriers being reduced
29 Note that the gains would not be shared equally across all parties but this gives a sense
of the scale of reduction in distortions and behind the border barriers.
30 Jessop, J., “GDP already hit 2.1% – And it will only get worse”, Institute of Economic
not rebuilt, developing countries able to export with increasing freedom to
our country and to others, and the barriers to trade behind national borders
that discriminate against our imports being reduced, so that our service-
oriented economy is supercharged by access to new markets and sources
Given that there is ample evidence that the potential gains to the world are
significant, it is the UK’s independent trade and regulatory policy that must
be preserved, while at the same time mitigating the damage caused by
leaving the EU’s institutions.
The disruptions caused by leaving the EU’s customs union and single
market can be mitigated, as we demonstrate in chapters 2, 4 and 5. What
is crucial, however, is that the UK has the ability to realise the opportunities
that can be set before it, which will mean that any disruption costs will be
strongly outweighed, bearing in mind that EU regulation is not static but
How Independent Trade and
Regulatory Policy Delivers the
It is the capacity to apply an independent trade and regulatory policy that
gives rise to the economic gains of the Brexit Prize. To make the most
of this exercise, the UK should follow an integrated trade policy strategy
based on four fundamental pillars.
All independent countries have some variant of a four pillared trade policy.
This includes autonomy over their domestic regulatory settings. To have
a credible and executable independent trade policy, the UK must have
control over its tariff schedules, and domestic regulatory autonomy.
Without both of these, it will not be a credible trade partner, and this
precludes being a member of the customs union and the single market
or either of them. The nature of the UK’s economy also determines how
it should proceed. If the UK economy was dependent, in trade policy
terms, on securing agriculture or industrial goods tariff reductions, then
some of these might be secured even with industrial goods regulatory
harmonisation with the EU. It is because the UK is a heavily services-
based economy, and the barriers to exports of services are predominantly
related to regulatory issues, that it must have maximum leverage to secure
reductions in these barriers around the world by having flexibility over its
own regulatory system. As we briefly outline the different pillars here, it is
crucial to have a combined and coherent approach to all of them, and not,
as the UK government has done so far, to bifurcate the EU process from
the rest of the UK’s independent trade and regulatory policy.
We discuss these pillars in greater detail in Chapter 4, but a summary is
necessary in order to then discuss how the pillars interact with each other.
The UK is playing chess on multiple chessboards, and one of the most
troubling aspects of the negotiations so far has been the propensity of the
UK to lose sight of the non-EU chessboards so that the negative impact
across these other pillars of concessions made to the EU are not fully
understood in real time. This is the where we have been led in negotiation
by the EU.
These are the things that the UK can do unilaterally, both in trade
policy terms (e.g. its own tariff settings) as well as domestic
regulatory choices. Unilateral regulatory change does not mean massive
deregulation, but better, pro-competitive regulation (which is also in line
with accepted best practice as set out in the OECD’s regulatory toolkit31
and competition assessment toolkit,32 and the work of the International
The UK can undertake negotiations of a number of bilateral agreements
simultaneously. The EU agreement itself is one part of this bilateral
agenda. While this has occupied most of the bandwidth in Whitehall for
understandable reasons, it is critical that independent trade and regulatory
policy is conducted holistically, and we do not bifurcate the EU piece from
independent trade and regulatory policy generally.
The major markets with whom the UK has trade agreements through the
EU – the EU-X agreements can be replicated between the UK alone and the
partner country if the partner country agrees. EU cooperation is necessary
to the extent that both parties would want to have regional cumulation of
origin so that supply chains involving both UK and EU content can enter
the third country party at the preferential rate. It is unlikely that any such
third country would resist this as it would be the price for continued access
to the UK market, and can be accomplished as long as the EU’s and
UK’s agreements with the same country have the same rules of origin.
Fortunately, EU rules of origin are relatively liberal at the moment, and
there would be no particular reason for the UK to diverge from these.
Additional bilaterals can be negotiated where the EU currently has none,
and the UK should focus on major trading partners such as the US,
Australia, New Zealand, the Gulf countries, India and China.
The major plurilateral arrangements which the UK could accede to at the
moment include the CPTPP, NAFTA, and the Pacific Alliance. The CPTPP
is one of the most advanced trade agreements in the world, and can
31 OECD, Regulatory Toolkit, accessed 09/2018.
32 OECD, Competition Assessment Toolkit, accessed 09/2018.
33 International Competition Network, 2009. RECOMMENDED PRACTICE
ON COMPETITION ASSESSMENT. [Online] Available at: http://www.
become a trade policy centre of gravity as countries around the world seek
to join.34 This enables the UK to increase its access to the fastest growing
markets in the world.
The multilateral pillar relates to what we can do through our WTO
transition and afterwards. Full flexibility here is very important as the UK
will need to be able to offer further liberalisation in the future, i.e. soon.
An Integrated Trade and Regulatory Policy and the need to exploit
positive interactions and minimise negative interactions between
Very little attention has been paid to how the different processes the UK is
embarked on impact each other, and how the UK can use these interaction
effects to its own advantage. Given that managing this process can be the
difference between a good result and a bad one, understanding and using
these interactions is a very high priority. Progress in some of these different
pillars or areas will have an impact on other negotiations and other pillars,
especially the EU negotiations. Some of these interaction effects are
positive for the UK, while others are negative. For example, if the UK is
able to progress its US FTA and CPTPP accession, it is much more likely
to have a better negotiation with the EU. Similarly, if it looks to tariff-rate
quota (TRQ) partners that it will not have enough control over its tariff
schedules and sufficient regulatory autonomy, then they may seek to get
as much access as they can in the TRQ process, as opposed to gaining
that further access in a subsequent FTA, because they will no longer think
such an FTA is possible.
It is not possible to list all of the interaction effects between the four pillars
in a single document, but it is useful to consider some examples which
demonstrate the need for a coherent strategy.
34 Recently South Korea formally applied to join CPTPP: “S. Korea Decides To Join CPTPP
| WTO And International Trade Policies”. 2018. Wtocenter.Vn. http://wtocenter.vn/tpp/s-
Consider the UK’s application to accede to the Government
Procurement Agreement, one of the WTO agreements to
which the UK has to accede. The EU requested that they have
a role in that accession process, and agreed to assist the UK
in that process. When the EU reneged on that offer, the UK’s
accession process was temporarily off track. Here the decision
to follow the EU’s lead stemmed from an interpretation of the
duty of sincere cooperation required by article 4 of the Treaty
on European Union “to assist each other [the EU and Member
States] in carrying out the tasks which flow from the Treaties”35
which, when followed to its logical conclusion, requires the UK
to accede to many EU suggestions where a different approach
would lead to gains in the other, non-EU pillars. The result of
this, if the UK emerges from the EU without being a member
of the GPA would be damaging to many UK industries. This
is an example where the UK should conduct its own GPA
negotiations on a bilateral basis with its trading partners without
EU participation even if this has an impact on the dynamics of
the UK-EU negotiation.
Consider the proposition in the draft Withdrawal Agreement
that the duty of sincere cooperation and common commercial
policy apply during the Transition Period. Viewed through a
purely EU lens, one might be forgiven for thinking that this is a
reasonable EU request. However, the application of these two
principles could have serious consequences for any attempt to
negotiate seriously with other countries and thus activate the
other non-EU pillars of UK trade policy in a timeframe that will
help the EU negotiation. These negotiations are intended to be
carved out of the application of the duty of sincere cooperation
by article 124(4). However in practical trade policy terms, if a
member state is unhappy with the UK’s negotiating approach
with other countries, it can pressure the other country on the
basis that the UK is still bound by the common commercial policy.
The UK will have to demonstrate a much more robust approach
to the duty of sincere cooperation, common commercial policy
and the carve-out, than it has so far demonstrated. There is
little evidence that this is about to change.
35 Elsuwege, P., “The duty of sincere cooperation and its impact for the national interest of
EU Member States in the field of external relations”, Working Paper, UCAES, 2018.
Consider the UK’s acceptance of the position in the Joint Report
of December 2017 on the Irish Backstop. Viewed through the
lens of the EU only, the backstop seems reasonable enough.
It is an insurance policy just in case no FTA is concluded.
However, from the perspective of the rest of the world, the
backstop removes the EU’s incentive to negotiate with the
UK at all. The backstop then becomes an indefinite state and
the UK will have either ceded sovereignty over a part of its
territory or submitted to remaining in a form of customs union
and single market.
Consider the Facilitated Customs Arrangement and its
predecessor, the New Customs Partnership. If one ignores
the impact of these arrangements on the rest of the world,
they appear to mitigate the increased customs clearance
costs brought about through leaving the customs union, and
moving to a free trade relationship. However, from a rest of
the world perspective, these options would damage the ability
to execute the other pillars of trade policy, because they nullify
the potential gains which can arise from customs concessions
which the UK might give to another trading partner.36 37
There are also positive interaction effects which would be lost
if the UK continues to separate trade policy between the EU
and rest of the world. Consider the WTO transition and TRQ38
negotiations and Aggregate Measure of Support39 (AMS)
offers. The EU has sought to negotiate the transition of TRQs
jointly with the UK or on the UK’s behalf. Viewed through the
lens of the EU only, this might seem a reasonable request.
Viewed through the lens of the whole of independent trade
36 Victoria Hewson, “Under Control”, Institute of Economic Affairs, London, 2018.
Available at: https://iea.org.uk/publications/under-control/
37 European Foundation, 2018. “The New Customs Partnership”.
38 The tariff rate quota is the agricultural import quota which the UK offers the rest of the
world. It has to be separated from the combined EU-28 TRQ, and this has to be agreed by
WTO members as part of the laying of the UK’s good schedules before the WTO.
39 AMS is the amount of agricultural so-called Amber Box production subsidies WTO
members are allowed to claim.
and regulatory policy, the UK’s favoured approach would be
to negotiate these bilaterally with the countries involved. The
UK could then maintain that these TRQ partners should be
reasonable with it on the TRQs (agreeing to the UK’s idea of
splitting the TRQ based on historic market shares between
the UK and EU) in exchange for the UK offering further
liberalisation in these products relatively quickly, and being a
positive force in the WTO. But the TRQ partners would have
to be able to convince their agricultural lobbies that this was
indeed possible, and that it would happen quickly. Hence the
length of time of any interim period (the transitional period)
after the UK leaves the EU and the time at which actual FTA
negotiations with TRQ partners might start is very important.
If the UK can negotiate TRQs bilaterally, it might be able to
secure a better deal for itself than otherwise.40
Because it is so important to manage these interaction effects which often
happen in real time and cannot wait for the standard Whitehall write-round
process, it is critical that there is coordination over all of the policy.
Read-across to other agreements is also critical. For example, if the
UK proposes language for financial services regulatory recognition, this
can be read across to other agreements such as the UK-US FTA. If this
language is then agreed in the UK-US FTA, the EU is more likely to agree
to it themselves. Unless there is a single mind over all of this policy, errors
may continue to be made that have wide-reaching consequences for the
UK’s ability to capture the Brexit Prize.
40 The UK has sought a technical rectification as part of its WTO transition which is sensible
– however technical rectification does not require an agreed position with the EU; in any
event the EU has moved itself to a modification of its schedules, which the UK may or may
not follow. The important point is that whatever process is followed, the UK has the capacity
to have direct and credible conversations with its trading partners about the benefits they
may secure as a result of the UK’s WTO transition.
Why the Chequers Proposal
Removes Independent Trade and
In Chapter 1, we described the Brexit Prize and why an Independent Trade
and Regulatory Policy is so critical to achieving it. In Chapter 2, we outlined
how coordination over all independent trade and regulatory policy is at the
heart of that policy. We reviewed examples of how the bifurcation of trade
policy into an EU and Rest of World approach has caused problems and will
cause problems in the future. We briefly explained what an independent
trade and regulatory policy could be expected to achieve.
We now review how the Government’s various proposals impact its
own ability to execute that policy. The Government, in the Lancaster
House speech, expressed an approach that enabled all four pillars of
the independent trade and regulatory policy to be meaningfully realised,
because the UK would maintain control over tariff schedules and regulatory
policy. Indeed this was a critical aspect of the speech itself and its reference
to a Brexit Prize.
However, it is our view that the Government White Paper takes that
independent trade and regulatory policy off the table, and puts the
Brexit Prize out of reach. Despite the White Paper’s statements that
an independent trade and regulatory policy is still possible, we find that
despite the creative attempts by the Government to preserve independent
trade policy and also retain sufficient harmonisation to the EU to retain key
aspects of free circulation, the White Paper does not achieve this goal for
the reasons we set out below.
In addition, there is not, and in fact has never been, any indication as
to how its policy positions can be delivered. This is at the heart of our
concern about the process. By bifurcating the EU and the rest of the
UK’s independent trade and regulatory policy, the UK has allowed itself
to be trapped on the EU’s battlefield, so that it is unlikely to achieve any
optimal results. It has also been very difficult to make any progress with
the EU without putting negotiating text on the table, which is another core
recommendation of this paper.
The White Paper broadly outlines a free trade area between the EU and UK,
with a common rule-book on agri-food and goods in respect of regulations
that affect checks at the border. If the “common rule book” was genuinely
a result of a shared negotiation of equal partners, then it would not
necessarily constrain the UK’s independent trade policy. A comprehensive
FTA with a management of differences mechanism could also lead to what
could be described as a “common rule book”. However the problems are
in the detail of precisely what the “common rule book” is and the limitations
in UK deviation from it (see below). The services, investment, government
procurement and mutual recognition of occupation licensing provisions are
broadly sensible proposals from which negotiating text could be drawn.
One of the major issues which troubles trading partners outside of the EU,
however, is that arrangements with the EU prevent the UK from being as
open as it needs to be, especially in goods and agri-food regulation, in
order to secure economic gains. Simply having the ability to negotiate on
services does not mean that trade deals can be done in these areas.
The White Paper provides for a common rule-book in goods and agri-food41,
which is by treaty harmonisation with the EU’s rule book with a commitment
to harmonise to future EU rules in these areas.42 The carve-outs for CAP
and CFP, and for marketing and labelling rules do not recognise that
most of the trade complaints about EU agricultural policy lie precisely in
the SPS area. We have given some examples of these in Chapter 1.
Especially given the direction of travel of EU regulation in this area, it is
difficult to see how having no flexibility in these SPS areas can lead to
trade agreements with others. Not only is the division between services
and goods essentially artificial, but any change that the UK might seek
would have to go through a complex process involving a joint committee
where the EU would ultimately adjudicate on whether the UK was in fact
41 See 1.2.3 & 1.2.4 of Department for Exiting the European Union, 2018. Policy paper: The
future relationship between the United Kingdom and the European Union.
42 The language of the White Paper suggests that the rules which will be harmonised in
goods and agri-food relate only to their trade across borders, but the SPS and some TBT
measures that are caught by these provisions are precisely those that necessitate border
inspections for these products. It is true that certain marketing and labelling rules would not
be caught by these provisions and a mutual recognition approach such as the White Paper
highlights would be appropriate (para 37 at p23) as part of an FTA’s mutual recognition
harmonised to the EU rule.43 From a trading partner perspective, this
means that the UK is severely constrained in its ability to change rules in
the area of goods and agri-food, as well as in certain horizontal areas such
as labour, and the environment, where non-regression clauses require the
UK to maintain all current levels of standards in this area, because it would
ultimately be up to the CJEU to decide whether the UK had diverged in an
unacceptable manner.44 A determination about whether the UK had fallen
below the benchmarked level of standards would be determined by the EU
with the possible imposition of fines or other “rebalancing mechanisms”.45
Under these principles, if the EU and UK could not agree a particular
measure, the UK could be fined if it did not include the EU measure into
its rule book. Thus any change from the EU’s standards as at the moment
of leaving the EU would be liable to be met by the allegation that the UK
was violating the agreement on harmonisation to the EU rule book or the
non-regression clauses and would lead to protracted debate and litigation,
making it very difficult for the UK to improve regulations. A trading partner
seeking changes in these areas would also assume that the UK could not,
in fact, concede anything, or that the path to a concession was through
Brussels not London. This also creates the perverse situation whereby if
the UK brings its SPS rules into line with WTO decisions, it could violate
the UK-EU non-regression clauses in environmental rules, or could violate
the treaty commitment to a common rulebook. Given the direction of travel
of those rules, and the EU’s increasing position as an outlier in the world
in these areas, the separation between the EU rule book and the position
taken by the UK’s other key trading partners is likely to widen even further.
USTR’s National Trade Estimate (the US’ inventory of foreign country trade
barriers)46 shows that the vast majority of US complaints against the EU
relate to rules in goods and agri-food, and so taking these off the table will
mean the UK will have no leverage to obtain the changes from the US it
needs which would be primarily be in the services area where the barriers
are difficult to remove anyway. The same is true of other big agricultural
exporters like Australia, New Zealand and many of the CPTPP countries.
Acceding to CPTPP, for example, would be very difficult, if not impossible,
for a country to do, without control over its regulatory rulebook. If the UK
was in practice unable to diverge from the EU, it is doubtful that the large
agricultural exporters in the CPTPP would welcome its entry.
43 White Paper, 4.5.144
44 The proposal expressly recognises that the CJEU will be the ultimate interpreter of EU
law, not just for the EU but as regards its application in the UK.
45 White Paper, 4.4.1. para 30
46 Office of the United States Trade Representatives, 2018. National Trade Estimate
Report on Foreign Trade Barriers. Available at: https://ustr.gov/sites/default/files/files/Press/
It would also be very difficult to improve domestic regulations in line with
the recommendations of the OECD47 48, if the UK remained tied to the
EU regulatory system in particular and failed to meet CPTPP members’
approaches to good regulatory practice. As pointed out in chapter two, the
EU appears to be moving away from those standards, not approaching
Facilitated Customs Arrangement
The Facilitated Customs Arrangement is drawn from the earlier New
Customs Partnership, and contains most of its key elements. These
measures have been discussed at length elsewhere,49 highlighting the
WTO violations in the NCP which have tracked through to the FCA, and
the specific reasons why they make an independent trade and regulatory
policy very difficult. Others have also noted the WTO illegality of the FCA
arrangements. The track and rebate system is likely to be a violation of
GATT Art III (National Treatment) as it treats imported products differently
from like domestic products.50 The FCA could also violate WTO rules on
transparency (GATT Article X). WTO members could additionally argue
that any negotiated benefits with the UK would be nullified or impaired by
this system. In the case of an anti-dumping duty, where the UK might not
apply a dumping duty which the EU has in place, the duty recoverable
could be quite large, and the cash flow issues for importers significant.
Any consumer benefits which the UK could seek to derive from having a
more open, liberal anti-dumping policy than the EU would be vitiated by
this mechanism. In any event, the EU would have considerable problems
if products covered by EU anti-dumping orders were to leak into the EU
from the UK.
All that said, the fundamental problem with the FCA is not that it may violate
the WTO but rather the impact that it will have on the UK’s negotiating
flexibility with other countries. In customs, the FCA will have significant
impacts on the ability to negotiate with trading partners.51 Outside the EU,
this will have a similar de facto effect on trading partners as a customs
union, and make it impossible for other countries to fully rely on the tariff
47 International Competition Network, 2009. RECOMMENDED PRACTICE
ON COMPETITION ASSESSMENT. [Online] Available at: http://www.
48 OECD (2018), OECD Regulatory Enforcement and Inspections Toolkit, OECD
Publishing, Paris, https://doi.org/10.1787/9789264303959-en.
49 European Foundation, 2018. The New Customs Partnership. [Online]
50 Lawyers for Britain, “Chequers White Paper Briefing No. 2: Does the Facilitated Customs
Arrangement comply with WTO law?”, 2018.
51 European Foundation, 2018. The New Customs Partnership. [Online]
concessions they may nominally obtain as against the EU’s common
external tariff. Our soundings suggest that no trading partner will take the
FCA (or NCP, or similar variant) seriously. From their perspective, they will
act as if they were dealing with a member of a customs union.
The White Paper thus limits the UK’s control of tariff schedules and
regulatory policy through the FCA and harmonised rulebook. This is also
the view of leading trade negotiators. Former New Zealand trade minister,
Sir Lockwood Smith notes: “if Brexit results in the Chequers approach, with
the regulations dictated from Brussels, it’s difficult to see how the UK could
meet these important [for joining CPTPP] requirements.”52 Former Deputy
USTR, Peter Allgeier notes that “if the UK is merely a smaller version of
the EU, then it is unlikely to be a particularly interesting trade negotiations
partner. It is precisely the UK’s ability to diverge from EU regulation that
makes it interesting.”53 Former GATT Council Chairman, Alan Oxley noted
that under Chequers, “the UK would find itself bound to EU regulations
over which, as a partial outsider, it would have no control.”54
In any trade negotiation, countries need to know that their trading partner
genuinely has the ability to grant “concessions” in other areas, so that
trade-offs can be made. The more critical an area where trade-offs can
be made is to the trading partner, the less likely they will be to give
concessions to the UK in areas the UK deems important. The UK needs
services barriers removed, which are some of the most difficult areas in
which to make progress. The countries with which the UK would most
benefit from striking trade deals will need concessions in goods and agri-
food for instance, precisely the area where the White Paper limits the UK’s
ability to make concessions.
The EU as a regulatory outlier
The government seems to assume in its analysis that the EU regulatory
system is regarded by the world as a gold standard system. This
is not the case. Indeed most of the world regards the EU as the outlier
especially in terms of its regulations of goods and agriculture. In goods,
52 Smith, S. L. “Britain has a golden chance to join the biggest free trade agreement in
history”, Conservative Home 2018
likely-to-wreck-it.html [Accessed 11 09 2018].
53 Allgeier, P. F., “The Chequers proposal would prevent the UK regaining an independent
trade policy”, Conservative Home, 2018, Available at: https://www.conservativehome.com/
independent-trade-policy.html [Accessed 11 09 2018].
54 Oxley, A., “My reading of the Brexit White Paper suggests the Government doesn’t really
get what is at stake”, Brexit Central, September 18th, 2018.
the EU’s top down approach to standards and the recent imposition of its
approach to data protection on the rest of the world is considered deeply
The White Paper says that the UK and EU set the highest global standards
in the SPS area for agri-foods, but here again most of the world has a
different view, and considers many of these protectionist and artificially
restrictive trade barriers. Indeed, the EU has been found in violation of
WTO rules in a number of agricultural sectors, for instance on measures
affecting poultry meat from the United States,56 and hormone treated meat
from Canada57 and the US.58
In this context, harmonisation to EU rules will be regarded by the world as
moving the UK further away from good regulatory practice, and therefore a
much less credible and valuable trading partner.
The White Paper also states that the UK will seek to remain in the
European Patents System and the European Patents Court. While UK
intellectual property (IP) law may be similar to EU law substantively, the
UK will need to ensure that its courts determine the scope of IP law and
policy. Implementation of IP law is a very important aspect of a country’s
economic policy. A clear statement that property rights will be protected is
a strong signal to innovators and investors alike. When countries improve
their IP rights, their economic development improves, and venture capital
and other financing opportunities are created.59 The statement in the White
Paper limits the UK’s authority over the application of its own intellectual
property laws, adopting a unitary approach to patent registration and
litigation. If the CJEU decides to adopt a more interventionist approach
which erodes patent protection along a similar economic rationale to its
approach to competition policy, this may make negotiating agreements
with demandeurs, such as the US, who seek high levels of IP protection,
more difficult, and may weaken the UK’s domestic environment.
There are also concerns with the non-regression clauses in a number of
55 Office of the United States Trade Representatives, 2018. National Trade Estimate
Report on Foreign Trade Barriers. Available at: https://ustr.gov/sites/default/files/files/Press/
Reports/2018%20National%20Trade%20Estimate%20Report.pdf [Accessed 17 09 2018].
56 EC-Poultry (US), WTO Dispute Settlement DS389, online:
57 EC-Hormones (Canada), WTO Dispute Settlement DS48, online:
58 EC-Hormones, WTO Dispute Settlement DS26, online:
59 See Singham, A General Theory of Trade and Competition: Trade Liberalisation and
Competitive Markets, Cameron May 2007 at pp319 et ff
Horizontal Measures in Competition and State Aids
The UK and EU have broadly similar approaches to the implementation of
competition law and policy. However, there are significant and substantive
areas where differences do arise, and it is likely that the UK will want to
have the flexibility to depart from the EU’s substantive interpretation of
competition law, as well as retain its own procedural rules. It will also
want to negotiate global agreements on procedure that the EU may not
wish to negotiate, for example the Multilateral Framework on Procedures
in Competition Law Investigation and Enforcement (MFP) which has
recently been proposed by the US and other leading antitrust agencies.60
The UK has an opportunity to be a charter member in a groundbreaking
global agreement which will ensure better procedures that protect the rule
of law and economic freedom, and ensure that antitrust is administered
fairly. The White Paper itself notes that the there are aspects of procedural
enforcement where the UK is ahead of the EU. The EU is objecting to the
MFP, and requiring member states to join it in its objections.61
With regard to substance, the EU applies a collective dominance approach
to single firm conduct which we believe harms consumer welfare in the
economic sense. A better approach is to include in a competition chapter in
an FTA a framework for cooperation in these areas recognising that the UK
may enforce competition law, both in terms of procedure and substance
differently than the EU. A sample competition chapter of the FTA is
forthcoming. This sort of approach recognises and builds on section 60 of
the Competition Act which recognises that there are differences between
UK competition law and European law.
The UK should be prepared to carry over and agree state aids disciplines
in the UK-EU agreement and a chapter on state-aids should be relatively
easy to conclude. It is certainly in both parties’ interests that the other is not
able to confer aid on an undertaking and thus distort market competition.
Horizontal Measures in Labour and Environment. With regard to horizontal
measures, there are provisions of the Government’s position in the White
Paper that would have a serious impact on the ability of the UK to have a
competitive economy. Although the provisions in these areas in the White
Paper are non-regression clauses (rather than outright harmonisation), and
therefore not obliging the UK to keep up with the EU’s changes, any change
the UK does make may be regarded by the EU as a lessening of standards.
60 Fresh Thinking on Procedural Fairness: A Multilateral Framework on Procedures in
Antitrust Enforcement”, United States Department of Justice, Washington, 2018.
61 The impasse on the MFP is but one example of likely future clashes between what the
UK will seek to do in global standard setting and rule-making bodies and what the EU will
allow it to do if alignment is too tight.
The European Union has recently been moving in an anti-competitive
direction in these areas, as evidenced by changes in EU labour rules,62
the working time directive,63 application of the EU’s own interpretation of
the precautionary principle,64 65 and REACH,66 among others.67 Under the
White Paper proposal, if the UK chooses to move away from the EU in
any of these areas it is likely to be treated as a reduction in standards, the
ultimate arbiter of whether the UK has violated the provisions is the CJEU.
This is likely to prevent the UK implementing pro-competitive regulation in
these areas, even if such reforms preserve or improve existing standards
Exemption from the EU social chapter had previously been a core element
of UK policy since its accession to the Common Market itself. This was
to ensure that the UK could set its own labour market policies and thus
to ensure a more flexibility – one more conducive to job creation, and
a dynamic economy. The UK has since embraced a number of labour
policies which go well beyond what can be seen to be reasonable
protections of workers. Indeed some of these policies make it much harder
to hire new workers. The opportunity presented by Brexit should not be lost
by locking the UK into EU labour policies and practices which have been
demonstrated to have slowed the European economy.68 In many areas,
UK organisations have called the Working Time Directive, and the Posted
Workers Directives examples of overly prescriptive regulation that goes
beyond what are necessary for worker protection.69
62 The Agency Workers Regulations (AWR) 2010 (Directive 2008/104/ EC Oct-11)
63 The Working Time Regulations 1998 and Working Time (Amendment) Regulations 2003
(Directive 2003/88/EC Oct-98/ Aug- 03)
64 Parsons, D. and Garnett, K., “Multi-Case Review of the Application of the Precautionary
Principle in European Union Law and Case Law”, Risk Analysis, 37:3, pp 502-516, 2017.
65 Woolcock, S., “The Precautionary Principle in the EU and Its Impact on International
Trade Relations”, CEPS, Working Document 186, 2002.
66 Registration, Evaluation, Authorisation & Restriction of Chemicals (2006) (REACH)
(Regulation (EC) No 1907/2006 Jun-07)
67 Singham, S. A., Tylecote, R. & Hewson, V., 2018. “Freedom to Flourish – UK regulatory
autonomy, recognition, and a productive economy”, IEA Discussion Paper No.91, Chapter 5.
68 Woolcock, S., “The Precautionary Principle in the EU and Its Impact on International
Trade Relations”, CEPS, Working Document 186, 2002.
69 See Chapters 3.27 – 3.35 of HM Government, Summer 2014. “Review of the Balance
of Competences between the United Kingdom and the European Union: Social and
Employment Policy.” [Online]
This is also true of EU environmental protection rules, which is one of
the areas where EU regulation is moving in an anti-competitive direction.
We are supportive of environmental protection, but it should be noted that
European environmental rules apply to many different product categories,
and lead to increases in costs for many companies – sometimes they are
valid attempts to deal with real environmental problems, but frequently they
are disguised methods of protectionism, for instance the EU’s restrictions on
citrus imports and certification requirements for Specified Risk Materials.70
So agreeing with the EU not to lessen current environmental standards will
have wide ranging impacts.
Furthermore, the UK has a history of opposing EU rules in this area. The
move to Qualified Majority Voting (QMV) which we discussed earlier has
meant that no member state has a veto, and we have seen an increase
in the volume of regulation whose prescriptive and anti-competitive nature
goes against the grain of how the UK has historically chosen to regulate.
Since its introduction in 2009 the UK has lost three times as many of the
Council votes it has participated in by proportion as during the previous five
years, and more than twice the percentage of the next nearest member
nation, see fig 1 below.71
70 United States Trade Representative, 2017, National Trade Estimate Report on Foreign
Trade Barriers, pp152-154
71 Does the UK win or lose in the Council of Ministers? Hix and Hageman, UK in a
Changing Europe. Available at: ukandeu.ac.uk/explainers/does-the-uk-win-or-lose-in-
Figure 1: Percentage of times each EU government has been in a
losing “minority” in Council votes, as a proportion of all votes it took
part in during the 2004-2009 and 2009-2015 periods72
72 Figures from: Singham, S., Tylecote, R., and Hewson, V., “Brexit Inflection Point”,
Legatum, 2017, pp 30. Source of data is reference 78 above.
Numerous UK entities seek mutual recognition, rather than harmonisation,
and many have pointed out the damaging consequences of harmonisation.
As noted in chapter 1, the goal or the regulatory provisions in any trade
agreement are to ensure that both parties satisfy Good Regulatory Practice
(“GRP”) and that as much regulatory recognition as possible is achieved
in this area.
There is no reason why the UK should accept the position that market
access to the EU market should be constrained by differences across
the broad horizontal areas like labour and environment. This is not how
modern trade arrangements work. Generally other countries provide
a level of standards that both sides would agree, as part of their trade
agreements. Since the UK and EU-27 consist of advanced economies,
agreeing base minimal levels of compliance (such as core ILO standards,
and core environmental standards) should be relatively straightforward,
but cannot require the UK to follow the EU’s acquis in these areas as a
precondition to market access.
Remaining in EU Agencies
The White Paper states that there would be three agencies of the European
Union that the UK would seek to remain part of, and also seek to have
some sort of role in EU rule-making. These are:
- The ECAA. The European Civil Aviation Authority is the EU regulator
for aviation, air safety and related matters.
- ECA. The European Chemical Agency regulates the chemicals industry
- EMA. The European Medicines Agency regulates the pharmaceutical
industry among other areas.
In terms of the UK regulatory rule-book, the ECAA has replaced the Civil
Aviation Agency (CAA). There is value in ensuring minimal disruption of
air travel, so we are not concerned about this offer. We also do not find that
the direction of travel of EU regulation in this area is especially troubling,
but it should be noted that under this arrangement, the UK would need
assurance that its voice would be heard – which is more likely here than
in other areas because the UK includes the world’s third largest aviation
It is understandable that managers of UK-EU supply chains would want the
rules that cover their sector not to be affected. However in the chemicals
area, we already know the overall direction of travel of EU regulation as
exemplified by REACH which has had a serious impact on the chemicals
industry in Europe, not to mention increasing costs for consumers of those
products, such as the plastics and other related industries. There is a
serious risk here that this sort of burdensome and restrictive regulation
expands, and that firms around the world regard this as a global standard.
This will certainly have a negative impact on innovation.
What is true of the chemicals industry is doubly true in the case of
pharmaceutical and biotech where the UK has a competitive advantage.
Already, the global pharmaceutical industry has had difficulty with EU
clinical trials directives. In particular, the rules on disclosure of clinical trials
data, including disclosure of confidential information released to the EMA
has been a problem for pharmaceutical companies. Many member states
maintain market access barriers to pharmaceutical products73 as well as
taxes that impact various levels of production.74 The global pharmaceutical
industry in which the UK has a leadership role needs to ensure that the
overall climate on pharmaceutical related issues such as patent protection,
and patent term extension are as strong as possible and clinical trials and
pharmaco-vigilance is as pro-competitive and least distortive as possible.
The EU has not taken especially helpful positions in the TRIPs council in
the WTO on issues like compulsory licensing. It is not in the interests of the
pharmaceutical and biotech industries to become an effective rule taker (it
is hard to see how the EU will allow the UK to sit on relevant regulatory
promulgation bodies in the European Council for only this sector) for the
An Alternative Approach
An Alternative Approach, as we note in the following chapter is to offer an
advanced free trade agreement with detailed chapters which support the
provisions set out in this chapter and ensure that the UK’s ability to operate
on the global stage (and thus capture the benefits of the Brexit Prize outlined
in Chapter 1) is not compromised. A competition and state aids chapter
should give confidence to the EU that it is not the UK’s intention to use
government subsidy and tolerance of cartels and anti-competitive mergers
73 Office of the United States Trade Representatives, 2018. National Trade Estimate Report
on Foreign Trade Barriers. [Online]
74 Ibid. pp. 195
to drive UK competitiveness. Issues like labour and the environment should
be treated as they are in all other trade agreements, with commitments that
countries make to enforce their own laws and abide by international rules.
A Deeper Dive into the Four
Pillars of Independent Trade and
Domestic tariff and regulatory improvements
The UK should lower tariffs where it can, especially on food, clothes and
shoes. These tariffs keep the price of basic goods and staples higher,
which harms the poorest in society the most. The UK should lower tariffs
to zero on a unilateral basis for intermediate goods, so that its domestic
manufacturing competitiveness can increase.
It should lower tariffs to zero for agricultural products that it does not
produce, increasing the supply of these goods into the UK market. These
products include products like bananas, oranges, rice and avocados.
- In the event that no free trade agreement with the EU can
be concluded before the UK’s departure from the customs
union and single market (because the parties are unable
to agree on a withdrawal agreement that is duly ratified, or
they do, but no FTA emerges during the Transition Period),
then to combat potential food price inflation that could
otherwise be caused by the application of UK tariffs set
at the Common External Tariff rate (CET) to the imports of
European agri-food the UK will need to either:
- lower agricultural duties on agri-food to zero on a
most favoured nation (MFN) basis
- not apply its bound rate (to all parties), which will be
the CET at the point of exit, effectively lowering the
applied rate to zero.
- Recognising that this would subject UK farmers to
competition from highly subsidised agri-food from
continental Europe and elsewhere, the UK would have
to develop a mechanism which would let UK farmers
challenge such distortions through countervailing duties,
or through a mechanism to deal with Anti-Competitive
Market Distortions (ACMDs).75 76 77 This would provide a
mechanism through which a level playing field could be
achieved (a level playing field does not exist now however:
UK farmers must compete head on with heavily subsidised
continental European farmers).
At the heart of the domestic competitiveness agenda is ensuring
that markets are truly free and competitive. This refers to domestic anti-
competitive barriers, and foreign trade and competition barriers, which
affect the global supply chain and impact the UK economy. International
trade has moved on to a world of competing supply chains, but governments
sometimes operate as if companies simply produce a product in one
country, then sell it in another. A selection of actions follows.
Creation of UK Competitiveness Czar
The UK’s competitiveness relies on a reduction of barriers abroad, but also
critically a reduction of barriers at home. This goes beyond the current
activities of the Competition and Markets Authority (CMA), although it is
consistent with the competition advocacy mandate of the CMA.
This process can be led by a Competitiveness Czar based in the Prime
Minister’s Office, but whose remit covers barriers faced by UK firms, at home
or abroad, and who will liaise with all relevant Government Departments
and agencies, including the Department of Business Enterprise, Innovation
and Skills (BEIS), the CMA, the Bank of England, the Department of
International Trade (DIT), HM Treasury (“HMT”) and the Department of the
Environment, Food and Rural Affairs (“DEFRA”).
Free trade, and free and competitive markets, have done more to lift
people out of poverty than any other policy or practice: but there are many
75 Singham, S. A., Kiniry, M., Dr Rangan, U. S., and Bradley, R., “Introduction to Anti-
Competitive Market Distortions and the Distortions Index”, Legatum Institute, London, 2016
76 Singham, S. A. and Abbott, A. F., “Enhancing welfare by attacking anticompetitive market
distortions”, Concurrences No. 4, 2011
77 Abbott, A. F. and Singham, S. A., “Competition Policy and International Trade Distortions”,
in European Yearbook of International Law 2013, Springer, 2013
areas where the UK economy is uncompetitive, because the market does
not work properly. These can be divided into horizontal anti-competitive
practices, laws and regulations; and sector-specific vertical ones. The UK
should also develop a pro-competitive regulatory promulgation mechanism,
which helps avoid new regulations damaging ordinary market processes
along OECD-recommended lines.78
Building a more competitive market in the UK
We will discuss the need for a competition chapter in a UK-EU FTA below;
the UK must have flexibility in these areas because this is crucial to ensuring
a competitive and thriving economy. The recommendations demonstrate
the need for divergence from the EU regulatory system: some, indeed, go
beyond what the EU has required in the acquis. There are anti-competitive
distortions in key UK markets in a number of sectors, especially questions
of the lifeblood of the UK economy, such as inputs into major manufacturing,
services and agricultural industries (examples would include energy, retail
banking, transport (including rail) and property). The Government, as part
of its Brexit strategy, should be considering how to make improvements in
all these sectors. The following represent examples of priorities.
UK Agricultural Policy
- The EU’s Common Agricultural Policy (CAP) is a system
of tariff protection, subsidy, and regulatory control that
unfairly restricts imports from the developing world, raises
prices for the British consumer, and has led to the state
of European agriculture being described as a “museum of
- The Government’s White Paper would keep the United
Kingdom locked into EU agri-food regulation, without a say
on how it is made.
As a member of the EU, the UK’s agricultural production and trade have
been regulated by the CAP and CET. Domestic agriculture gives Britain
around 60% of its food, with 1.6% of its labour force, constituting 0.6%
of its GDP. In 2015, gross agricultural output was £23.9 billion, and total
78 OECD (2018), OECD Regulatory Enforcement and Inspections Toolkit, OECD
Publishing, Paris, https://doi.org/10.1787/9789264303959-en.
79 Owen Paterson MP quoted in “Once wedded to the EU, some British farmers think it’s
time to quit”, Euractiv with Reuters, 2016.
income from farming in the UK was £3.8 billion.80 81 But subsidy payments
from the CAP make up 50-60% of UK farming income.
The United Kingdom now has the opportunity for a new approach to
farming and agricultural trade. Without control over agricultural policy, the
promised benefits of leaving the EU would be nullified, just as if the UK
merely replicated the tariff, quota and sanitary and phytosanitary (SPS)
and technical barriers to trade (TBT) measures currently in place. Instead,
we should bring down tariffs, expand trade abroad, and make our food
The Common Agricultural Policy
Subsidies are used to incentivise (and occasionally disincentivise)
agricultural production across the EU: these are most often tied to land,
but also production (e.g. head of cattle). The CAP also mandates a regime
of tariffs and quotas which control the flow of agri-food products in and out
of the EU.
Exiting the CAP presents significant dividends of the Brexit process,
providing British policymakers with their first opportunity in over forty
years to decide an economically and ecologically sensible set of policies
for consumers and farmers. It will also open free trade negotiations with
third countries, growing not only the agricultural sector but the whole of the
British economy. Agriculture represents a ‘threshold issue’ in negotiations
with most countries, especially the ones which the UK is most likely to
strike initial deals with: these domestic reforms should be addressed early.
The UK has relatively few defensive interests in agriculture, making
potential trade partners more likely to agree to liberalisation in difficult areas
which are more important to the British economy, like services. The EU’s
refusal to seriously negotiate on agriculture has made negotiation
with third countries on services, investment and behind the border
barriers such as anti-competitive market distortions more difficult.
An Open Agricultural Policy that works for the UK’s Farmers
The new agricultural regime that we propose is based on openness.
The goal is to gradually liberalise tariffs in agriculture so that over time.
However, tariffs are only one side of agricultural trade barriers. Most
80 see page 12, DEFRA Agriculture in the UK 2015 : https://www.gov.uk/government/
81 DEFRA, Agriculture in the United Kingdom 2015, https://www.gov.uk/government/
uploads/system/uploads/attachment_data/file/535996/AUK-2015-07jul16.pdf, page 1.
(accessed 27 September 2016).
of the UK’s trading partners are just as concerned with SPS and TBT
barriers. Here the White Paper would prevent the UK from ensuring that
these barriers are WTO compliant and based on sound science (not the
EU’s interpretation of the precautionary principle which is bringing it
into conflict with other WTO members), and a countervailing duty and
mechanism to protect British producers from anti-competitive market
distortions from abroad (including from the EU-27) Once the UK leaves
the EU, it will repatriate trade remedy measures, including traditional
anti-dumping and countervailing duties laws.
Many WTO-compatible mechanisms could be used to provide relief
to British farmers who might suffer from highly subsidised or otherwise
distorted imports. The UK could also develop a safeguard mechanism to
increase the tariff to the rate of the CET if the applied rate is lower (e.g. as
a result of the application of lower tariffs in certain areas as a result of a
policy of gradual liberalisation).
These measures will satisfy those farmers who are legitimately concerned
with import competition from products benefiting from distortions, and
satisfy those countries who want broader access to the UK market. We set
out below areas and programmes which would be affected by an exit from
the CAP regime, to demonstrate how British farming can not only survive,
but be much better off, post-Brexit.
Tariffs and Quotas
- Eliminate quotas and tariffs on all products that the UK
does not produce, such as bananas, rice, and oranges.
- After binding at the CET rate through technical rectification
or modification of our WTO schedules, gradually convert
quotas and tariff-rate quotas (TRQs) to tariffs for all
products that the UK does produce, recognising that the
country is not self-sufficient in most agricultural products.
- Create a tariffication mechanism to rebalance prices of
products whose costs are reduced by distortions in their
own markets, or use the difference between the CET and
the applied rate to re-apply the CET in the event of proof of
an illegal subsidy or anti-competitive market distortion as a
Subsidies and Supports
- Phase out production- or land-based subsidies, moving
towards direct transfer payments by 2021.
- Redirect funding to support individual, active farmers via
direct transfer payments to prevent a shock to the United
Kingdom’s farming families and communities, and increase
- Re-engineer greening payments towards environmental
remediation schemes on an as-needed basis, funded by
an insurance scheme covering events out of the ordinary
and out of farmers’ control (e.g. flooding).
- Maintain animal disease compensation funds.
- Maintain R&D funding for farming techniques and
- Allow bridging funds to flow to farmers who diversify
holdings with other services (e.g. tourism).
- Regulate on the basis of sound science, and in compliance
with the letter and the spirit of WTO SPS and TBT
Agreements, not the EU’s anti-innovation application of the
UK Fisheries Policy
The EU’s Common Fisheries Policy (CFP) has denied the UK control
of its own waters, depleted its fish stocks and caused severe ecological
degradation. CFP rules have also disproportionately subsidised non-UK
EU fishermen, helping cause chronic unemployment among our fishing
communities. The White Paper, however, promises that we will leave the
CFP, but states that we will continue to regulate our waters jointly with the
The UK has the opportunity to develop its own UK Fisheries Policy (UKFP),
once it withdraws from the EU and the CFP. As a net fish importer (we
tend to import what we eat, and export what we catch) we have a unique
opportunity to support consumer and producer interests simultaneously.
- The primary objective of a UK fisheries policy should be the
restoration of sovereignty over UK waters, then balancing
the goals of commercial fishing in UK waters, sustainability,
and cheaper fish for UK consumers.
- To limit unnecessary costs for producers and consumers,
policy should be the least trade-distortive possible,
consistent with regulatory goals.
- For cheaper food and more choice, policy should also
be the least anti-competitive possible, consistent with
- It will need to be in the context of the international framework
for fisheries, in particular UNCLOS and UNFSA.
- For continuity, some elements of the CFP could be retained
for the immediate future, like specific technical measures.
Others, like access to waters and SPS/TBT questions,
should be altered immediately.
- The UK should also enhance its scientific advisory body,
actively engaging in ICES.
Access to waters and management of quotas
- For sustainability internationally, the UK should join the
NEAFC, and consider other RFMOs, participating in
international negotiations on Total Allowable Catches
(TACs) for different fish stocks.
- Negotiating bilateral agreements with the EU, Norway,
Iceland, and the Faroe Islands, on access to respective
Exclusive Economic Zones (EEZs) and management of
fish stocks, should be a priority. Negotiations should be
in conjunction with those on process and methodology for
determining TACs for shared and straddling fish stocks.
- The UK’s relatively limited need for access to others’ EEZs
strengthens its position in negotiating TACs. This leverage
must be put to use.
- The UK should consider which Sustainable Fisheries
Partnership Agreements (SFPAs) to replicate, to support
developing countries and to allow our fishermen access to
more fish stocks.
- The UKFP should address barriers to entry for new
fishermen created by the FQA system, which favours
incumbents. Instead, our system should maximise
competition, while considering development of a fair and
transparent allocation mechanism for fishing rights, e.g.
- The UKFP should have mechanisms to avoid discards,
such as introduction of risk pools or quota bundles, for
quick transfers of quotas as needed.
- Policymakers may trial “days at sea” to prevent overfishing.
Funding and government support
Subsidies to fishermen should be phased out: these may support inefficient
production and limit competition and incentives for better productivity.
However the Government may need to provide interim support, such as
for transitional costs in fitting new monitoring systems.
- A mechanism should enable fishermen to seek remedies
against imports that have benefitted from government
distortion, to level the playing field and enable effective
- The UK should investigate creating markets for insurance
products, to guard against the impact of fluctuating stocks.
Trade in fisheries products
EU tariffs on imports are currently relatively high. Lower tariffs for seafood
consumed but not commonly caught in the UK would benefit consumers,
with little impact on domestic fishing.
- The UK should set regulatory barriers at the level consistent
with the goals of human and animal health, but still the least
trade- and market-distortive, based on scientific evidence.
- A UK-EU FTA should include a comprehensive fisheries
chapter. This needs to include provisions including on
mutual recognition of standards and application of import
conditions, with a mechanism to manage divergence in
standards after the UK leaves.
- The UK should join the WTO Friends of Fish group and
actively advocate in Geneva for a WTO fisheries schedule
and the successful conclusion of fisheries subsidies
Aquaculture has the potential to support employment in fisheries, guard
against price shocks for UK consumers, and help the UK more responsibly
steward its marine resources.
- The Government can support the industry through
streamlining planning processes, ensuring efficiency in
licence allocation, and incentivising innovation.
Fisheries and devolution
Further distribution of powers to devolved governments should be
considered. Areas such as trade and negotiations of TACs, and access to
the UK’s EEZ, would remain with the UK Government, however.
UK Finance: An Alternative Plan for the City
Protect and enhance the integrity of the UK Financial System
- Reduce the application of the EU’s Capital requirement
to only internationally active banks
The objectives of Basel III were to avoid systemic risk, market
fragmentation and regulatory arbitrage for ‘internationally active banks’,
but the EU applies these regulations to all EU banks and investment firms
via the Capital Requirement Regulation and Directive (CRR and CRD IV)
regardless of whether they are internationally active or pose a systemic
threat to the market. This increases the amount of capital EU financial
service companies must hold, reducing the amount they can lend to,
underwrite or invest in the wider economy. In January 2019, all UK banks
will need to ring-fence their retail banking from their investment banking
activities so there will be no reason for the UK to continue to follow the
EU’s capital requirements for domestic UK banks. Instead after Brexit the
UK financial authorities should reduce the application of CRR/CRD IV to
cover only globally active financial institutions as originally intended by
Basel III. Lowering the capital requirements for domestically focused UK
financial services will increase the amount of capital available for domestic
consumers and businesses, providing a boost to the economy.
- Retain London’s position as the centre of wholesale
finance in Europe by allowing EU-headquartered
financial institutions to remain operating in the UK
The Bank of England will allow any EU financial institution operating in
the UK to continue if there is a cooperative agreement with their home
state regulator. The Bank will also grant temporary permission if there is
no transition period post-Brexit to allow EEA firms using a UK passport to
continue to operate and fulfill existing contracts while they seek full UK
authorisation. This will allow the UK to retain its position as the world’s
financial supermarket. Also, EU firms could set up a small UK subsidiary
with legal substance to be the recipient of any financial service business.
EU-based companies will still be able to raise money in the UK, just
as companies from all over the world raise money in London’s efficient
capital pools and it liquid secondary markets. Clients from the EU27 will
still be able to trade with UK banks by using relationship-based, reverse
solicitation exclusion, just as non-EU clients do.82
Promote effective Competition for both large and small consumers
- Improve Large Fund trade facilitation rather than
adopting the EU’s double volume caps
After Brexit, the UK financial authorities should abandon the double
volume cap or at least increase it to the 11% and 17% recommended
by the FCA to ESMA. The present 4% and 8% caps hurt the heavily
traded, UK markets, making it more difficult for large investors to trade in
large sizes without moving the market price against them. The UK has a
comparative advantage in Asset Management and trading, and should not
82 Barnabas Reynolds, Blue Print for Brexit, Politeia. Jul 2016, page 18
risk losing this market due to a trading limit set for smaller and low volume
EU markets. According to Efama, UK is the largest asset manager in the
EEA with 36% of the market.
- Review the definition of trade incentives such as
The EU regulations that require company research to be purchased by
asset managers should be dropped post-Brexit. Reading research reports
is not an inducement to trade; it requires effort and may not convince an
investor to follow its recommendation or even to trade at all. The previous
system worked, and there was no requirement for the FCA to waste
resources monitoring research fees. Purchasing research is reducing the
research available on smaller, less traded and new companies, as financial
analysts move their coverage to larger companies that offer the greatest
return for their reports.
- Encourage new market entrants with proportional
regulations and taxation
It is important to encourage innovation and new market entrants, however
much of the EU’s existing regulation favours the large incumbent
companies either by explicitly protecting them from competition or by
increasing regulation so that compliance costs become crippling for smaller
competitors or new market entrants.
When we leave the EU, the UK should extend the de minimis exemptions
in regulations and increase the financial threshold so that start-up
and disruptor companies can get more than just a foothold in the UK
market. Reducing the burdens of MiFID II regulations on small firms,
especially excessive data collections, the “suitability and appropriateness”
assessments, as well as the “complex” investment determinations for retail
clients, would all help to expand private client investments and improve
the capital-raising process for new companies, which predominately rely
on private client investors.
Expanding the FCA’s very successful sandbox for financial innovation
to other areas and industries could be a major boost to the economy.
Taking part in the sandbox program has enabled new companies to assure
investors that their inventions/services will get approval from the regulators
when complete. The program has attracted fintech companies from around
the world applying to work alongside the FCA.
London is also leading the world in Green Finance, having raised more than
$24bn for green bonds. The Green Finance Taskforce can be expanded by
working with industry to accelerate the growth of green finance as well as
with the British Standards Institute to develop a set of green standards to
provide clarity to financial institutions over the credentials of green financial
products. The taskforce will also work with mortgage lenders to develop
green mortgage products that reflect the lower financial risks associated
with the reduced outgoings for owners of energy efficient properties.
HMRC needs to plan for a post-Brexit tax system that encourages
investment, promotes start-up and scale-up businesses, and reduces the
complexity of the UK tax code. Every new tax makes the UK a harder place
to do business and discourages inward investment. Post-Brexit the UK’s
competition for innovators will especially be economies like Singapore,
where new firms are given tax incentives to incorporate there (although
Singapore’s corporate tax rates are already lower than the UK, at only
HMRC should remove the 8% bank surcharge which pushes profitable
UK banks into a tax rate that is much higher than the US, where federal
corporation tax has been cut to 21%. For many UK financial service
providers, the US offers a very viable alternative to London: indeed, in
the most recent Global Financial Centre Index, New York has overtaken
London to top place. Even many EU countries, including Luxembourg, the
Netherlands and Ireland have lower corporate taxes for financial services
Secure an appropriate degree of protection for consumers without
lowering market liquidity
A large part of any financial regulatory regime is to protect consumers of
and investors in financial products. This is important because financial
markets rely on consumers and investors who in turn rely on the knowledge
that their assets and investments will be safe. Having a liquid secondary
market that lets investors cash out or change their investments whenever
they wish is also a key element of efficient financial markets. So, any
regulation to protect consumers should also be careful not to drive liquidity
out of the market.
The UK regulators could improve market liquidity post Brexit by reviewing
some of the MiFID II requirements that hinder competition in the market
without providing any real consumer protection.
- Data requirements
MiFID II now requires 65 data points for every transaction by both buyer
and seller, but it is beyond the ability of regulators to monitor this amount
of information in any meaningful way. Under the first MiFID directive,
implemented in 2007, only 24 data points were required, and even this
was considered excessive by most market participants (even major banks
with large compliance departments were fined for mistakes in their data).
The excessive data requirement disproportionally effects an investment
firm with a large number of small clients or clients who trade frequently.
- Retail investors
The determination of what is a “suitable” and also “appropriate” investment
for a private client greatly increases administration costs, making it too
expensive for investment banks to focus their business models on individual
wealth management and share ownership.
This regulation is reducing the number of retail investors in the market which
is reducing the ability of SMEs to raise funds in the equity markets, as well
as reducing the liquidity of the secondary markets. SMEs rely on private
client share ownership as they are too small to appeal to large investment
firms, who must buy larger tranches of shares to make an effective return
for their much larger funds. Ironically, larger financial services firms who
can afford the additional regulatory costs of dealing with private clients
don’t generally do so, because the potential returns are too small.
- Short selling
Similarly post-Brexit, UK regulators should also drop the EU’s preoccupation
with short selling. The idea that short selling is riskier than buying is partly
a symptom of a 9-year long bull market; in a bear market the reverse
will be true. In the futures market, both long and short transactions may
be uncovered by the underlying physical commodity and yet the futures
market functions well, with margins required from both sides (many market
observers believe that the recent sell off in the Crypto Currency bubble
was due to the CME introducing a futures contract that enabled investors
to short the market).
- CFDs and fintech trading
Unacceptable conduct such as insider trading, price manipulation and
financial fraud must be prevented and prosecuted after the fact. But
introducing more and more hurdles for private client advisors to jump
is only lowering the overall market liquidity by driving investors towards
unregulated, offshore platforms. It is better for the whole economy if a retail
investor trades in shares listed on a regulated market.
Regulators need to spend their time and money keeping the whole system
afloat, and ensuring that systemic market risk is minimised or avoided
completely. Regulators watching for potential threats to small investors will
never be as effective as those investors watching out for themselves.
Sectoral regulatory reform opportunities and regulatory promulgation
Anti-competitive regulations can raise costs for businesses or create actual
blockages to trade. The acquis includes numerous anti-competitive and
over-prescriptive regulations. The UK should prioritise to determine which
to remove to make our overall economy more pro-competitive. The CMA
and other government departments should be heavily involved in reviewing
the acquis as it is ported over, to remove the anti-competitive regulations
that damage consumers, especially the poorest.
The following brief examples illustrate EU-originated anti-competitive
regulations in the UK.83 The point is not that ‘deregulation’ is needed, but
regulation that is pro-competitive, increasing consumer welfare.
The UK has a competitive advantage in the digital economy. Many of its
innovative firms rely on data flow, so it is imperative that the regulatory
environment accounts for this and allows these companies to flourish.
- General Data Protection Regulation (GDPR) (Regulation
GDPR has extra-territorial reach wherever EU citizens’ personal data
is processed. It is suspicious of innovation however, and its complex
requirements mean small entrants find compliance harder. Fines can
go up to €20m, or 4 per cent of worldwide turnover. Smaller firms lack
the resources to monitor compliance, and may risk sanction to avoid the
83 Singham, S. A., Tylecote, R. & Hewson, V., 2018. “Freedom to Flourish – UK regulatory
autonomy, recognition, and a productive economy”, IEA Discussion Paper No.91, Chapter 5.
compliance costs, making GDPR self-defeating; firms exiting the market
because of GDPR also means an anti-competitive outcome.
Moving away from the strictures of the GDPR, the UK should work with
other like-minded WTO members (such as the US and members of the
Plurilateral Working Group on E-Commerce in the WTO). It should ally
with these countries in seeking provisions in the UK-EU FTA that allow
adequacy in cases where data rules are objectively achieving the same
data protection goals, but are not identical. This is one of many examples
where the EU is an outlier.
The UK will need to regulate in ways that differ from the EU’s approach to
data flow in order to promote this sector. At the same time, cross-border
flow of data into the EU is important, so a solution must be found where
the EU allows data to flow even if technical regulation differs, provided the
overall goals of data protection are being met.
Outside of the EU’s regulatory structure, the UK would not be bound by
some of the aspects of the Digital Single Market initiative which have
caused concern. Such as the copyright directive currently making its way
through the EU law-making process
- Audiovisual Media Services Directive (AVMSD)
AVMSD requires member states comply with content requirements in
exchange for being able to distribute their country’s content to other EU
Member States, which includes a requirement to reserve a certain amount
of airtime for ‘European works’. The test for where a media business is
established under the AVMSD has also been criticised by Member States
for being difficult to assess and enforce. Works produced in third countries
are subject to the airtime allocation requirements for European works and
may find it difficult to access the European market. The imposition of local
content requirements is a classic example of an ACMD: these rules hamper
content producers’ ability to make investment and production decisions.
The UK has a very strong offering in the entertainment sector and should
not be hampered by local content rules which it does not need in order to
This sector is an example of advanced manufacturing where the UK should
seek the most pro-competitive regulation possible, for a vibrant, dynamic
sector. EU regulation in this area is highly restrictive.
- Registration, Evaluation, Authorisation & Restriction
of Chemicals (2006) (REACH) (Regulation (EC) No
REACH is a framework for chemicals manufacture and use in the EU,
whose stated aim is to ensure chemicals produced, imported, sold, and
used in the EU are safe. It obliges manufacturers to gather information
on new and existing chemicals they use, submitting the information to the
European Chemicals Agency (ECHA) for review and inclusion in a central
database; the UK has the second highest number of registrations.
The regulation reduces third country exports to the EU, however, by
increasing cost and, in some cases, barring products from the single
market. In the National Trade Estimate Report on Foreign Trade Barriers
(2017), the US Trade Representative stated:
“REACH impacts virtually every industrial sector… It imposes extensive
registration, testing and data requirements on tens of thousands of
chemicals. REACH also subjects certain identified hazardous chemicals
to an authorisation process that would prohibit them from being placed
on the EU market unless a manufacturer or user has obtained permission
from the Commission… REACH appears to impose requirements that are
either more onerous on foreign producers than EU producers or simply
unnecessary.” Its report added: “WTO Members have emphasised [the]
problems producers have in understanding and complying with REACH’s
extensive registration and safety data information requirements”.
The Commission itself admits this is: “one of the most difficult pieces
of legislation for industry to deal with — in particular SMEs”. Some
businesses have moved production overseas to avoid it, or exited the
market completely. Testing costs are often high, harming profitability.
Pharmaceutical and Biotech
The biotech and pharmaceutical sector is one where the UK is and should
remain a global leader. Global pharmaceutical companies have expressed
concern about European approaches to clinical trials including the potential
for confidential test data and confidential commercial information submitted
to the EMA to be disclosed. If the sector is subject to EU rules as the White
Paper calls for, it is unlikely the UK would be able to properly oppose the
direction of travel of EU regulation in this area. Given that approaches to
these issues are global and require global solutions, the UK is better off
negotiating them in an FTA and working with allies around the world for a
less trade restrictive and anti-competitive approach from the EU.
Far from locking into to the EU’s regulatory system and intellectual property
approach, the UK should agree a set of approaches and disciplines with
more like-minded parties, such as the US and to some extent Japan.
EU – A Free Trade Plus deal
“Work must be accelerated with a view to preparing a political declaration
on the framework for the future relationship…” June 29, 2018, Article 50
Conclusions, European Council.
So far, the UK has spent a lot of time negotiating with itself, not with the
- For instance, the UK has gone as far as to consult with the EU on
how negotiable its proposals might be (see Olly Robbins’s testimony at the
European Scrutiny Committee on how critical negotiating documents were
shared with the EU to assess negotiability, even before releasing to the
members of the Cabinet).84
But negotiability in trade is only really tested in the heat of actual negotiation.
Negotiability is also a dynamic concept. UK proposals will receive better
treatment from the EU if the latter is under greater pressure, from without
and within, to accept them (we discuss the strategy for this below). A
paradigm shift is therefore required.
The EU meanwhile has taken the White Paper as the UK’s opening bid,
with respect to the crucial trade aspects of an agreement, meaning it will
likely seek further concessions. This could include the UK being a member
of the European Economic Area (EEA).85 However, EEA members who
are not EU members do not sit on the essential rule-making and
comitology committees, and have no say in EU rule-making.
“In particular, like the EFTA Convention, the EEA Agreement incorporates
84 Oliver Robbins witnessing before the Exiting the European Union Committee, 24th July
- (remarks at around 15:15) Video: https://www.parliamentlive.tv/Event/Index/5342afbc-
85 Whose precise rules were discussed in Singham, S. A., Tylecote, R., and Hewson V.,
“Brexit Inflection Point”, Legatum, London, 2017.
all EU measures on technical barriers to trade, but goes further than EFTA,
also incorporating SPS measures. Given that the EEA Agreement applies
to all EU and EFTA states except Switzerland, and any others which in
theory could join the Agreement, as the EFTA secretariat describes, this
“The EEA Agreement extends the Union’s internal market rules
to the three EEA EFTA States. This comprises the entire body
of technical regulations determining the requirements products
need to fulfil concerning safety, consumer protection, health and
the environment, as well as the procedures for testing conformity
with such requirements. The Convention incorporates the rules
established under the bilateral agreement between Switzerland
and the EU in this area, as well as the corresponding provisions of
the EEA Agreement.”86
The EFTA states are not part of the customs union or subject to the
common commercial policy and enter into FTAs with other countries either
in their own right or as a bloc. However, once again, the FTAs are very
limited in scope and focus mainly on goods and tariffs. With respect to
non-tariff barriers and services, they generally do not go beyond affirming
the parties’ existing WTO commitments and some hortatory language on
Compare, for example, EFTA’s agreement with Canada and the EU’s
comprehensive FTA with Canada (the Comprehensive Economic and
Trade Agreement “CETA”87). CETA covers services, investment and goods,
and includes provisions on technical barriers to trade and SPS measures,
which EFTA states would not be able to agree to as they are not in control
of their regulations in these areas, which are passed to them from the
- The four freedoms are indivisible and regulations that implement them
must be complied with. The history of the EEA Agreement has shown that
the EFTA states that are parties to the agreement are rule-takers, and must
take on the single market acquis, but have no vote on legislation and only
consultative input on its formulation. The potential for EFTA countries to
use the EEA Agreement’s provisions to block regulation has never been
carried out, for good reason: the EFTA parties to the EEA Agreement have
86 Short Overview of the EFTA Convention http://www.efta.int/legal-texts/eftaconvention/
detailed-overview-of-the-efta-convention#tbt 25 Free Trade Agreement Between Canada
and the States of the European Free Trade Association (Iceland, Liechtenstein, Norway
And Switzerland), signed January 2008 available at http://www.efta.int/free-trade/free-trade-
87 Available at ec.europa.eu/trade/policy/in-focus/ceta/index_en.htm 27 See for example
the testimony of Dr Johanna Jonsdottir, Policy Officer in the EFTA Secretariat, on 25th April,
2012 the House of Commons Foreign Affairs Committee, available at http://www.publications.
no formal access to the Council or Commission, and only limited access to
the Commission’s relevant groups.
Many have claimed that Section 102 of the EEA Agreement allows EFTA
members to avoid taking on EEA rules they do not like. However, since
the EEA Agreement is the agreement providing preferential access to the
single market, and since market access issues are linked, triggering Article
102 gives the EU the right to take retaliatory measures to reflect the non-
compliance of an EFTA member who declines a measure. This is why the
EFTA countries have never used this power.
For the UK, this would mean whenever it wanted to change its baseline
legislation (as it stood at Brexit), the consent of the EEA Joint Committee
would be needed. If it did not agree (which, when diverging from the acquis,
is inevitable) the EU could trigger retaliation against UK trade.
The EEA Agreement also established the EFTA Surveillance Authority, of
which the EFTA Secretariat itself states: “the EFTA Surveillance Authority
and the EFTA Court [respectively] mirror the surveillance functions of the
European Commission and the Competences of the Court of Justice of the
European Union”. (The Commission has also recommended strengthening
the EFTA Surveillance Authority and Court, to function as a mirror to EU
authorities.) This is harmonisation of regulation, not divergence, and
demonstrates that the EU would be able to enact a swathe of regulations
which the UK has blocked before, and would effectively lock the UK out of
trade negotiations with other countries.
Instead of continuing with the White Paper proposals, or pursuing the EEA
option, we advise that the UK now make a different bid (with relevant text),
a UK Offer based on the following concepts, which are broadly similar
to Council President Donald Tusk’s offer of an advanced Free Trade
Agreement (made on March 7th, 2018.88
(i) Market Access and National Treatment for Goods. All tariff
lines to be zero. These are currently zero tariffs in goods,
and this should be replicated.
88 “Statement by President Donald Tusk on the draft guidelines on the framework for the
future relationship with the UK”, European Council, March 7th 2018.
(ii) Draft, and agree, chapters that are relatively uncontroversial,
such as baseline intellectual property protection,89
government procurement, and investment rules.
(iii) Start negotiating other chapters which will require more
(iv) A competition policy chapter would deal not only with
cooperation between competition agencies but also with
ACMDs, i.e. typically state-created distortions that damage
competition in the market, unfairly increasing the costs
of some (especially smaller firms) and relatively lowering
the costs of others (especially large incumbents). Here,
as elsewhere, putting sample text on the table assuages
concerns about what our future policy choices might be:
where we can, we should give that comfort. As the UK can
point out to the EU, it is not the intention to erode normative
competition principles, such as to allow cartels or abuses
of monopoly power. (We suggest a sample competition
policy and state aids chapter which we do not include in
this paper, but which we will submit shortly.)
(v) Maximum regulatory recognition for both goods and
services and a mechanism to manage differences that
arise because the UK or EU diverge.
(vi) The regulatory coherence chapter included in the Annex to
this alternative approach starts from an assumption that the
Parties will agree maximal mutual regulatory recognition
on day one. The chapter will include a section on GRP,
setting out the obligations of both parties to commit to the
core principles, such as promulgating laws and regulations
that are the least trade restrictive and least anti-competitive
possible, consistent with a clearly stated and legitimate
89 Substantively, the UK and EU will have similar though not identical approaches to IP (for
example the UK may seek fewer geographical Indications (GIs) than the EU) in the areas of
patent, copyright, trademark and trade dress, and industrial design. However, procedurally,
there may be great differences (UK courts should determine the scope of IP rights). The
UK therefore cannot be within the jurisdiction of the United Patent Court, which the White
Paper proposes; this body would interpret law in accordance with the CJEU. It would also
inevitably become more anti-competitive over time.
90 The chapters of a UK-EU agreements beyond those listed here include: 1) Market
Access for Goods and related schedules; 2) Rules of Origin and Origin Procedures;
3) Customs and Trade Facilitation; 4) Trade Remedies; 5) Sanitary and Phytosanitary
measures; 6) Technical Barriers to Trade; 7) Investment; 8) Government Procurement; 9)
Competition Policy; 10) Regulatory Coherence; 11) Intellectual Property; 12) Cross Border
Trade in Services; 13) Sectoral Annexes in services including financial services, telecoms,
e-commerce and others; 14) Labour; 15) Environment; 16) Dispute Settlement.
Given the starting point of regulatory recognition (see below), a management
of differences mechanism will be needed to broadly ensure recognition will
not be unreasonably withheld. The starting point is that as long as the
parties are implementing GRP, consistent with the overall WTO framework
and its spirit, the regulatory goals are objectively achieved even by different
regulation, recognition should not be unreasonably withheld. This means
that while it remains open to either party to exercise its legal sovereignty and
withhold or withdraw recognition, if doing so contravenes the commitment
to recognition in the FTA, this would be subject to trade consequences,
within the dispute settlement system of the UK-EU agreement. As we note
in Chapter 5, the UK’s bid may be rejected here, but negotiating this is still
crucial to the UK’s interests. Other WTO Members can also be marshalled
in support for this best in class agreement, which is in their interests to
If these terms are not met, recognition may be withdrawn with trade
consequences within the dispute settlement system of the UK-EU
agreement. As we note in Chapter 5, the UK’s bid may be rejected here, but
negotiating this is still crucial to the UK’s interests. Other WTO Members
can also be marshalled in support for this best in class agreement, which
is in their interests to emulate.
We include text in the Annex of this document for regulatory coherence,
where the drafting of negotiating text should begin immediately. Drafts
of financial services and other chapters should be tabled. One key area
will be customs and trade facilitation with an Irish border protocol. These
should also be tabled in the negotiation towards agreeing a framework for
the future relationship, based on these concepts:
Ordinarily, customs chapters in trade agreements are quite simple and
not a source of contention between the parties. What makes the UK-EU
arrangements different is that the starting point is the low friction
and absence of customs clearance costs, as the UK is within the EU
customs union and single market. The opportunity therefore exists to
craft more ambitious customs arrangements between the two, and
better develop customs systems for a new era of trade. UK customs
clearance processes must accommodate a potentially five-fold increase
in customs documentation between the UK and EU on the day of Brexit.91
The key element of the arrangements will be to separate movement of
goods from processing of forms (electronically or otherwise) for as many
traders as possible.
The agreement will provide for many of the things that already appear
in advanced trade agreements but a best in class customs and trade
facilitation agreement by itself will not solve all the disruptions caused by
leaving the customs union and single market. The UK and EU will need
other solutions. In particular the UK will need to use technology and process
improvements to upgrade its own customs systems. Some solutions have
been described by Hewson.92 Others include using newer technology
such as smart ledgers, which, it has been estimated93 could add at least
$35bn and as much as $140bn to global trade in goods each year. Former
Director of Swedish Customs Lars Karlsson has also described some of
these technologies and processes.94 Hans Maessen former chairman of
the customs brokers association in the Netherlands has noted that:
“This situation provides a unique starting point to formulate new and
efficient customs procedures. [The transaction based approach]
can be taken over by a system-based approach, based on trusted
traders and repetitive transactions.”95
A customs chapter in an FTA between the UK and the EU should
comprise the following commitments, to reduce the burden of formalities
on traders, and avoid pressure and congestion at ports and airports:
- General inter-agency and authority cooperation and
- Use of simplified procedures and data processing at points
of departure and destination, to cover the import, export
and transit of goods.
- Maintenance of procedures for the prompt release of goods,
and for release prior to final determination and payment of
duties, taxes and fees, supported by procedures for post-
release audit, to be conducted in a risk-based manner.
Expedited procedures to be made available to qualifying
operators and mutual recognition of AEO programmes.
- Operation of self- assessment for importers to declare
imports periodically and account for any duties payable,
and support to encourage its uptake by traders.
- Agreement that physical inspection of goods is to be
carried by means of random checks, except in duly justified
95 Maessen, H., “Drive Through Borders”, SGS, 2018, pp. 1.
- Ensuring that any necessary formalities and inspections
are carried out with the minimum of delay and, to the
maximum extent possible, away from the border.
- Commitment to apply agreed security measures with
respect to third country trade, recognition of equivalence of
security-related risk management systems and cooperation
information exchange and risk management.
- Recognition of inspections and documents of the other
party for certification of conformity with country or import or
export, as applicable,
- Where a party requires veterinary inspections of meat or
animal products, and such requirements are not waived
for the other party, commitment to maintain veterinary
inspection facilities at all border crossings where meat and
animals may be imported
- Adherence to international standards of the WTO, WCO
and other appropriate bodies.
- Operation of juxtaposed inspection offices where possible.
- Operation of suitable de minimis exemptions from submitting
formal entry documents for low value consignments.
- Efficient and effective management of transshipment
- Special rules and facilitations for specific sectors such as
automotive, agriculture, pharmaceuticals.
At functional and operational levels, HMRC, DEFRA and other relevant
authorities will need to continue cooperating with the counterparts in
bordering member states. HMRC and HM Treasury will also need to invest
in improvements to systems and resources, and legislative reforms to
reduce the burdens on businesses and reduce the distortions that currently
operate against rest of world trade.96 This should include improving trusted
trader schemes like AEO and CFSP, and making them available to the most
traders possible, an ensuring that intermediaries like customs brokers and
freight forwarders have a clear legal framework that will enable them to
provide competitive, scalable solutions.
96 See Under Control – What HMRC can do to prepare and optimise customs processes for
all outcomes IEA and ACITA, April 2018
Much has been made of the need for free circulation to preserve just in
time supply chains. The mitigants suggested in this customs section will
ensure that there is minimal friction for supply chain managers; indeed,
these suggestions make it clear that there is also no logistical justification
for the White Paper model. In addition, the customs and trade facilitation
chapter could include an auto pact to include further mitigants. This could
also apply for other sectors if it can be genuinely shown that the mitigants
in this section do not sufficiently mitigate frictions. It is important however
to note that it would make little sense to take the UK’s independent trade
and regulatory policy off the table for maintaining the position in an area
where the costs are going down over time anyway due to technological
Additional measures for the border between Ireland and Northern Ireland
are set out, however in due course they could be extended to all of the
UK’s trade with EU member states.
Key elements on the Irish border issue.
One of the most pivotal issues with respect to progress is negotiating even
the outline of the future UK-EU relationship is the Irish border. The way
forward considers the existing trade patterns between Northern Ireland,
Ireland and Great Britain and the systems and operations in place at present
to operate current border operations in respect of VAT, excise duties and
regulatory differences.97 We, therefore make the following proposals.
In order to progress matters in the negotiation of the Withdrawal Agreement
from the current position, it will be necessary to agree binding commitments
as to what measures will pertain in respect of the Irish border if no full free
trade agreement is agreed at the end of the transitional period. It will be
necessary to achieve a border with no physical infrastructure, respecting
the position of the parties in the Joint Report in December 2017.
The solution must respect the sovereignty of Ireland and the EU’s control
of its borders and the consequences of the UK being a third country. It
must recognise that for some goods, border controls on imports from
third countries are more sensitive than others in particular agriculture and
animals. The UK should therefore commit to aligning trade relevant aspects
of SPS regime in Northern Ireland with that of the EU, with suitable powers
devolved to the government of Northern Ireland to enable them to fully
cooperate and coordinate with the Irish authorities, in accordance with the
Belfast Agreement. It is recognised that this may entail border inspections
97 For a full examination See Singham, Morgan, Hewson And Brooks, Legatum Institute
Technical Note Mutual Interest – How The UK And EU Can Resolve The Irish Border For
Brexit and Morgan and Hewson A Hard Question – managing the Irish border through
Brexit, Irish Journal of European Law 2017
at designated posts at ports for imports of meat and animal products to
Northern Ireland from mainland Great Britain, but also that this is already
the case under existing arrangements as there is an all-island regime in
operation at present, and that veterinary inspections are a key component
of the EU’s protection of its internal market. Other regulatory matters can
be enforced away from the border and in the market, as they are at present
in respect of goods which are regulated differently in member states (of
which there are many, including for example medicines). Such oversight
should also be part of the close coordination between authorities north and
south of the border, and underpinned by arrangements both in the back-
stop and in an Ireland/Northern Ireland specific chapter of the final free
In respect of movement of people, both the UK and Ireland wish to retain the
Common Travel Area, the well-established arrangement that allows British
and Irish people to travel to, live in and work in each other’s territories.
This will facilitate not just travel across the border with only the current
levels of checks to control movement of people who do not have the right
to be in either country, but also the continued provision of healthcare and
education services and ability for Irish and Northern Irish people to work on
either side of the border (third country immigration is a national competence
so it will remain the right of Ireland to accord this preference to the UK, as
are matters such as access to welfare, healthcare and education).
By using best practice and existing technologies, the customs and
regulatory border can be managed without infrastructure or routine
interventions at the land border. In general the solutions are measures that
would be equally applicable for other UK/EU borders, with the exception of
the establishment of a single zone for SP and animal health matters:
- Inland clearance should be made available to all traders.
This would mean electronic export and import declarations
being made and, if required, inspections by HMRC or the
Irish Revenue Commissioners (as applicable) being made
at the importer’s premises.
- Exports of goods between Northern Ireland and Ireland
must already be shown in VAT returns, in order to qualify
for the VAT exemption for exports. If a trader is not duly
submitting an export declaration, matched on the other
side of the border by an import declaration, they will not be
able to support their VAT accounting. This means there is a
strong incentive to compliance on the traders themselves.
- Smugglers would be breaking the law not just in respect of
customs duties but also VAT. As duties are generally low,
and items where higher duties apply (such as cars, and
agriculture) are difficult to smuggle at any scale (and easily
monitored in the market and in the supply chains, which are
highly regulated), the incentive to evade duties and mis-
declare or fail to declare trade will be very low.
- Intermediaries will pay a key role in facilitating this trade
and taking the burden of compliance away from the
traders. The sector needs clarity on the legal framework
that will operate, to be able to design competitive, scalable
solutions for small and medium sized businesses.
- Certification of origin is being simplified globally and by the
EU with the introduction of self-certification by the exporter
through the REX (registered exporter) system. It will not
be necessary for traders to incur cost or inconvenience in
having goods independently certified.
- The UK and Irish governments should both make self-
assessment and periodic declarations available as widely
- All deliverable under UCC and UK’s mirroring version of
UCC brought into domestic law through European Union
(Withdrawal) Act if the UK had to manage with no other
negotiated solutions. These elements are summarised in
the table below.
On a negotiated basis, it would be possible to permit waivers from import
and export declarations for originating goods where only VAT will need to
be accounted for (as no import duties will be due – it can be reasonably
expected, given trade patterns in Ireland and Northern Ireland, that this
will be the great majority of transactions as few third country goods are
traded across the Irish border). Free zones or free ports could also be
established, both for cross-border island trade and for global trade, to
benefit Irish and Northern Irish businesses.
Backstop Zero tariffs – whole UK/EU; UK to pass law against knowingly
limited FTA to include standard exporting or carrying non-
provisions on state aid and compliant goods into Irish market.
SPS and animal health
UK to maintain same external
tariff as EU for time limited period Northern Ireland to retain all
existing SPS regulations and
Intensive supervision of imports UK to commit to updating them,
into UK of goods where EU for Northern Ireland only in
quotas and trade remedies are in accordance with EU law.
Checks on consignments of
Maximum deployment of all meat and animal products from
facilitations under UCC to enable GB or rest of world (ex EU) to
100% inland clearance. take place at Northern Irish
ports, in accordance with current
Investment in systems, and processes in line with all-island
resources for mobile inspections animal health regime.
and audits, training for
businesses and expansion of Other goods
intermediary sectors (customs
brokers, fiscal representatives). Dispersed checks – ad hoc in
border vicinity and in market, by
Continuation of VIES Irish authorities/their agents in
farms/processing facilities in NI
Negotiating Zero tariffs – whole UK; full FTA SPS and animal health
objectives including regulatory coherence,
services and investment. Northern Ireland to assume
autonomy over SPS and animal
Move from transaction- to health and determine whether
system-based approach to the remain harmonised to EU
formalities Integrate information requirements or diverge if and
systems and waivers for when UK government changes
originating goods where only VAT regulations applicable in
payable mainland GB.
Special Economic Zones/Free Agreements on equivalence and
Zones formalised certification/inspection
Dispersed checks – ad hoc in
border vicinity and in market, by
Irish authorities/their agents in
farms/processing facilities in NI
Regulatory Autonomy and Mutual Recognition
In her speech at the Mansion House in March 2018, the Prime Minister
was right to state that UK regulations would ‘achieve the same outcomes’
as EU law, but need not be identical.98 For pro-competitive regulation,
‘regulatory autonomy’, the capacity to diverge in regulation, is vital.
The regulatory system the UK needs involves three components:
regulations (rules made by an authority, in particular for products and
services); standards (which show a product or service has met regulations,
or are marks of quality) and conformity assessment (the system of bodies
such as laboratories and professional bodies that assess conformity to
standards, providing certification).
Domestic regulatory autonomy does not mean divergence in all areas,
immediately, because capacity to diverge does not mean either side will;
however, the mandatory harmonisation of regulation via alignment of
regulations themselves (as opposed to alignment of their goals) would
fail to deliver the benefits of leaving. The UK may choose to retain EU
regulations at times in some sectors, but must be able to choose not
The UK should put forward an open and constructive offer of mutual
recognition with the EU. Autonomy would be followed by recognition
by the UK of EU regulation, standards, and conformity assessment,
meaning institutional competition for the UK, commercial competition
from EU imports, and avoidance of unnecessary trade barriers on
imports. It is then to be expected that recognition by the EU will vary by
sector, but for the EU not to grant recognition would constitute creating
new trade barriers, because on Brexit day the EU and UK have full
harmonisation or mutual recognition. This creates a unique opportunity to
achieve maximal recognition.
Withdrawal must therefore deliver the following five points:
1) Autonomy for the UK to make its own regulation (for
both goods and services)
2) Autonomy for the UK to set its own standards (for
both goods and services), which can include using global
98 May, T., 2018. PM speech on our future economic partnership with the European Union
[Speech] (2 March 2018). Available at: https://www.gov.uk/government/speeches/pm-
3) Autonomy for a UK system of conformity assessment
(able to assess conformity to UK and EU standards and
4) Unilateral recognition by the UK of EU regulations,
standards, and its conformity assessment system
(able to assess conformity to EU and UK standards and
5) Seek recognition by the EU of the UK’s regulations,
standards, and its conformity assessment system.
EU regulation is growing more damaging to growth, and the concept
that the government would decide, in advance, to tie the UK to future
EU regulations, without representation, would both be very unusual,
and threaten our democracy and competitiveness. On Brexit day, UK
and EU regulations will be harmonised and recognised. Subsequently,
in the absence of a bilateral trade deal, the UK can also unilaterally
recognise the EU’s framework, for which procedures must be put in
place now. New Zealand former trade minister Sir Lockwood Smith has
noted that this starting point is precisely why the EU and UK should
agree the most advanced trade agreement in history.99 To achieve this,
the UK should agree with the EU a regulatory coherence chapter in
which both sides are committed to more pro-competitive regulation. This
is, again, best practice in all recently negotiated trade agreements, as
well as the clear approach of all OECD countries100 and we would expect
the UK and EU to be no different.
The Regulatory Coherence chapter (see Annex) is drawn from the
regulatory coherence chapters of the CPTPP, the EU and US offers in
the TTIP negotiations, and relevant WTO provisions in these areas. The
sample chapter represents the type of arrangement the EU and UK could
agree. The key elements are:
(i) Strong commitment by both sides to GRP, including
transparency in how regulations are promulgated, effective
cost-benefit analysis including taking into account both
99 Sir Lockwood Smith, (2018), “Britain has a golden chance to join the biggest free trade
agreement in history.” Conservative Home.
100 OECD (2018), OECD Regulatory Enforcement and Inspections Toolkit, OECD
Publishing, Paris, https://doi.org/10.1787/9789264303959-en
the trade effects and competition effects of regulation, and
enshrining into the agreement the best aspects of regulatory
promulgation, as found in the OECD’s Regulatory Toolkit101
and Competition Assessment,102 and WTO principles
and the work of the Competition Advocacy Group of the
International Competition Network (ICN).103
(ii) Commitment by both sides to the idea of
promulgating regulation which is the least trade
restrictive and least market restrictive from a competition
perspective consistent with a clearly stated, legitimate
The parties would negotiate the precise mechanics of these in different
sectors, but as the draft regulatory coherence chapter notes, these
provisions are likely to involve a Joint Committee and a Conciliation
Process prior to full dispute settlement.
Services liberalisation and regulatory issues
The UK-EU agreement would be based on a negative list covering all
services unless specifically exempted.
The opening bid would be maximal openness across all four modes of
supply, plus strong disciplines in a horizontal regulatory coherence chapter,
and vertical subject matter annexes.
- Key elements on regulatory issues in services
As with manufactured goods, the UK needs to ensure disciplines that
make it more likely that both parties move in pro-competitive ways,
both by agreeing GRP, and by pushing for pro-competitive regulation.
Every country that negotiates with the EU, for example the US in the TTIP,
seeks this kind of discipline. The second objective is to ensure that
there is the maximum regulatory recognition for services sectors. We
have given an example in the case of financial services.
- The key elements of GRP for services are broadly as
noted for industrial goods: commitment by both sides to
GRP, including transparency, taking into account the
right inputs when deciding to regulate, such as impact on
trade and impact on the market, and broadly speaking,
101 OECD, Regulatory Toolkit, accessed 09/2018.
102 OECD, Competition Assessment Toolkit, accessed 09/2018.
103 International Competition Network, 2009. RECOMMENDED PRACTICE
ON COMPETITION ASSESSMENT. [Online] Available at: http://www.
regulating in ways that are the least trade distortive and
the least damaging to market competition consistent with
clearly stated and legitimate regulatory goals. Violation of
these elements would result in violation of the agreement,
leading to dispute resolution.
- Key elements on financial services
The UK and EU will seek maximum trade liberalisation in financial
services with deference between home state regulators. They already
have harmonised regulation in many important areas and many key
areas of financial regulation are based on international standards set by
the Basel Committee of Banking Supervision in order to avoid systemic
risk, regulatory arbitrage, market fragmentation and protectionism. Many
countries whose regulations have similar principles and outcomes have
formed cooperative regulatory alliances that allow cross border financial
Principle and outcome based regulatory cooperation allows greater
divergence than seeking line-by-line adherence to a prescriptive rulebook
and facilitates better customer outcomes.104
Cooperating countries focused on the same regulatory principles and
outcomes should permit deference to the relevant foreign regulator in
matters of host state supervision. If international standards are robust
and comprehensive the home state regulators should be confident that
adherence to them by host state countries would address their supervisory
The EU and the UK should continue to operate with a consensually
established set of regulations based on international standards, mutual
transparency and cooperation between home state regulators, provided
that such cooperation does not prevent either party from diverging nor
allowing such divergence to act as a hair trigger causing loss of recognition.
At present both the EU and the UK grant access to third country providers
though their system of equivalence which is granted unilaterally. However,
the system of equivalence does not cover the full spectrum of financial
services and equivalence is not granted on purely economic concerns.105
When the UK itself becomes a third country to the EU, it will have
regulations that the EU already recognises and considers to be
adequate, which means both should start by granting each other
104 This has been dealt with in more detail in the IEA’s publication Improving Global
Financial Services Regulation: Singham and McBride, Improving Global Financial Service
Regulation, IEA, May 2018
105 Barnabas Reynolds, A Template for Enhanced Equivalence, Politeia, 2017
the process required to enhance the equivalence regime has been covered extensively by
Barnabas Reynolds for Politeia
equivalence in all available financial sectors, as well as allowing
divergence provided that the regulation is still achieving the same
prudential goals. The nations that presently have EU equivalence do not
have identical regulations to the EU. The EU and UK agreement must
include a mechanism designed for managing divergence anchored by
one or more forms of dispute resolution. Such mechanisms may include a
specific approach that is unique to financial services as has been included
in the EU’s CETA with Canada, or they may be more broadly applied across
the whole of a mutual access regime.
The agreement should prohibit practices which distort competition and
trade such as cartels, abusive behavior by dominant market players or
anti-competitive mergers. Adding provisions to ensure they act fairly
and transparently when applying their competition laws or investigating
transgressions will require continued cooperation between the UK and EU
The agreement should be subject to independent arbitration as in a normal
trading arrangement so that neither party is subject to interpretation by
the other. Maintaining the UK’s overseas persons exclusion and the EU’s
reverse solicitation exclusion will enable cross-border wholesale financial
services between regulated institutions and professional investors in the
other jurisdiction without even triggering the equivalence regime.
This should be understood within the context of an advanced FTA being the
UK’s first offer to the EU, with the EU invited to respond, as the negotiating
field is altered by action taken in the other pillars and pressure applied to
- Dispute settlement mechanism
All modern FTAs have dispute settlement mechanisms and the UK-EU FTA
will be no different. The UK’s offer on the dispute settlement mechanism
should be an arbitration-based mechanism following generally
accepted good practice in this area.
UK-US FTA: the renewal of the Special Relationship
- A UK-US FTA is one of the great opportunities of Brexit
in the immediate future, and a UK Government should
greet the prospect of such a bilateral deal with our
greatest ally with genuine enthusiasm.
The UK-US FTA we seek must encourage trade and economic liberalisation,
reduce domestic protectionism, and help create a more competitive
economy for both parties, to the improvement of consumer welfare.
At the centre of trade agreements, and a US-UK FTA, will be improved
market access for goods, services, and investment. This means the
elimination of tariffs to the lowest possible levels on the greatest
number of goods, with services markets open to competition from
the other party’s providers, while government procurement markets to
both goods and services providers from each party should also be open
(while preserving our NHS, for example). The FTA will also cover digital
trade, with data flows essential components of goods and services,
albeit with reasonable levels of privacy protection that are not unduly
Meanwhile, when businesses are made to meet two sets of regulations to
sell in different markets, this hinders efficiency and limits exports. This FTA,
again, should also therefore include a mutual recognition agreement
(MRA), which would allow companies from each party, in as many sectors
as possible, to export according to their own country’s regulations and
standards, which would then be recognised by the other country. Of course,
the FTA’s rules will need to be enforceable, with binding, enforceable
dispute settlement to ensure the agreement is followed.
The evidence also shows that the British people are increasingly
enthusiastic about a UK-US FTA, with over 60% in favour according to
recent polling.106 The UK must therefore now accelerate its negotiations
with the US. The US administration has indicated that it wants a free trade
agreement with the UK. There is a very high level of support on both
sides of the aisle in the US congress also. Recently, Republican Senator
Portman has set up the US-UK FTA caucus in the Senate with Democrat
Chris Coons;107 the Trump administration is now frequently on the record
as strongly supporting an FTA with the UK.108 US industry is increasingly
vocally supportive, and the Office of the US Trade Representative (USTR)
has recently launched a stakeholder engagement process for an FTA with
the UK. A key feature of that process is the input of small businesses who
face regulatory barriers in the UK.
A coalition of UK and US think tanks have produced a proposed draft of
106 Heffernan, S. “BREXIT: UK wants US Deal”, Live Trading News (2018). Available at:
107 Senator Portman (2018). “Portman, Coons Launch Senate UK Trade Caucus to Build
Support for Bilateral Trade Agreement”. Available at https://www.portman.senate.gov/public/
108 US Trade Representative, 2015. GUIDELINES FOR CONSULTATION AND
ENGAGEMENT OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE. [Online]
Consultation%20and%20Engagement.pdf [Accessed 18 09 2018].
109 Document to be made available at 14:30 BST, on Tuesday September 18th: http://
an FTA between the US and UK, published on September 18, 2018.109 The
UK should use the opportunity of the UK-US negotiation to craft its own
As the world’s number two exporter of services, the UK will need to use
access to its own market in goods and agriculture to secure services
concessions from the US. The US will be concerned about underlying
product regulation that may discriminate against its goods, for instance.
It is also a critical part of the UK-US FTA discussion that solutions to the
most pressing problems in international trade today are agreed by the UK
and US. These two countries could agree a very high standard agreement
that delivers both free trade and free markets between them, setting up
the conditions in which future agreements with other countries can yield
benefits. For instance, even though the US and UK do not have many
state-owned enterprises in commercial sectors, the two could agree a
free trade agreement with strong provisions to discipline state-owned
enterprises, anti-competitive market distortions by the state, and other
subsidies (see link to potential UK-US FTA). Since we envisage that this
agreement would be an open accession agreement, others could accede,
provided they could meet the terms.
Many commentators have rightly noted the impact of the Trump
administration trade policy on the global trading system, and argued that
therefore no trade deal with the UK will be possible or it will be very much
on the US’s terms and be detrimental to UK interests. This misunderstands
the support for the UK at all levels, and also the fact that the Trump
administration would need to do a deal with a country that is a significant
economy, where there is no trade deficit, and where there would be no
race to the bottom on labour costs. The UK is the ideal candidate for this
US agenda, and concluding a comprehensive trade agreement with the
UK would enable the US administration to demonstrate to the Congress
that it did in fact have a trade agenda that is not solely about renegotiating
or pulling out of existing agreements.
The UK-US FTA would therefore need to address the major concerns of the
US administration with respect to 21st century trade. The US administration
is seeking a solution to the problem of global market distortions and the
UK-US FTA could be an important step. Similar rules apply in the CPTPP
and so this would also act as a platform to gain further disciplines over
those countries that distort their markets.
While there have been concerns about the implications of a US deal for
109 Document to be made available at 14:30 BST, on Tuesday September 18th: http://
the NHS, the NHS may simply be reserved from the provisions of the
agreement. However, the NHS does purchase drugs and other products
from global suppliers and it would be in the interests of the NHS (and the
British taxpayer) to ensure that procurements are as pro-competitive as
possible. US firms have not complained about the NHS, and it has not
featured in recent National Trade Estimates (the US’ inventory of foreign
country trade barriers). It is extremely unlikely that the US would be
interested in raising any issue with the UK in a trade negotiation which
has not featured in the NTE in some way. In any negotiation with the US,
it is open for the UK to rely on high standards of consumer protection
which are generally not opposed, except when they are a form of disguised
Provided that the UK is able to have control over its own regulatory
structure, it will be able to agree terms with the US that the EU would
not be able to reach because of the difference in regulatory approaches
between the EU and US in many areas. As the UK negotiates with the
US, it is critical that we explain why a trade deal with the UK is strongly in
the US interest for strategic reasons. The UK has made itself a regulatory
battleground in a world that is being rapidly divided into pro-competitive
regulatory systems, and prescriptive and anti-competitive ones. The US
understands that the value of a UK-US trade agreement is to pull a major
G-7, European economy into a pro-competitive regulatory setting.
A UK-India Trade Deal is Feasible
A deal between the UK and India is an example of one which could take
longer to negotiate, due in part to the many distortions in the Indian
economy. However, this is a deal DIT must begin preparing for, and which
represents a great opportunity for the UK.
A trade deal with India stands to be of substantial benefit to the UK. India is
one of the fastest-growing big emerging markets in the world. The contours
of a deal between the UK and India are visible because of the narrowly-
focused offensive interests of the UK, and of India, and because of the
UK’s limited defensive concerns.
Negotiations will herald opportunities to discuss helping to modernise
areas of India’s economy and lower the barriers that limit competition for
various Indian sectors. Trade barriers apply in legal and financial services,
as well as high taxes on Scotch Whiskey, for instance. Similarly, India has
significant difficulties with the EU’s regulatory bans on its foods.110
The EU has struggled to conclude a deal with India for a number of
reasons. Major obstacles have been the EU’s regulatory system in
agriculture, and its aversion to allowing India Mode 4 services access
(ironically led by the UK). Furthermore, the offensive interests of the
EU were not equally shared by all the member states. The UK has very
particular focused interests, especially in legal and financial services
(especially insurance) and, in agri-food, barriers for its Scotch Whiskey
exports. In a purely UK-India context, the UK might change its overall
approach to Mode 4 precisely if those focused offensive interests look
like they may be accommodated. Singham, Rangan, and Bradley analyse
the barriers between India and the UK comprehensively in.110 The key
elements of a potential deal are as follows:
- India would provide better legal and financial services
access for the UK, especially allowing UK law firms to
establish and practice law in India, and to allow foreign
ownership in the insurance sector to increase.
- The UK would provide Mode 4 services access112 for India.
India’s trade negotiating objectives prioritise the access of
their citizens to the UK market as part of the delivery of
services. Indian high-tech companies in particular need
trading conditions such that some personnel can move
to the UK; however, the UK’s interest will naturally be
in selected numbers of highly skilled workers, and the
numbers involved would be very small
- The UK will need to provide much greater market access
to India’s agricultural produce. This means reducing
tariffs, but critically means reducing the regulatory barriers
derived from the SPS and TBT rules in the European
acquis. Thus the UK will need regulatory autonomy over
these rules in order to do a deal with India. This will benefit
Indian producers as well as British consumers through
- The India-UK working groups have concluded that
110 For example, the EU ban on Indian basmati rice: Bodkin, H. “ Rice to become more
expensive due to ‘disastrous’ EU import rules”. The Telegraph (2017). Available at https://
111 Singham, S., Rangan, U., Bradley, R., and Kiniry, M., “Anti-Competitive Market
Distortions and Their Impact: A Case Study of India”, Legatum 2016.
112 As noted earlier, the WTO provides that services are delivered across four critical
modes of supply – cross border supply (mode 1), consumption abroad (mode 2),
commercial presence (Mode 3) and movement of natural persons (mode 4). India has
always prioritised the ability of its services personnel especially in the IT Sector to be able to
move freely from India to other countries where their investments are located.
improvement of the regulatory barriers between
them is very significant.113 In particular, India will want
to see a more open UK agricultural sector, both in terms
of tariffs and in terms of regulatory barriers such as the
EU’s environmental and other regulatory barriers in the
Exploring a UK-China deal
The UK should initiate discussions with China, but be clear that its
requirements for a UK-China deal are likely to be difficult for China
to meet in the short term. This is a longer-term discussion aimed at
moving China towards liberalising aspects of its economic behaviour,
with a view to a future trade deal.
A future UK-China deal is important, but cannot be rushed, requiring
mature acknowledgement that the UK would need progress in many
areas of China’s approach to trade. This does not imply protectionism
on the UK’s part; the approach should be to encourage less distortive and
protectionist behaviour by China, for the benefit of the United Kingdom
and China, and for global growth. The two countries will naturally maintain
friendly relations as we work towards a deal.
China’s actions have a huge impact on global trade. Ensuring that its rise
does not destroy wealth, or lead to an increase in cronyism, is a critical
challenge for the world’s major economies, including the UK. It must
therefore proceed carefully, bearing in mind the network of China’s State-
Owned Enterprises (“SOEs”) (which often receive free land and water, for
example) and other anti-competitive market distortions, which make fair
competition for British firms difficult.
Countries that attempt bilateral trade arrangements with China have not
generally been successful in concluding deeply liberalising agreements
that deal meaningfully with Chinese behind the border barriers (the
Swirzerland-China FTA and the Iceland-China FTAs are examples of
relatively one-sided deals that do not make a meaningful impact on China’s
behind the border barriers and its regulatory protectionism).
In addition, the UK should approach China’s Belt and Road initiative as
a way to promote pro-competitive regulation. It is crucial that the Special
Economic Zones that may arise as a result of Belt and Road do not become
playgrounds for China SOEs to the exclusion of other competitive, private
113 Business and Enterprise Committee, “Waking up to India: Developments in UK-India
economic relations”, House of Commons, 2008.
businesses. What happens will depend on the regulatory framework which
underpins these zones, and the UK can play an extensive role. At a time of
rising hostilities, a strong but pragmatic UK-China relationship will be very
important to ensuring a better climate for the global trading system.
Bilateral deals with countries where an EU FTA should be rolled over
Negotiations should be accelerated with these countries on the basis
that the UK will need to roll over existing agreements, and agree a
new FTA in the case of EFTA. Here, DIT should be tasked to conclude
these negotiations on a provisional basis, in case there is no Withdrawal
Agreement and therefore no Transition Period. The UK should negotiate
directly with these countries on a bilateral basis (just as in the case of
British Tariff Rate Quotas (TRQs (see below)). The problem has been that
the UK has been relying on the principle of continuity of third country FTAs
in the transition period, without certainty as to whether there would be
one. As noted in chapter 5, there are considerable risks to this continuity
approach as it requires application of the common commercial policy in
the Transition Period, negatively impacting the UK’s ability to negotiate
EU cooperation will be required to ensure that both sides have the
same rules of origin with respect to the relevant country, so that content
in the UK and EU-27 can be cumulated to satisfy that country’s rules of
origin (rules of origin refer to how customs authorities determine where an
export has come from). Without this however, it will still be possible to have
market access between both that country and the UK and EU separately
(even if the efficiency of pan-European supply chains is partially lost). Of
course, it is in both the EU and UK interest to agree rules of origin that
allow cumulation with the third country, and this should be possible if the
UK and EU retain the same rules of origin.
Typically the EU’s rules of origin are relatively liberal. The direction of travel
of US rules of origin is towards more restrictions, and thus the UK should
seek maximum diagonal cumulation with countries with whom it has trade
agreements. This will be challenging with the current US administration,
but the UK should seek to negotiate as liberal rules of origin as possible
with cumulation with as many countries as possible, and take steps to
reinvigorate a crucial discussion in the WTO on the increasingly damaging
effect on global trade of diverging and restrictive rules of origin.114
114 As noted in the WTO Section, the UK should reinvigorate the stalled effort begun in
the WTO Rules of Origin Committee to ensure harmonisation of rules of origin based as
much on substantial transformation as possible (with as little supplemental local content
An alternative model of bilateral relationships for developing
countries and emerging markets
The UK will have to replicate the current EU structure of preference
programmes with developing countries and emerging markets. However,
in doing this it has an historic opportunity to transform previous EU
arrangements into genuine Economic Partnership Agreements that are
reciprocal in nature and do not discourage or hinder developing countries
growth, unlike current EU development models.
The current model is based around the concept of the Generalised System of
Preferences (GSP and the special programme GSP+).115 Many developing
countries are unhappy with these, however because the preferences can
be lost if a country graduates out of the programme or a particular product
exceeds a specified share of trade.116 The EU’s Everything But Arms (EBA)
initiative was a positive development as it was unconditional, but does give
a preference to producers in the poorest countries in the world. Very poor
producers in other countries that are not EBA beneficiaries must compete
against these preferences, and often lose out.
Problems also occur because of the lack of predictability of how exemptions
occur, and the circumstances in which they will be removed; and in which
types of products developed countries allow the exemptions to apply to.
For example, many cocoa producers have had their tariffs lowered on
exports to the EU through the GSP programme. Without GSP benefits,
these exports would be subject to tariff escalation, charging a lower tariff
on the basic raw material, but a higher tariff on the processed good. This
means firms in developed countries are more likely to reap the value-add
115 The Generalised System of Preferences (and GSP +) and the Everything But Arms
initiative are the primary trade development tools that the EU uses in its trade policy.
EBA covers only the poorest countries in the world (LDC’s as defined by the UN) and is
unconditional. All other programmes are conditional. Countries may graduate out of them,
or the preference may be lost for other reasons, such as support for terrorism or failing to
support Intellectual Property laws.
116 The GSP programme is highly managed trade where a particular product from a
particular country can graduate out of the programme is its share of GSP trade exceeds
specific percentages which differ from product to product sometimes by quite wide margins.
This damages incentives for producers in those product categories to be successful.
117 For example, as from 1 January 2017 certain products no longer benefited from GSP
preferences before formal review in January, 2019. The tariff preferences for the products/
product groups originating in the countries mentioned below are suspended (see Regulation
(EU) 2016/330) because the average value of EU imports of these goods from the GSP
beneficiary country over three consecutive years exceeds the thresholds listed in Annex VI
of Regulation (EU) 978/2012. Origin and product groups ceasing to benefit from GSP India
ï S-14: Pearls and precious metals ï S-15a: Iron, steel and articles of iron and steel ï S-15b:
Base metals (excl. iron and steel), articles of base metals (excl. articles of iron and steel).
Furthermore, a developing country currently benefiting from a preferential
rate may still graduate out of the GSP programme if their economy grows
above a certain level (one example of this is India for many products117).
Perversely, countries therefore lose their preferences if they succeed,
discouraging investment, locking in existing supply chains (as GSP can
be lost for a variety of reasons, producers are less willing to go up the value
chain and invest in the necessary equipment, because they might lose
the preference and be subject to higher tariffs). So developing countries
remain stuck in a poverty trap.
Currently, gains are captured by developed country producers who use the
raw material inputs at low tariff rates to lower their input costs (although
this also distorts developed country economies). In our example, cocoa
producers in Ghana might be able to invest in partnering with dairy and
sugar producers to produce chocolate on a commercial scale. Under the
current arrangements they would not be advised to do so, as if the GSP
benefits were withdrawn, the chocolate tariff would significantly increase
(crippling potential new business).
The UK can be more open and not penalise developing country
exporters for success, and be more open to the products of developing
countries without strings and conditionality. A better development model
for poor countries is therefore a true economic partnership: but this
requires the UK having tariff and regulatory control.
If the UK is more open on the products that developing countries produce
– and those higher up the value chain, but which they could produce under
more favourable trade conditions – their producers will be better able to
make the necessary capital investments to upgrade, which they would not
be if the preference could easily be withdrawn.
To successfully make this transition, the UK will have to find a solution
to the preference erosion problem: this is a dynamic whereby developing
country beneficiaries of the preference in fact lobby to keep the developed
countries’ tariff rate (or Most Favoured Nation rate) high, so that they
continue to benefit from the preference. This harms poor consumers in the
developed country (meanwhile, countries that are too developed to benefit
from GSP but still have large numbers of poor people, like India, see fewer
benefits from the system).
The UK could provide, as part of its suite of trade remedies, an option
for developing countries which face competition from other countries
whose producers have their costs artificially lowered by ACMDs to
complain about the distortion and point out the damage it does to their
own exports to the UK. This distortion could be tarifficated for the offending
country, to correct the unfair trade that the GSP/GSP+ beneficiary was
Accession to the CPTPP
The CPTPP (Comprehensive and Progressive Agreement for Trans-
Pacific Partnership) replaces the Trans-Pacific Partnership (TPP),
following the withdrawal of the US. This plurilateral agreement
consists of eleven countries – Australia, Brunei, Canada, Chile,
Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
CPTPP is an open agreement and its signatories indicate they would
welcome the UK seeking to be a member. Indeed, the Government is to
be commended for successfully getting major CPTPP partners to offer
CPTPP Membership to the UK.118 119 The UK has also officially launched its
consultation process for the CPTPP (along with the US, Australia and New
Zealand agreements120), and should officially apply to join the CPTPP as
soon as it can.
CPTPP accession for the UK is also a central geo-strategic move.
This is an important platform agreement of some of the fastest growing
countries in the world.121 Not only does the CPTPP consist with the UK of
17% of global GDP (40% if the US re-joins), but the CPTPP is also an open
accession agreement which other countries can join; most recently, South
Korea indicated that they wish to join the CPTPP.
The e-commerce and SME chapters of CPTPP go further than any other
trade agreement (with prohibition on data localisation, non-discrimination,
as well as privacy protection. The UK is an e-commerce champion, and
118 Department for International Trade (2018). “Japan will “spare no effort to support the
UK” in joining the CPTPP, Available at: https://www.gov.uk/government/news/japan-will-
119 Sydney Morning Herald, “Australia will pursue one-on-one deal even if UK joins revived
TPP trade bloc”, January 25th, 2018. Available at: https://www.smh.com.au/world/australia-
120 Department for International Trade (2018). “Liam Fox launches consultations on UK’s
trading future outside of EU”. Available at: https://www.gov.uk/government/news/liam-fox-
121 Department for International Trade (2018). “New public consultations announced for
future trade agreements”. Available at: https://www.gov.uk/government/news/new-public-
the CPTPP would only strengthen this position, helping spread digital
trade around the world at a time when its liberalisation is badly needed.
This is the most liberalising of regional platform agreements (China has
its own version of a regional agreement involving the ASEAN countries,
the Regional Cooperation and Economic Partnership (“RCEP”), but this is
limited to eliminating border measures, and does not deal significantly with
behind the border barriers and regulatory issues, partly because China has
taken the position that these issues are internal issues for China and not
relevant to trade policy. This is becoming a less tenable position).
As noted in Chapter 5, the UK should, as soon as its stakeholder process
is complete (even if this is before actual leaving of the EU on March 29,
2019), formally apply to join the CPTPP and go through the relevant CPTPP
mandated mechanisms to avail itself of the open accession clause. The
UK cannot join unless we have control over our regulatory system.
This has been made clear by a number of commentators.122 Many of the
latter do not meet CPTPP standards, such as in agriculture, where they
violate the WTO SPS rules on sound science-based animal, human and
plant health protections.123 124 125 126 127 128
Tariff and regulatory control, and changes, would be needed for the
UK to accede to CPTPP. Accepting the European acquis would violate
the CPTPP provisions in SPS and TBT measures. If the UK accedes to the
European Patents Court, and the enforcement of patents in the UK differed
from CPTPP practice and requirements, then it would also be hard for the
UK to join.
122 Smith, L. “Britain has a golden chance to join the biggest free trade agreement in
history. But Chequers is likely to wreck it. ”, Conservative Home (2018) Available at: https://
123 DS337: European Communities — Anti-Dumping Measure on Farmed Salmon from
124 DS137: European Communities — Measures Affecting Imports of Wood of Conifers
125 DS48: European Communities — Measures Concerning Meat and Meat Products
126 DS26: European Communities — Measures Concerning Meat and Meat Products
127 DS293: European Communities — Measures Affecting the Approval and Marketing of
Biotech Products https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds293_e.htm128
128 DS389: European Communities — Certain Measures Affecting Poultry Meat and Poultry
Meat Products from the United States
Evaluating NAFTA accession
Many US members of Congress over the last two decades have called
publicly for the UK to accede to NAFTA.The Trump administration has
sought to pull the US out of NAFTA,129 and renegotiation is ongoing. The
US is seeking to do this by two bilateral conversations with Mexico and then
Canada. The UK would be in a better position to accede to whatever form
of NAFTA prevails (whether or not Canada is ultimately included), because
the UK will not have hold-outs regarding the protected dairy sector (as
Canada does). There is nothing inconsistent with the UK seeking a trade
deal on a bilateral basis with the US and also evaluating NAFTA accession
(since NAFTA has an open accession clause).
The UK in the Commonwealth
The Commonwealth is an alignment of nations gathered especially around
concepts such as rule of law. It is an unusual network in that it contains
some of the most developed countries in the world, as well as the smallest
micro-states. Far from being a weakness, as it is often perceived to be, this
diversity is the source of its strength. One of the most important things the
Commonwealth can bring to the debate is to help facilitate an unblocking
of the global economic architecture by enabling its members to discuss
issues prior to interacting with their various affinity groups in international
By surfacing and discussing international issues, Commonwealth
countries, while not necessarily agreeing as a bloc to a particular
approach, may nevertheless subscribe to similar philosophies and broad
positions. Ministers from these countries, if they meet in advance of
global meetings, will, in effect get two bites at the apple when it comes to
forging coalitions in support of a more liberalising approach. In the case
of trade, many Commonwealth countries belong to affinity groups with
others who have historically been opposed to efforts to liberalise trade. A
Commonwealth trade pre-meeting could be used to broker solutions in the
WTO ministerial meeting which follows it. It could also be used to discuss
how non-Commonwealth members might react to proposals that members
might be making. In the trade context we have seen countries emerge
to salvage aspects of trade ministerials, such as when Australia’s trade
minister Steven Ciobo led an effort to develop a plurilateral agreement
on e-commerce, when the multilateral work appeared to be foundering.
129 United States Trade Representative, “USTR Releases Updated NAFTA Negotiating
Objectives”, November 2017.
Often in WTO ministerial meetings, trade ministers do not have much
time to break through logjams (typically 48 – 72 hours maximum), and so
unless there is a degree of alignment prior to the meeting, it is extremely
unlikely that big differences can be papered over sufficiently to allow
for a Ministerial Declaration that all can live with. We are entering into
a particularly dangerous time now, as the US apparently withdraws from
playing the brokering role it has historically played. Many of the countries
the UK would be seeking to negotiate free trade agreements with as it
executes its independent trade policy (such as Australia, New Zealand,
Canada, and others) are Commonwealth countries. These countries
are like-minded in terms of a shared commitment to trade liberalisation
and competitive markets, and have worked together in other contexts to
deepen liberalisation, such as through the Trans Pacific Partnership (TPP).
They are discussing the kinds of concepts which should ultimately be
multilateralised and could play a significant role in pushing them proactively
in WTO councils.
Commonwealth Network Effects
The Commonwealth has significant network effects which could be
exploited. It is important that these are used to ensure pro-competitive
and liberalised trade, so that the overall levels of market distortions
around the world are lowered, and consequently wealth is created in the
global economy. The Commonwealth could also play a role in helping its
members engage in the structural reform that is so necessary to improve
their own economies. Such structural reform would also make members
better trading partners, as they would then be able to negotiate both tariff
reductions and regulatory improvements. Another potential use of the
Commonwealth network is to bring together businesses that can integrate
into global supply chains which feature Commonwealth countries. There
are a number of Commonwealth groups, including the Commonwealth
Enterprise and Investment Council (CWEIC) that can play a role in
bringing Commonwealth businesses together. Finally, the Commonwealth
can be used as a vehicle for members to identify trade barriers faced by
their members which are imposed by other members. This could be a
Commonwealth Trade Barrier Mechanism (CTBM), and could be used
to identify trade and regulatory barriers in all Commonwealth countries.
There are two aspects of our multilateral strategy: first, how to use
our WTO transition to reinforce work in the other pillars; and second,
how we can use our fully-fledged WTO membership to promote trade
liberalisation and wealth creation, for our own economy and the world.
At the WTO
- Use TRQ negotiations as a springboard for FTA
negotiations with major TRQ partners
The government has conceded that its TRQ proposals should be
jointly presented with the EU. It has therefore lost the opportunity
to make direct, bilateral presentations of its TRQ proposals to TRQ
partners, preventing it from making the argument that it is able to offer
greater liberalisation in (the near) future.
If the UK cannot do this, TRQ partners will seek to extract as many
concessions from both UK and EU as possible during the TRQ process.
New Zealand, for instance, has refused to accept the UK’s schedules as
placed before the WTO.130 The UK should immediately move to a bilateral
discussion with TRQ partners, where it is clear it will be able to gradually
liberalise tariffs in agriculture to zero over time (depending to an extent on
the benefits we can secure for our industries in this process), even if the
EU claims this is a violation of the duty of sincere cooperation.
Customs union or similar language remaining on the table also prevents
the UK conducting the process above; TRQ partners will be unwilling to
negotiate given a risk that the UK will remain in the customs union.
- In the event of no trade deal with the EU, the UK could
choose not to have a TRQ for TRQ partners that were also
CPTPP members, and could discuss gradual liberalisation
- Use the WTO transition process to send important
signals to our partners: e.g. the example of Aggregate
Measure of Support (AMS).
The UK can use its Aggregate Measure of Support (AMS)132 offer to signal
free trade intent; we should seek no or de minimis AMS as an indication
that we will not pursue production subsidies in agriculture beyond what it
has now, and will limit direct payments to allowed green box payments.
130 Global Meat News, “New Zealand opposes UK’s WTO quota plan”, July 27th, 2018.
131 The EU is one of the few WTO members that has a country specific TRQ; the UK could
have a global TRQ or simply move to gradual liberalisation.
132 Aggregate Measure of Support (AMS) is the amount of Amber Box (i.e. allowed)
production subsidies that countries can adopt. The EU has a very high level of AMS set at
€70bn (WTO, G/AG/N/EU/26 (2 November 2015) Notification of domestic support by the
European Union for the 2012/2013 marketing year.) but it only uses €5bn as an insurance
policy just in case some of its direct payments are included in the amber box and not the
green box as they presently are.
The UK currently has two small production subsidy programmes, for beef
and lamb in Scotland amounting to £39m, a very low amount, especially
compared to the EU AMS level.
For too long, farmers have been subject to financial compliance burdens,
instead of prioritising farming, and have been prevented from using
technology to improve productivity, due to the EU’s application of the
precautionary principle. By integrating global supply chains, and linking
British farmers with supply chains they have been outside for forty years,
British farming can have a bright future without the need for subsidies,
which ultimately destroy wealth for all. The current government position
of a share of the very large European AMS will cause trading partners
to question the UK’s intentions, and whether a future government might
engage in larger production subsidies to the detriment of producers around
In bilateral negotiations with TRQ partners, and parties with whom
the UK has have negotiations through the EU, it is critical the UK
negotiates with partners by itself, to discuss the flexibility it has
regarding the potential for further trade liberalisation in an FTA.
In the case of no deal, the UK should consider a global, as opposed
to a country specific, TRQ134, or even dispense with a TRQ altogether
and initiate gradual tariff liberalisation.
- The UK’s relationships at the WTO in general
The UK can play an active, leading role, supporting the rules-based
international order in its own interest, and bring a strongly pro-trade,
pro-development message to the table. This also means contributing
significantly to badly needed reforms of a system in crisis. But to
influence WTO discussions, the UK needs to demonstrate that it is an
133 Domestic Policy Settings are the domestic regulatory approach the UK will maintain in
agriculture and other related areas. Settings may tend towards being more open if the UK
does not maintain subsidies and regulatory barriers, or more closed if the UK pursues more
subsidy and regulatory barriers.
134 Unlike a country-specific TRQ, a global TRQ operates on a first-come-first-served basis,
where the UK would have a global quota for a particular product that countries would seek
There has recently been another challenge to the global trading system,
namely the US approach – for example to the dispute settlement mechanism
and the appellate body. While the dispute settlement mechanism is not
perfect, it has often been referred to as the “crown jewels” of the WTO
It is very important that the US, as a major bulwark of the global trading
system, acts as a constructive reformer. Given the US approach, this is
clearly calling for other leadership from a nation that is committed to free
trade principles. Here the UK can play a vital role, using its negotiations with
the US to help ensure that the US attempts to deal with the problems it faces
in international trade by helping strengthen, not weaken, the system. One
example is the recently agreed joint group (US, EU, Japan) set up to
deal with market distortions in third countries.135 The UK should join
this. If the US sees progress here, it is less likely to subvert the system,
because it will see the WTO framework as one capable of dealing with
major global challenges such as distortions in China, for example.
Looking ahead, in terms of the United Kingdom’s future role in the WTO,
there are many WTO groups the UK should join as soon as possible. This
would signal intent to Friends of the WTO System136 that the UK has a
liberalising vision of itself, and is committed to open domestic settings.
(i) The UK could join the Cairns Group of agricultural
exporters. The founder nations have sought the reduction
of agricultural trade barriers, and while the UK is not
currently a major agricultural exporter, it is locked into EU
supply chains. Embracing new technologies like synthetic
biology stand to make the UK a net exporter of agricultural
(ii) The Manchester Group. Just as Australia launched
the Cairns Group of agricultural exporters, as the
world’s second-largest services exporter, the UK
should launch the Manchester Group of Services
Exporters. As the Cairns Group was named for the city of
its founding, the Manchester Group would pay tribute both
to the North’s transition from a manufacturing- to service-
based economy, and of the central role of that city in the
Victorian free trade movement.
135 It is ironic that DG Trade in the EU supported the creation of this group, but that
member states were concerned about it as it could apply equally to the increasing number
of market distortions in the EU.
136 Friends of the WTO System is a term of art and means the coalition of around 44
countries who seek progress and greater liberalisation at the WTO.
(iii) The UK could join the e-commerce plurilateral
initiative, which is already fragmenting between the US,
which wants a more extensive approach including dealing
with local content regulation and other localisation rules,
and the EU, with a more limited attitude, partly because
of its commitment to spreading its regulatory approach
on data protection (e.g. the General Data Protection
Regulation (GDPR)). It is likely the US will lead a smaller
group, which the UK could join, provided it is more open on
data flows than the EU would be.
(iv) The UK can take a leadership role in the Trade in
Services Agreement (TiSA), in which the EU has been
unable to include new services because of its approach
to data flow. To play a meaningful role, the UK will need
to separate itself from the EU data flow approach, while
seeking to ensure adequacy with the EU’s data regime.
The group has been languishing partly as a result of
disagreements between the US and the EU, an is in need
of revival. There would be no better agent of revival than
the world’s second largest exporter of services.
(v) The UK could also table services liberalisation
offers to revive the GATS built-in agenda on services,
a much-neglected area. When the GATS was launched
in 1996, it was anticipated that countries would submit
a series of services offers, as the GATS is a positive list
agreement where only services that are affirmatively put
on the table for liberalisation are included. But the GATS
has lacked a services’ champion, an economy that
will be an effective advocate for bilateral and plurilateral
arrangements for liberalisation. The UK can take a leading
role in the Services Working Group to expand services
coverage, and as a services and digital trade champion
can take a leading role in both working groups. The UK can
also support multilateral recognition initiatives in certain
professions rather than a series of bilateral ones through
FTAs (currently there is only a multilateral recognition
discipline for accounting).
(vi) The UK can also help with WTO dispute settlement
reform, but as with digital and services, the UK needs
to take these steps now, demonstrating to WTO Friends
of the System and others that the UK will be a force for
(vii) The UK could revive the stalled work in the WTO
Rules of Origin committee, recognising that increasingly
restrictive rules of origin have become tools of trade
policy, and that the original GATT provisions, which left
it to members to decide their rules of origin, were not
developed at a time of so many preferential arrangements,
and are unfit for purpose. The UK should, over the long-
term, ensure liberal rules of origin apply; this would unlock
considerable supply chain efficiency across the world.
This is another example of a WTO group covering an
increasingly important area that has stalled.
(viii) Geneva is a much better context for the UK’s global
aspirations than Brussels. The government should seek
to notify (even if not officially) its intent to negotiate
an FTA with the EU in the WTO and encourage WTO
partners to pressure the EU to behave in a constructive
fashion, and negotiate based on commercial logic instead
of political considerations. These countries have a stake in
ensuring that this is indeed the EU approach. Anything that
increases the cost of global supply chains (imposing tariffs
and unnecessary friction between the UK and EU) will be
bad for the managers of big global supply chains that flow
through them, like the US, Japan, and others.
At the OECD
The UK should step up activities at the Organisation for Economic Co-
operation and Development (OECD), where it has its own seat. The UK
should increase its work in the OECD Trade Committee and re-launch
and lead the OECD Joint Group on Trade and Competition, which
would cover much of the interface of trade, competition and regulation.
The UK and standard setting bodies
The UK should play a leadership role in all standard-setting bodies,
using the historic credibility of the British Standards Institute
(an example of soft power) to move these bodies in a more pro-
competitive direction. Instead of the top-down regulation favoured by the
EU through its standards setting bodies CEN, CENELEC and ETSI, the UK
should promote a more voluntary standard setting mechanism, subject to
a requirement to ensure standards do not exclude new entrants. This can
be supplemented by the competition advocacy of the CMA and other
competition agencies through the International Competition Network
The UK should also spearhead an agreement between the main
financial centres to include Singapore, New York, Tokyo and others,
to promote a shared approach to global financial services standards,
but which also allows UK sovereignty, while addressing barriers to services
trade and agreeing a common pro-competitive position in international
Planning for the UK and EU not agreeing a Free Trade Agreement
A ‘no deal’ scenario, as defined by the government,137 is one where the
UK leaves the EU and becomes a third country at 11pm GMT on 29th
March 2019 without a Withdrawal Agreement and framework for a future
relationship in place between the UK and the EU. This result would
clearly be far from ideal and it is one that very few people would favour.
Nonetheless, it is right to prepare for it seriously, for three reasons:
- The UK’s bargaining position in the negotiations with
the EU would be fatally undermined if there is no credible
alternative to doing a deal;
- It is always possible that the two sides fail to reach an
agreement despite their best efforts, for example because
time simply runs out, or because domestic political
- Many of the steps that need to be taken to prepare for ‘no
deal’ will be necessary anyway in other Brexit scenarios,
depending on the degree of disengagement from the EU’s
single market and customs union.
In preparing for and assessing the impact of ‘no deal’, however, it is
important to recognise that this term could cover a range of outcomes.
The media headlines have tended to focus on a chaotic no-deal Brexit,
where there are no agreements at all, on anything, and where both sides
allow relations to break down more or less completely, despite their own
economic interests and legal obligations. This is a very literal interpretation
of ‘no deal’, and potentially just a straw man.
Nonetheless, the fact that actions can still be taken to mitigate any additional
costs of ‘no deal’ does not mean that the risk can be dismissed lightly. For
example, if the UK simply becomes a third country, planes would indeed
be unable to fly.138 Air traffic rights are not covered by WTO rules and only
exist between the UK and EU (and between the UK and much of the rest of
the world) as a consequence of the UK’s current membership of the EU’s
Single Aviation Market. There would also be problems with the certification
of UK aircraft, components and personnel.
There are some straightforward solutions to these problems, typically
revolving around some combination of retaining UK membership of the
European Common Aviation Area (ECAA) and/or negotiating new air
services agreements. The key question for the EU is whether the necessity
of keeping planes flying outweighs any threats to the integrity of the single
market or the risks of giving the UK special treatment. The answer to this
must surely be ‘yes’.
But this still requires flexibility on both sides. On the UK’s part, the
government may need to recognise some continued role for the CJEU
in supervising the aviation sector. And to avoid a temporary hiatus after
Brexit, the EU would need to be willing to negotiate a new agreement on
aviation with the UK before it becomes a third country, and separately from
the Article 50 process.
The upshot is that there are a number of crucial elements in ‘no deal’
First, it will be important to maintain goodwill as far as possible. ‘No deal’
does not necessarily have to be acrimonious, but this may also require
concessions on both sides. On the UK’s part, this is likely to mean
unilaterally agreeing the rights of EU citizens already in the UK and
reaffirming commitments made on the free movement of people
across the Irish border. These are things that the UK would, or should,
be doing anyway.
More controversially, the UK might still have to pay some, if not all, of the
estimated £39 billion financial settlement. This is discussed further below,
but even the full £39 billion could be a small price to pay to help avoid a
Second, it will be important to ensure that the UK strengthens its own
institutions. Some opponents of Brexit appear to believe that we would be
lost without EU institutions to set rules and regulate our lives. In practice,
most EU rules are implemented by national regulators. The UK therefore
already has a Civil Aviation Authority, Food Standards Agency, medicines
regulator, and so on. But they may end up with more work to do, and need
to be properly resourced. The same applies, of course, to UK border and
Third, and perhaps most importantly, the UK should be ready to act
unilaterally and in ways that best serve the long-term interests of the
economy as a whole. Again, some opponents of Brexit assume that the
UK can’t fix problems on its own, or even that the government would act in
ways that make problems worse.
One example here is the common assumption that the government would
choose to maintain the level playing field required under the WTO’s MFN
rules by imposing tariffs on imports from the EU, rather than by lowering
them on imports from the rest of the world. Another is the fear that the
government would impose restrictions on migration that compound skills
shortages in key sectors.
These principles can be applie to many of the challenges that a no-
deal Brexit would present, for which responses are being prepared. For
- There are many areas where the UK could simply
recognise EU standards, unilaterally, as just as good as its
own. This has already been proposed139 and accepted140
for many medicines and medical devices. Crucially, this
pragmatic approach would still allow the UK to recognise
different standards applied elsewhere in the world, and
would not require all UK producers to follow a Common
UK/EU Rule Book;
- There are other areas where the problems are grossly
overstated and can be dealt with easily, ranging from
maintaining the Single Electricity Market (SEM)141 on the
island of Ireland to continuing the Tripartite Agreement
governing the movement of racehorses142;
- There will be areas where the UK government should
step aside and allow market forces to do their job, rather
than replicate market-distorting intervention previously
undertaken by the EU. This includes regulations to
set mobile roaming charges143, where the interests of
consumers are already well served by strong competition
and new technologies.
Encouragingly, these principles already seem to run through most of the
government’s own papers144 on preparations for a ‘no deal’ scenario. But
there is still a need for a shift in mindset so that all parties recognise that a
‘no deal’ is a credible alternative.
Finally, customs preparedness is also a central part of no deal planning.
Here, Government should implement self-assessment for customs
declarations, reducing the burden of more returns on the HMRC system
and resources; train and support businesses to achieve authorisations for
the full extent of available facilitations; use the private sector to carry out
training and audits, alleviating resourcing pressures on HMRC; relax or
repeal requirements for comprehensive customs guarantees, alleviating
the burden on businesses; and extend postponed accounting for all
imports, negating the cash flow impact from ending acquisition VAT and
boosting the competitiveness of supply chains that import from the rest of
This chapter makes recommendations about what immediate steps can be
taken to ensure that the goals set out in this alternative approach can be
From the outset, it should be the UK Government’s objective to use the
different pillars outlined here to apply pressure on the EU. It is not possible,
or indeed advisable, to lay out all the required strategic thinking of a party
to a trade negotiation in a public setting, so these areas must by definition
be limited. We therefore set out central non-exhaustive areas.
First, it is vital that the negotiating dynamics with the EU are carefully
handled. These relate to the following areas:
- Pressure to isolate the EU by agreements with other
countries, demonstrating that on issues like good regulatory
practice and regulatory recognition, the EU is an outlier in
recognising regulations only when they are identical, or in
- Pressure internally on EU member states where there
would likely be significant losses in the event of no EU
trade deal. These include Bavaria (cars and dairy), Ireland
(beef and dairy), Catalonia (cars and dairy), and Northern
Italy (textiles and dairy) (see Figure 2 below).
Figure 2: Estimated impacts of applying the Common External Tariff
on selected industries145 146
Country Sector Change Changes Net annu- Net im- Estimated Regions poten-
in annual in annual al impact pact on impact on tially impacted
exports exports on over- annual jobs
to UK to UK in all sector producer
in 2019 2019 (%) exports revenues
(Euro m) (%) (Euro m)
EU27 Automo- (4,180) – (10%) – (1%) – (5%) (4,013) – (15,552) – –
biles (14,675) (36%) (12,820) (49,688)
EU27 Dairy (1,584) – (56%) – (4%) – (8%) (1,171) – (6,875) – –
(2,812) (100%) (1,726) (10,136)
Germany Automo- (2,245) – (10%) – (2%) – (6%) (2,218) – (8,597) – Baden-Württemberg,
biles (7,880) (36%) (7,586) (29,403) Bavaria, North
Germany Dairy (247) – (66%) – (3%) – (5%) (214) – (1,259) – Bavaria, Lower
(378) (100%) (299) (1,756) Saxony, North
France Dairy (335) – (57%) – (6%) – (294) – (1,147) – Bretagne, Pays de
(591) (100%) (10%) (466) (1,814) la Loire, Basse-Nor-
France Beverages (114) – (413) (8%) – (1%) – (3%) (138) – (537) – (1,566) ïle de France,
(24%) (402) Champagne-Ar-
Ireland Beef (656) – (68%) – (34%) – (579) – (3,397) – West (Mayo, Ro-
(971) (100%) (50%) (802) (4,711) scommon, Galway
and Galway City)
and Border (Cavan,
Ireland Dairy (409) – (56%) – (23%) – (209) – (1,224) – West (Mayo, Ro-
(732) (100%) (42%) (255) (1,495) scommon, Galway
and Galway City)
and Border (Cavan,
Italy Clothing (145) – (12%) – (1%) – (3%) (136) – (1,222) – Lombardia, Veneto,
(529) (43%) (371) (3,336) Toscana
Italy Dairy (106) – (52%) – (4%) – (8%) (93) – (176) (545) – (1,034) Lombardia, Emilia,
(204) (100%) Romagna, Veneto,
Spain Automo- (390) – (10%) – (1%) – (5%) (368) – (1,426) – Cataluña, Castilla y
biles (1,371) (36%) (1,053) (4,080) León, Comunidad
Spain Clothing (68) – (251) (12%) – (1%) – (2%) (63) – (170) (565) – (1,531) Cataluña, Galicia
145 Singham, S., “If EU intransigence results in tariffs, it could cost continental exporters
dear in revenues and jobs”, Brexit Central, October 16th, 2017.
146 The above does not include the increased cost of capital if no trade deal leads to a
fragmentation of the single capital pool in the City of London.
Any such attempts can only be initiated once the customs union or any
variant of it (such as the FCA, NCP or other similar arrangements) has been
taken off the table. Indeed if it proves necessary to unilaterally apply a zero
tariff rate in some sectors, even with a view to re-applying the bound rate
in a fixed period after stabilisation, this could cause many EU producers to
have different agendas, allowing the divergence the UK would benefit from
Dealing with EU Non-Cooperation
It may well be that the EU does not cooperate with UK Government
proposals. In this case, the Government will need to move to a more
proactive footing in response to EU obstructionism, not accepting the
EU’s negotiating mandate and demands.
The operating assumption seems to have been that supplicatory behaviour
will lead to a desirable outcome. This fails to understand how the EU
works. Indeed, the EU has obstructed the UK in a number of ways, such as
reneging on an undertaking to assist the UK’s application to accede to the
Government Procurement Agreement. The EU has published a number of
position papers suggesting a lack of cooperation with the UK that violates
the duty of sincere cooperation (which flows in both directions), and the
principle of good neighbourliness in Article 8, of the Treaty on European
Union.148 149 The UK should be prepared to inventory these violations and
if necessary litigate these issues as part of a signaling mechanism. Many
other countries have similar difficulties dealing with the EU. This approach
will confirm their views and strengthen the UK’s hand.
- In this vein, if the EU refuses to recognise UK
regulations on day one of Brexit, the UK should be
prepared to take action in the WTO under the GATT and
the SPS and TBT Agreements . It is true that such claims
can take years to resolve, but the UK should use threats of
trade litigation to help support its negotiating objectives, as
is normal practice around the world.
The purpose of these actions is not because we expect them to cause an
immediate change in EU behaviour, but because this is one of the ways we
can highlight that the EU is in fact an outlier in its behaviour.
The UK’s right to negotiate and the Duty of Sincere Cooperation. The
UK has the right to negotiate with third parties now, and does not have to
147 When the US government imposed the steel and aluminum tariff under section 232 (US
Customs and Border Protection, 2018, Section 232 Tariffs on Aluminum and Steel), France
and Germany took significantly opposing views on what the approach should be. If one
tariff line can cause such division, this carefully calibrated strategy should yield significant
divergence which the UK could then exploit.
148 Articles 8 and 50 (13 December 2007)
149 European Union (Notification of Withdrawal) Act 2017, Chapter 9.
wait until it exits the EU. This makes sense given that the UK is currently
negotiating its WTO transition: it cannot be limited in that regard until the
moment it leaves the EU, as WTO partners need to know what their trading
terms will be on the UK’s exit. However the UK should negotiate across all
pillars simultaneously. The duty of sincere cooperation flows both ways,
and the UK is entitled to cooperation from the EU, as the UK as a current
member state. The UK should be robust in its approach to the duty of
sincere cooperation and not accept the EU’s interpretation. The UK should
also include in its outreach to other countries a clear explanation of its
own interpretation of the duty of sincere cooperation, and why it believes
that it has right to negotiate agreements ready to come into effect at the
end of the Transition Period or as soon as possible in the event that no
Withdrawal Agreement is reached.
- Transitional Period
The UK cannot accept a Transition Period that includes the EU’s
interpretation of the Duty of Sincere Cooperation and the Common
Commercial Policy continuing to apply, nor can it accept the principle
of continuity that appears to be the current government view, because
this will impede the exercise of this plan and push the UK further onto the
EU’s chosen field.
While the Transition Period is necessary, and its terms as set out in the
Withdrawal Agreement should, for pragmatic reasons, not be re-opened
at this stage, the provision specifically acknowledging the UK’s right to
negotiate and sign agreements with third countries and bodies151 is critical.
The present interpretation of the duty of sincere cooperation, if continued,
will limit the usefulness of these important and hard-won provisions.
Similarly the Common Commercial Policy also can be used by other
member states to impede the UK’s ability to negotiate properly.
EU complaints about a particular UK negotiation, both to the UK and the
other party, are liable to render the UK unable to be a credible negotiating
partner. The presence of the Common Commercial Policy means there
is no incentive for the UK to negotiate properly with the countries it has
agreements with through the EU, except in the most general of ways. By
allowing the EU to negotiate these arrangements on behalf of the UK, the UK
will lose the ability to convey to these countries that it is capable of greater
liberalisation in the future (which needs to mean very soon). The UK has
allowed itself to be trapped on the EU’s playing field. If the UK does continue
with the Transition Period, then it must take a far more robust approach to
151 Her Majesties Government, “Draft Withdrawal Agreement – 19th March 2018”, Article
the duty of sincere cooperation, and seek assurance to safeguard the right
of the UK to progress its own negotiations during the Transition Period. We
suggest amending article 124(4) of the Withdrawal Agreement by adding
“neither the principle of the duty of sincere cooperation, nor the common
commercial policy will be relied on by the Union or any Member State to
disadvantage in any way the UK or third party’s negotiations. Violation of
this provision shall be, itself a violation of the duty of sincere cooperation
by the Union.”
Simultaneous Non-EU Approach
In these contexts, the UK Government should proceed as follows
- Make the case to the US why it is strongly in the US
interest to have an FTA with the UK, on the basis that the
US needs allies in its advocacy of good regulatory practice
and a reduction of anti-competitive barriers and distortions,
and that the UK would be a major ally in this process.
- Galvanise the support of US firms and global supply
chains to understand the value of a major G-7 nation
diverging from the EU regulatory system.
- Accelerate US negotiations by moving to chapter-by-
chapter negotiations of an FTA, closing chapters and
agreeing a time-line.
- Formally apply to join CPTPP as soon as possible
- Work with CPTPP members to keep pushing for UK
accession to CPTPP.
- Negotiate TRQs bilaterally, having proposed to the EU
an FTA+ deal.
- Informally notify WTO Membership of FTA+ intent with
the EU, unilaterally if necessary.
- Offer a de minimis AMS amount as a signal of UK
commitment to liberalisation.
- Indicate which groups the UK seeks to join on transition,
thus showing coalitions like the Friends of the System the
immediate value of UK independence.
- Be prepared to offer a package deal on TRQs/AMS and
further liberalisation for key TRQ partners and potential
- Prepare a default option of unilateral liberalisation in key
sectors (at least at the applied rate for a temporary period)
and announce these to WTO members as a fixed two or
three year applied rate of zero, on the basis that the UK will
apply the bound rate to all members with whom it does not
have a deal in March 2022.
The Approach to the UK-EU FTA and Withdrawal Agreement
- UK-EU FTA
- The government should present a UK offer along the
lines suggested in this document, with negotiating text
on the table (for example the draft chapter in the Annex),
recognising that closing text improves the negotiating
environment and makes a final deal more likely (this has
occurred even in the NAFTA re-negotiation process, where
chapters, including relatively controversial ones such
as Regulatory Coherence, have been closed already).
Even if the EU maintains that the time is not ripe for a
trade negotiation, preliminary soundings of Task Force 50
suggest that the EU would welcome text, from which to
agree the future framework for the trade relationship.
- The core elements of the offer will be comprised in an
FTA to include the following:
- Zero tariffs in goods and agriculture including
liberal rules of origin allowing both parties to
cumulate across other FTAs;
- Customs and trade facilitation chapter and
Irish border protocol;
- Government procurement
- Regulatory coherence including specific
sectoral annexes (e.g. pharmaceutical, etc.)
- State aids
- Services with maximum liberalisation based
on a negative list approach (all sectors to be
included); no restrictions in all four modes of
service supply in either market access or national
- Mutual recognition of occupation licensing;
- Specific sectoral annexes in key areas including
telecoms, data and financial services;
- Dispute settlement.
If the advanced FTA concept outlined above cannot be agreed as the
framework for the purposes of the Withdrawal Agreement, or if a Withdrawal
Agreement cannot be agreed at all, the EU will need to justify to its citizens
and trading partners why it has been able to agree advanced measures in
its existing FTAs like CETA, and its existing MRAs, such as the agreement
with New Zealand on sanitary measures in meat and animal products and
the suite of MRAs in place with the US, but is not able to agree similar
arrangements with its closest neighbour and key trading partner.
The UK would be seeking to negotiate the ceiling, but be prepared to fall
back onto the reserve parachute.
In negotiations, the EU has successfully used time against the UK in the
hope that it would be forced to concede to the EU’s terms. Given that this
was a specific strategy of the EU, it would be an error now to say that the
negotiations out of time and must accept the EU’s terms. Many negotiations
are resolved in the final period of negotiation; however, the most important
thing the UK can do is reset the process, retake control of the agenda, and
move forward rapidly across all the pillars simultaneously as a matter
As the negotiations pursuant to Article 50 stand, most of the legal drafting
of the Withdrawal Agreement has been provisionally agreed. The most
fundamental outstanding elements are the framework for the future
relationship and the so-called backstop arrangement for the Irish border
(“Irish Backstop”). It was the desire to avoid the Irish Backstop being
invoked that informed the design of the White Paper – a way of preserving
free circulation of goods without either leaving Northern Ireland in the EU’s
customs union and single market, or having the whole of the UK stay in the
single market and a customs union.
The UK government has options available to it that would deliver varying
levels of autonomy, negotiability and associated risk. At one end of the
spectrum, terminating the negotiations in order to focus on ‘no deal’
preparations, including protecting the positions of EEA citizens by unilateral
measures, could deliver the most independence in the shortest time frame.
This option would not mean no exit arrangements at all, as the UK could
propose self-contained agreements with the EU in areas like aviation and
nuclear safety, enabling the Council to issue the necessary mandates to
the Commission to negotiate such matters, and refer the question of the
financial settlement to independent arbitration.
At the opposite end of the spectrum, the UK could request an extension of
the negotiating period to enable the outstanding provisions of the Withdrawal
Agreement to be completed, and to advance no deal preparations. Against
this option are the likely domestic political consequences, the possibility
that the extension would be declined and the protracted uncertainty for
businesses and individuals.
The option being pursued by the Government is being resisted by the EU,
due to the legal and practical challenges of the FCA and the disaggregationof
goods from other components of the single market. It may also be voted
down by the UK Parliament.
An option is therefore required to maximise the progress already made on
the terms of the Withdrawal Agreement but unblock the impasse over the
Irish border and future framework. The government should seek to retain
all of the agreed elements (the financial settlement, citizens’ rights, the
transition period and withdrawal terms) and propose a new backstop and
framework for a future relationship. The new backstop would comprise a
basic free trade agreement between the UK and the EU for goods, and
a commitment by the parties to undertake all necessary investment and
cooperation mechanisms to enable formalities on trade between Northern
Ireland and Ireland to be overseen away from the border. This would
enable the completion of the Withdrawal Agreement and incentivise the
parties to agree a better FTA during the transition period. It would also
enable the UK to negotiate more effectively with rest-of-world trading
partners during the transition, with a baseline element of the relationship
with the EU known at the outset.
Position on the Joint Report
If the UK determines that the EU’s position makes a backstop
impossible without jeopardising the integrity of the UK single market
and the Union itself, then it should state that clearly as a non-
negotiable item that it does not agree with the EU’s interpretation of
the Joint Report.152
It can then make an offer to the EU on the basis that it no longer agrees
with the EU’s changing interpretation (for example, even though there
are currently different VAT regimes on the island of Ireland, the EU is
suggesting that there should be no difference; as well as the notion that
alignment of regulation consistent with the all-island economy in the Joint
Report has been interpreted by the EU and UK to now mean regulatory
identicality over all of the economy).
This would not need to have the effect of re-opening other questions such
as payments of money, citizens and the Transition Period, which were
settled in principle in the Joint Report and have legal drafting agreed in
the draft Withdrawal Agreement. However, given that the Irish Backstop
issue is holding up progress on the Withdrawal Agreement, we think a
new approach is more likely to lead to a conclusion of this part of the
However, the UK must recognise that the difficulty with the EU
approach is much deeper, in the negotiating mandate of the EU itself
which was accepted by the UK government. It is not logical to seek
152 Commission to the European Union, “Joint report from the negotiators of the European
Union and the United Kingdom Government on progress during phase 1 of negotiations
under Article 50 TEU on the United Kingdom’s orderly withdrawal from the European
Union.”, Presented jointly by the negotiators of the European Union and the United Kingdom
Government, December 8th, 2017.
to negotiate a future framework for the trade relationship without at least
commencing negotiations on what that framework could be, for example
on the basis of an advanced FTA. From these initial discussions, a
framework consistent with the Article 50 negotiating mandate can be
agreed, and the transition period can be preserved, provided the UK
The UK could present the EU with its own vision of what an FTA looks like,
with an Irish border protocol in the FTA (as part of the customs and trade
facilitation chapter), and a version of what arrangements the UK would
seek to have in place in the event of no trade deal.
Strategic Actions Across Other Pillars
The UK would action the other pillars described in this document
immediately, so that negotiations with the US, application to join the
CPTPP, and the final stages of WTO transition run concurrently with the
The government would seek to ensure that TRQ partners were reasonable
in the WTO transition and accepted the UK’s bilateral offer of historic
market shares plus,153 in exchange for initiating negotiations to gradually
liberalise immediately, and to play a role in arguing for greater liberalisation
in the WTO.
If no Withdrawal Agreement can be reached with the EU or if the
Withdrawal Agreement is rejected by a vote in the UK Parliament or
via the EU’s own processes
If the UK and EU are unable to come to terms, the UK will leave without
a Withdrawal Agreement and Transitional Period. This would result in the
UK falling back onto the Common External Tariff as an independent WTO
member. It would mean a considerably more limited financial arrangement.
Both the UK and EU need to plan for this eventuality.
- Financial settlement
The UK’s stated willingness to pay a large ‘divorce bill’ as part of the
Withdrawal Agreement from the EU still rankles with many – and
understandably so. It is not immediately obvious why the UK should continue
153 The current UK and EU offer in the TRQ negotiation is for a split based on historic
market shares. The UK could offer historic market shares plus a small amount to improve
to contribute to the EU budget long after Brexit, especially when the EU
appears reluctant to offer the UK better terms on the future relationship
than it would to any other country. This concern would, of course, be all the
stronger in a ‘no-deal’ scenario.
Nonetheless, the UK should be guided by the principle that it will honour
commitments made to the EU in the past. The Prime Minister pledged
in her Florence speech154 in September 2017 that ‘the UK will honour
commitments we have made during the period of our membership’.
It is therefore wrong for some to claim that the divorce bill is an additional
‘cost’ of Brexit. In reality it is simply money that the UK would have had to
pay anyway had it still been a member. But nor is it necessarily anything
to do with the future relationship, or meant to be a down payment for a
comprehensive free trade deal or streamlined customs arrangements.
Indeed, the UK shouldn’t be expected to pay extra for these benefits
anyway, since they would help both sides.
One could argue that the UK’s willingness to continue to contribute to the
EU’s annual budget until the end of 2020 should be seen as a quid pro quo
for the EU’s offer of a standstill transition period over this timeframe. But
that’s not strictly what it’s supposed to be either. In any event, these annual
payments account for less than half of the estimated £35-39 billion total
cost of the financial settlement, as detailed by the NAO155.
It is true that many (including a House of Lords committee156) have argued
that the UK would be on strong legal ground if we decided to walk away
with paying a penny. And even though the UK and the EU have signed up
to a methodology157 for the financial settlement, ‘nothing is agreed until
everything is agreed’.
But the threat of refusing to pay would not be costless. Whatever the legal
technicalities, refusing to settle up could be seen as bad faith – and not just
in the rest of Europe. Some third countries looking to do trade deals with
the UK might not be impressed if we appear to go back on promises to our
former partners in the EU.
155 National Audit Office, “Exiting the EU: The financial settlement”, Her Majesty’s Treasury,
April 20th, 2018.Available at: https://www.nao.org.uk/report/exiting-the-v-settlement/
156 European Union Committee, “Brexit and the EU budget”, House of Lords, March 4th,
157 Commission to the European Union, “Joint report …” Presented by the negotiators of
the European Union and the United Kingdom Government, December 8th, 2017.
Finally, even £39bn would be less than 2% of one year’s UK GDP, spread
over many years, and just a few tenths of a percent of the GDP of the rest
of the EU. It would be difficult for the other countries of the EU to have to fill
the gap, but these sums are simply not large enough to be game-changers.
Overall, then, the divorce bill probably isn’t as powerful a bargaining
chip as many seem to think. But it remains part of the UK’s hand. If the
negotiations do stall, the money should surely come back into play. Indeed,
it still seems perfectly reasonable for the UK to attach conditions to the
financial settlement, even at this late stage.
For example, the UK could agree now to pay the annual net contributions
up until the end of 2020 (perhaps £16bn), regardless of the progress of
the talks. This would go a long way towards meeting the Prime Minister’s
Florence pledge, which was that the UK’s partners shouldn’t fear ‘they
will need to pay more or receive less over the remainder of the current
budget plan as a result of our decision to leave’. Other interested parties
elsewhere in the world would probably also regard it as a fair offer.
In summary, even in the absence of a comprehensive withdrawal
agreement, paying at least some of the financial settlement could be a
relatively small price to pay for maintaining goodwill. However, if the UK
and the EU can’t agree a satisfactory long-term deal (or, of course, if the
UK withdraws from the EU with no deal) we could retain some or all of the
remainder of the settlement that relates to payments beyond 2020.
- Irish Border in the event of no Withdrawal Agreement
In the event of no agreement, the UK (and the EU if it so chose) could
choose not to impose any checks on goods trade at the Irish border, using
legal and technical solutions to manage the trade away from the border. It
would also be possible to seek a WTO waiver (allowed under Article IX:3),
available when the precise application of WTO obligations would conflict
with some other overarching principle of international law, or if there is an
emergency situation in a WTO member. While waivers are narrowly drawn,
the potential for conflict in Northern Ireland and a return to the troubles would
appear to be fully justify any request for a WTO waiver. For example, the
waiver process has been used with respect to the Kimberley Certification
Scheme for Rough Diamonds, and for the TRIPs Access to Essential
Medicines agreement. Under the WTO’s waiver power, a contracting party
can request the General Council or the Ministerial Conference to waive
a WTO obligation by consensus (the GATT rule required three quarters
of the membership to approve). The time period for a response from the
General Council is ninety days. Such a waiver could be granted until the
next WTO Ministerial Conference at which it could be renewed depending
on the circumstances. Additionally or in the alternative, a national security
exemption under Article XXI would be possible on the basis that it is
necessary to take this action in order to protect the UK’s national security
interests in time of war or other emergency in international relations (Article
XXI(b)(iii))or under Article XXI(c)’s provisions which allow parties to act
to maintain United Nations Charter obligations to maintain international
peace and security.
It is extremely unlikely that any WTO member will complain, given the
question of the security of Northern Ireland. It is open to the EU to do the
same, and if it does not, it would need to explain this to the Republic of
Ireland. The Waiver or National Security exemption could be for a limited
(say two-year period) as the systems referred to above are brought on-
line. In any event, the UK should activate the measures set out in this
document, and should have started to prepare for them much in advance
of the date of this plan.
- Economic Relationship
In a no trade deal scenario, the UK could apply zero tariffs in agri-food (to
control food price inflation)158, but would have to do so on an MFN basis
for the world. It could selectively apply other tariffs at the zero level also.
EU member states are more likely to diverge at this point from each other
if some tariffs are retained at the Common External Tariff level (the bound
rate) while others are reduced to zero for the world. For example, French
farmers and German car manufacturers would have very different interests
and might react differently to unilateral tariff reduction on an MFN basis,
especially in agriculture, if the UK were also to use a mechanism to protect
its farmers from subsidies or other anti-competitive practices, as described
in this document. It is at this point that member state harmony might be
If the UK chose to apply tariffs at the zero rate, while maintaining
its binding at the CET rate, it could reapply the bound rate within
two years of leaving the EU, creating an incentive for all parties to
negotiate trade deals with it.
158 The UK would bind its tariffs to the CET in the WTO, but apply lower tariffs for a time-
Domestic Reforms for the UK
Domestic Aspects of Autonomy for the UK
There are a number of areas which, while outside the scope of trade and
regulatory policy, are serious concerns arising from the White Paper, and
will need to be addressed as the UK leaves the EU. It is not the intent of
this paper to discuss these issues in great detail, but they are flagged up to
the extent that they have a trade implication or spill-over effect.
The main questions here are as follows:
- Defence and Security
The UK should remain open to cooperating on an ad hoc basis with EU
allies, but not to the detriment of its Five Eyes relationships. This is an area
of particular concern. The EU is moving in the direction of a European army,
according to the President of the European Commission, and a common
defence policy, with severe implications for the Article 50 negotiations and
UK sovereignty. It is crucial that major UK security partnerships, such as
NATO, and the US-UK relationship, remain the focus, and nothing is done
with the EU to imperil this.
It will be especially important for the UK to avoid the White Paper’s
proposals of “coordination on foreign policy [and] defence”. The White
Paper makes a range of hazardous commitments to UK-EU defence
integration, including the implication that the EU itself will be able to use
“civilian and military assets and capabilities”, and pursue “commitments
to support a collaborative and inclusive approach to European capability
development and planning”. This also covers a UK offer to “host an
Operational Headquarters (OHQ) and consider future contributions to EU
Battlegroups as part of the enhanced future partnership”, with the ambition
that “the EU [make] best use of UK assets”. White Paper “collaboration”
would also include collaboration with Permanent Structured Cooperation
(PESCO), but in which the UK should not be an official, or de facto, member.
It is also important to note that in the defence area, there is a spill-over into
UK trade relationships because defence cooperation in the trade area with
the US is so important. The UK’s defence and procurement commitments
with respect to the EU should not risk cooperation with the US in this area.
Free movement of workers and the associated rights of EU citizenship
cannot continue after the UK has left the EU. The UK will therefore need
a comprehensive and sensible immigration policy. This policy needs to
enable dynamic recruitment of skills and talent where the market requires.
Constitutional adjustments will be needed once the UK leaves the EU,
because with full regulatory autonomy the UK will need to operate on the
global stage in a different way from how it has operated since joining the
- If appropriate attention is not paid to this area, the UK will not have the
institutional machinery to be able to operate in an effective manner on the
global stage. Central changes should include the following:
(i) Greater devolution of powers to local government and
devolved administrations, where feasible.
(ii) Injection of more specific long-term subject matter
expertise into the Civil Service through the use of political
appointments at senior levels with the understanding that
the civil service should do less, and elected officials more.
(iii) Upgrading of parliamentary capacity to scrutinise
foreign trade and other policy decisions of the government.
The relevant parliamentary committees will become more
important over time, and it is important for them to be treated
with the seriousness they deserve. In other countries which
operate their own independent policies, these committee
chairs are very important political figures in their own
right, and remain in these positions for significant periods
of time which enables their offices to build up expertise.
They are often selected for Cabinet positions as they have
developed relevant expertise and experience over long
periods of time, and so these positions become sought
after, and committee chairs (and ranking members) remain
in place for long periods of time.
For the purposes of this Chapter:
(a) “Competition Agency” means:
(i) in the case of the United Kingdom, the
Competition and Markets Authority; and
(ii) in the case of the European Union, the
European Commission Directorate-General for
(b) “Covered Action” means any of the following actions to
the extent they are material:
(i) legally binding substantive rules including
(ii) interpretation of rules that have a binding
effect on agencies or private parties;
(iii) adjudications that have a binding effect on
one or more parties;
(iv) procedural rules that bind agencies or the
(v) decisions to grant, revoke, extend, or modify
(c) “International Instruments” means any document
adopted by international bodies or fora in which both Parties’
Regulatory Agencies participate, including as observers,
and which provide requirements or related procedures,
recommendations or guidelines on the supply or use of
a service, such as, for example authorisation, licensing,
qualification or on characteristics or related production
methods, presentation or use of a product;
(d) “Joint Committee” means the committee formed by the
Parties pursuant to Article 1.
(e) “License” means any license, permit, grant, approval,
registration, charter, statutory exemption or other form of
government permission or approval required for a person
to engage in a regulated activity;
(f) “Regulation” means:
(i) in the case of the European Union:
(B) Regulations; and
(C) any delegated directives, regulations,
regulatory technical standards,
implementing technical standards, orders
or guidance promulgated under either of
(ii) in the case of the United Kingdom:
(A) Acts of Parliament;
(B) Statutory instruments; and
(C) any rules, regulations, codes, orders,
requirements or guidance promulgated
under either of the foregoing, including
any rules, guidance, examples, practice
documents and handbooks of regulators
including the Financial Conduct Authority,
Prudential Regulation Authority,
Competition and Markets Authority and
Bank of England;
(g) “Regulatory Agency” means a governmental department
or commission of a Party that engages in any Covered
- General Provisions
2.1. For the purposes of this Chapter, regulatory coherence refers to the
use of good regulatory practices in the process of planning, designing,
issuing, implementing and reviewing legal and regulatory measures in order
to facilitate achievement of domestic policy objectives, and in efforts by
the Parties to enhance regulatory cooperation and to minimise regulatory
divergence provided that the ultimate goal is to promote international trade
and investment, markets characterised by competition, economic growth
2.2. The Parties affirm the importance of:
(a) sustaining and enhancing the benefits of this Agreement
through regulatory coherence in terms of facilitating
increased trade in goods and services and increased
investment between the Parties;
(b) promoting an effective, pro-competitive regulatory
environment which is transparent for citizens and economic
(c) furthering the development of international instruments,
and their timely implementation and application, as a
means to work together more effectively with each other
and with third countries to strive towards consistent
(d) aligning with international standards (including, without
limitation, those developed by the International Organization
of Securities Commissions, the Financial Stability Board,
the Basel Committee on Banking Supervision and the
Financial Action Task Force) and conforming with related
(e) each Party’s sovereign right to identify its regulatory
priorities and establish and implement legal and regulatory
measures to address these priorities, at the levels that the
Party considers appropriate;
(f) the role that law and regulation plays in achieving public
(g) taking into account input from interested persons in the
development of legal and regulatory measures;
(h) developing legal and regulatory cooperation and
capacity building between the Parties; and
(i) developing mechanisms to ensure that unnecessarily
burdensome, duplicative or divergent regulatory
requirements do not emerge over time, consistent with
the Parties’ efforts to stimulate economic growth and jobs,
and with their commitments to protect the environment,
consumer welfare, innovation, working conditions, human,
animal and plant health, and other prudential objectives.
2.3. The Parties affirm their shared commitment to good regulatory
principles and practices, as laid down in the OECD Recommendation of
22 March 2012 on Regulatory Policy and Governance, and the OECD
Competition Assessment Toolkit, based on the OECD Recommendation
of 22 October 2009.
- Establishment of Joint Committee
3.1. The Parties have agreed to establish a joint committee for the
purposes of assisting and monitoring the regulatory coherence relationship
established under this Chapter (the “Joint Committee”).
3.2. The Joint Committee’s roles shall consist of:
3.3. The Joint Committee shall consist of  permanent members
appointed by the United Kingdom and  permanent members appointed
by the European Union.
3.4. The Joint Committee’s permanent members shall elect a seventh
member to carry out the functions of the chairperson of the Joint Committee,
at its first meeting by mutual consent of the permanent members, and
thereafter in accordance with any relevant internal procedures established
by the Joint Committee.
3.5. The Joint Committee shall conduct itself by majority vote, and in the
event of a tied vote, the chairperson shall cast the final binding vote.
3.6. The Joint Committee shall adopt its internal procedures initially
by mutual consent of the permanent members, and subsequently in
accordance with Article 1.1
3.7. The Joint Committee’s chairperson, permanent members and any
other ancillary staff shall be chosen on the basis of appropriate technical
or regulatory expertise, practice or other relevant experience.
3.8. The Joint Committee shall meet [at least every [•]] / [in accordance
with its established procedures, as necessary] to carry out its duties.
3.9. The Joint Committee shall be able to request specialist technical,
legal or other advice and employ ancillary additional staff if it considers
3.10. The costs of the Joint Committee shall be shared equally by the
- Scope of Covered Action
Each Party shall promptly, and no later than one year after the date of
entry into force of this Agreement, determine and make publicly available
the scope of its Covered Actions. In determining the scope of its Covered
Actions, each Party should aim to achieve significant coverage.
- Coordination and Review Processes
5.1. The Parties recognise that regulatory coherence can be facilitated
through domestic mechanisms that increase inter-agency consultation
and coordination associated with processes for developing regulatory
measures. Accordingly, each Party shall endeavour to ensure that it
has processes or mechanisms to facilitate the effective inter-agency
coordination and review of proposed Covered Actions. Each Party should
consider establishing and maintaining a central coordinating body for this
5.2. The Parties recognise that while the processes or mechanisms
referred to in Article 1.1 may vary between the Parties depending on their
respective circumstances (including differences in levels of development
and political and institutional structures), they should generally have as
overarching characteristics the ability to:
(a) review proposed Covered Actions to determine the
extent to which the development of such measures adheres
to good regulatory practices, which may include but are not
limited to those set out in Article 17 (Implementation of Core
Good Regulatory Practices), and make recommendations
based on that review;
(b) strengthen consultation and coordination among
domestic agencies so as to identify potential overlap and
duplication and to prevent the creation of inconsistent
requirements across agencies;
(c) make recommendations for systemic regulatory
(d) publicly report on regulatory measures reviewed, any
proposals for systemic regulatory improvements, and any
updates on changes to the processes and mechanisms
referred to in Article 1.1.
5.3. Each Party should generally produce documents that include
descriptions of those processes or mechanisms and that can be made
available to the public.
- Legitimate Regulatory Objectives
6.1. The Parties will promulgate regulation which is the least trade
restrictive, and anticompetitive consistent with a legitimate, publicly stated
6.2. A legitimate regulatory goal means a regulatory goal that is either
prudential, protective of animal, plant or human health, or to protect
6.3. Legitimate regulatory goals cannot be so detailed, prescriptive or
specific as to require a specific regulatory solution, and cannot be to
ban products, or prescribe a particular technological process without an
adequate explanation as to why it is necessary for the ban to have such
- Trade Effects
When developing a Regulation, a Regulatory Agency of a Party shall give
notice to, give opportunity for submissions by and consider any information
provided in comments by, the other Party or a Regulatory Agency of the
other Party [or private party established in or authorised by the Other Party
that would be affected by such a Regulation] regarding the potential trade
effects of the Regulation that it receives during the comment period and
provide its views on substantive issues raised.
- Competitive Effects
8.1. When developing a Regulation, a Regulatory Agency of a Party shall
give notice to, and give opportunity for submissions by and consider any
information provided in comments by the other Party or a Regulatory
Agency of the other Party [or private party established in or authorised by
the Other Party that would be affected by such a Regulation] regarding the
potential competitive effects of the Regulation that it receives during the
comment period and provide its views on substantive issues raised.
8.2. The Party’s Competition Agency shall be given notice, at the earliest
practicable stage in the regulatory promulgation process of the competitive
effect of Regulations.
8.3. The Party shall ensure the relevant national regulator makes itself
available to the Competition Agency, as well as making sure that any
data, studies, market surveys or other preparatory work is shared with the
Competition Agency in as expeditious a manner as possible.
8.4. In making its decisions, the Parties agree that the Competition Agency
will utilise the following methodology:
(a) The analysis must take into account the issues
addressed in Article 1.1.
(b) Such analysis must include:
(i) a treatment on the impact on
related industries, consumers and
competitiveness, including whether the
Covered Action will erect entry barriers
that might reduce innovation by impeding
new entrants into the market; and
(ii) whether the Covered Action has any
other effects on competition.
- Statement of Cost-Benefit Methodology
9.1. The Parties agree that a Regulatory Agency proposing a Covered
Action will produce a statement of cost-benefit methodology to describe the
methodology employed by the Regulatory Agency, including a description
of its assumptions in calculating a base-line scenario (the scenario without
the Covered Action) and the policy scenario (the scenario with the Covered
9.2. The statement shall include the results of the analysis using the cost-
benefit methodology, including separate and itemised lists of the costs and
benefits identified, as well as descriptions of costs and benefits that cannot
9.3. If a Regulatory Agency proceeds to engage in a Covered Action even
though the analysis using the cost-benefit methodology shows that the
costs outweigh the benefits, that Party must include reasons why it is
overriding the analysis either in the original statement or in a subsequent
statement referring to the original statement.
9.4. In cases where the governing statutes or other authorities would
expressly prohibit the use of the cost-benefit methodology or any other
form of cost-benefit analysis or impact analysis or any aspect hereof
in respect of a Covered Action, the Regulatory Agency engaging in the
Covered Action shall include in its statement an explanation of why it is
unable to perform a cost-benefit analysis (or ignore the result) as otherwise
required by this Chapter.
- Access to Government Documents
10.1. Each Party shall make publicly available the following:
(a) a description of each of its Regulatory Agencies’
functions and organisation, including the appropriate
offices, through which the public can obtain information,
make submissions or requests, or obtain submissions; and
(b) any rules of procedure or forms utilised or promulgated
by any of its Regulatory Agencies as well as any associated
10.2. Each Party shall adopt or maintain laws or procedures that allow
for persons to request access to documents from a Regulatory Agency
of a Party. Such laws or procedures that allow for persons to request
access to documents from a Regulatory Agency of a Party shall provide no
less favourable treatment to persons of the other Party than it provides to
persons of the Party.
- Description of Regulatory Processes
Each Party shall make publicly available a detailed description of the
processes and mechanisms employed by its regulatory agencies to
develop Regulations. The description shall identify:
(a) the applicable guidelines or rules for providing the
public with opportunities to participate in the development
(b) the procedures for ensuring that regulatory agencies
have considered public input;
(c) the judicial or administrative procedures available to
challenge Regulations or the procedures by which they
were developed; and
(d) the processes or mechanisms referred to in Article 1.
- Regulatory Collection
12.1. Each Party shall ensure that all of its Regulations that are currently
in effect are published in a designated collection. The collection shall be
organised logically to promote easy access to relevant Regulations. To
that end, the collection should be clearly organised by topic.
12.2. Each Party shall make its respective collection of Regulations
available on a single, freely accessible public internet website that is
capable of performing searches for Regulations by citation or by word
12.3. Each Party shall make sure that its collection is updated when
Regulations are amended, repealed or replaced.
- Decision-Making Based on Evidence
13.1.Each Party recognises the need for Regulations to be based upon
information that is reliable and of high quality. To that end, each Party
should adopt or maintain publicly available guidance or mechanisms that
encourage a Regulatory Agency when it is developing a Regulation to:
(a) seek the best reasonably obtainable information,
including scientific, economic, technical, or other
information relevant to the Regulation it is developing; and
(b) rely on information that is of high quality (including with
respect to utility, objectivity, integrity, clarity and accuracy).
13.2. When publishing any final administrative decision with respect to a
Regulation, the Party shall make publicly available an explanation of:
(a) the Regulation, including its policy objectives, how the
Regulation achieves those objectives, and the rationale
for and an explanation of the material features of the
(b) the relationship between the Regulation and the key
evidence, data, cost-benefit analysis and other information
the Regulatory Agency considered in preparing the final
Such explanation should also identify any major alternatives that the
Regulatory Agency considered in developing the Regulation and provide
an explanation supporting the alternative that is selected for the final
13.3. Each Party shall prepare, on an annual basis, a public report setting
(a) an estimate, to the extent feasible, regarding the total
annual costs and benefits of major final Regulations issued
in that period by its respective regulatory agencies;
(b) any proposals for systemic regulatory improvements;
(c) any updates on changes to relevant processes and
Each Party shall provide for any interested person to petition any Regulatory
Agency of the Party for the issuance, amendment, or repeal of a Regulation.
The basis for such petition may include, for example, that in the view
of the person submitting the petition, the Regulation has become more
burdensome, trade restrictive or damaging to competition than necessary
to achieve its objective, as well as technical or legal commentary. For the
purposes of this Article, an “interested person” means any person in the
jurisdiction of either of the Parties who is directly or indirectly affected by
- Retrospective Review of Regulation and Management of
15.1. Each Party shall maintain procedures or mechanisms to promote
periodic reviews of Regulations that are in effect in order to determine
whether they are in need of revision or repeal, including on a Regulatory
Agency’s own initiative or in response to a petition filed pursuant to Article
15.2. Each Party shall make publicly available the results of any such
retrospective reviews or analyses conducted by its regulatory agencies,
including any supporting data whenever practicable.
15.3. Each Party shall include in procedures or mechanisms adopted
pursuant to Article 1.1 provisions addressing Regulations that it considers
to have a significant impact on a substantial number of small entities.
15.4. Acknowledging that on the effective date of this Agreement, both
Parties’ regulatory systems are closely aligned and subject to either
harmonisation or mutual recognition, the Parties agree to recognise
each other’s laws and regulations in respect of goods and will accept
certification of conformity to applicable laws and regulations by duly
authorised conformity assessment bodies of the other Party to the fullest
extent allowable by law
15.5. Each Party agrees that it will not withdraw this recognition provided
that the other Party has adhered to the provisions of this Chapter, and the
respective laws and regulations of each Party in the relevant field achieve
the respective policy objectives.
15.6. The Parties agree that it is the intention of the Parties to include
detailed agreements in the following sectors [sectoral annexes]
15.7. Any disputes concerning this will be submitted to the Joint Committee
for resolution in the manner described in this Chapter. [Linked to Dispute
- Reducing Information Collection Burdens Associated with
Each Party shall provide that, to the extent regulatory agencies use
surveys to request or compel information from the public in developing
a Regulation, these regulatory agencies should endeavour to do so in a
manner that minimises unnecessary burdens and avoids duplication.
- Implementation of Core Good Regulatory Practices
17.1. The Parties agree that the optimal way of avoiding unnecessary
differences in laws and regulations is to agree similar core good regulatory
17.2. The Parties agree that in achieving the legitimate and publicly stated
goal(s) of any Covered Action, Covered Action taken or to be taken by a
Party to achieve such goal(s) should be the least anti-competitive and least
restrictive on trade while being consistent with the relevant objective(s) for
the Covered Action.
17.3. To assist in designing a measure to best achieve the Party’s
objectives, each Party should generally encourage relevant regulatory
agencies, consistent with its laws and regulations, to conduct regulatory
impact assessments when developing proposed Covered Actions that
exceed a threshold of economic impact, or other regulatory impact, where
appropriate, as established by the Party. Regulatory impact assessments
may encompass a range of procedures to determine possible impacts.
17.4. Regulatory impact assessments conducted by a Party should, among
(a) assess the need for a regulatory proposal, including a
description of the nature and significance of the problem;
(b) examine feasible alternatives, including, to the extent
feasible and consistent with laws and regulations, their
costs and benefits, such as damage to international trade
or to competition, recognising that some costs and benefits
are difficult to quantify and monetise;
(c) when highlighting the costs and benefits of new laws and
regulations, the Parties agree to separate the costs analysis
from the benefits analysis, in particular recognising that
benefits are often difficult to quantify and monetise, but the
costs side can be more objectively analysed if it is limited to
business compliance costs, impact on international trade,
and impact on competition;
(d) explain the grounds for concluding that the selected
alternative achieves the policy objectives in an efficient
manner, including, if appropriate, reference to the costs
and benefits and the potential for managing risks; and
(e) rely on the best reasonably obtainable existing
information including relevant scientific, technical,
economic or other information, within the boundaries of
the authorities, mandates and resources of the particular
17.5 When conducting regulatory impact assessments, a Party may take
into consideration the potential impact of the proposed Regulation on
SMEs, and shall apply principles of proportionality in determining the level
of regulation required.
17.6 Each Party should ensure that new Covered Actions are plainly written
and are clear, concise, well organised and easy to understand, recognising
that some measures address technical issues and that relevant expertise
may be needed to understand and apply them.
17.7 A Regulatory Agency of either Party, when considering a Covered
Action, shall propose such Covered Action to the public and will provide
for a public notice-and-comment period. This notice and comment period
shall be of reasonable duration, having regard to the nature, scope and
complexity of the Covered Action. The Notice shall include a statement of
cost benefit analysis as expressed in Article 1. This publication requirement
shall apply to all statements of policy and all interpretations issued by a
Regulatory Agency in its official capacity that are not solely internal and
related to the internal management structure of the Regulatory Agency.
17.8 The Parties agree that Regulatory Agency decisions on License
applications will be made in a reasonable period of time. Apart from voluntary
or requested Licence cancellations, suspensions or modifications, a
Regulatory Agency may not revoke or modify Licenses without prior written
notice, and it must afford the affected person a reasonable opportunity
to demonstrate compliance with the law. Parties must provide written
reasons for license rejections or modifications. Parties may not revoke or
modify licenses without prior written notice, and must afford the affected
person a reasonable opportunity to demonstrate compliance with the law.
17.9 Subject to its laws and regulations, each Party should ensure that
relevant Regulatory Agencies provide public access to information on new
Covered Actions and, where practicable, make this information available
17.10 If a Party submits a request for information to a Regulatory Agency of
the other Party, the Regulatory Agency of the responding Party should, in a
manner it deems appropriate, and consistent with its Regulations, provide
the requesting Party with notice of any Covered Action that it reasonably
expects to issue within the following 12-month period from the date that the
request made by the requesting Party is received.
17.11. To the extent appropriate and consistent with its law, each Party
should encourage its relevant Regulatory Agencies to consider Regulations
of the other Party, as well as relevant developments in international,
regional and other fora when planning Covered Actions.
18.1. The Parties shall cooperate in order to facilitate the implementation
of this Chapter and to maximise the benefits arising from it. Cooperation
activities shall take into consideration each Party’s needs, and may include:
(a) information exchanges, dialogues or meetings with the
(b) information exchanges, dialogues or meetings with
interested persons, including with SMEs, of the other Party;
(c) strengthening cooperation and other relevant activities
between regulatory agencies; and
(d) other activities that the Parties may agree.
18.2. The Parties further recognise that cooperation between Parties on
regulatory matters can be enhanced through, among other things, ensuring
that each Party’s Regulations are centrally available.
- Notification of Implementation
19.1. For the purposes of transparency, and to serve as a basis for
cooperation and capacity building activities under this Chapter, each Party
shall submit a notification of implementation to the Joint Committee through
the contact points designated pursuant to Article 1. (Contact Points) within
two years of the date of entry into force of this Agreement and at least once
every four years thereafter.
19.2. In its initial notification, each Party shall describe the steps that it has
taken since the date of entry into force of this Agreement, and the steps
that it plans to take to implement this Chapter, including those to:
(a) establish processes or mechanisms to facilitate effective
inter-agency coordination and review of proposed Covered
Actions in accordance with Article 1 (Coordination and
(b) encourage relevant regulatory agencies to conduct
regulatory impact assessments in accordance with Article
1 (Implementation of Core Good Regulatory Practices);
(c) ensure that Covered Actions are written and made
available in accordance with Article 1 (Implementation of
Core Good Regulatory Practices);
(d) review its Covered Actions in accordance with Article 1
(Implementation of Core Good Regulatory Practices; and
(e) provide information to the public in its annual notice of
prospective Covered Actions in accordance with Article 1
(Implementation of Core Good Regulatory Practices).
19.3. In subsequent notifications, each Party shall describe the steps,
including those set out in Article 1.1, that it has taken since the previous
notification, and those that it plans to take to implement this Chapter, and
to improve its adherence to it.
19.4. In its consideration of issues associated with the implementation and
operation of this Chapter, the Joint Committee may review notifications
made by a Party pursuant to Article 1.1. During that review, Parties may
ask questions or discuss specific aspects of that Party’s notification. The
Joint Committee may use its review and discussion of a notification as a
basis for identifying opportunities for assistance and cooperative activities
to provide assistance in accordance with Article 1 (Cooperation).
- Relation to Other Chapters
In the event of any inconsistency between this Chapter and another
Chapter of this Agreement, this Chapter shall prevail to the extent of the
inconsistency, except where there is a sectoral annex for specific services
areas in which case that sectoral annex shall apply.
- Non-Application of Dispute Settlement
No Party shall have recourse to dispute settlement under Chapter [•]
(Dispute Settlement) for any matter arising under this Chapter. Instead,
the specific dispute settlement provisions of this chapter [and its sectoral
annexes] shall apply.
- Dispute Settlement Mechanism
22.1. If one Party withdraws recognition from the other, and the other Party
considers there to have been a violation of the agreement, it shall bring a
complaint to the Joint Committee.
22.2. If a Party considers that a valid petition has been made under Article
1 and believes that this petition has not been validly dealt with by the other
Party, the other Party shall bring a Complaint to the Joint Committee.
22.3.The Joint Committee shall conduct a consultation mechanism for
30 days, and if the Parties have not resolved the issue the complaining
Party can suspend concessions made under this [Chapter] [Agreement]
[or impose fines].
- Contact Points
23.1. The contact points for each Party in relation to submissions to the
Committee under this Chapter shall be as follows:
(a) For the United Kingdom: [•]; and
(b) For the European Union: [•].
The Institute of Economic Affairs
2 Lord North Street
London SW1P 3LB
Tel 020 7799 8900
Tuesday 25 September 2018
Having flagged up the IEA/Singham paper yesterday, I am more or less committed to writing a review of it, even if it is a dreadful piece of work that is hardly worth the effort – and there are the latest “technical notices” to review, which will have to wait until tomorrow.
It has been billed by Jacob Rees-Mogg as the “most exciting contribution” to the Brexit debate in months yet, only a few hours after publication, Singham’s “plan” had been trashed on Twitter and then ripped apart by John Crace with such verve that it should not survive. However, it still gets a better press from The Times than it deserves, which makes it all the more imperative that it is given a timely burial.
In fact, Crace gets it absolutely right. Under the headline, “Hard Brexiters’ new plan gets A+ for idiocy”, he derides the country’s “leading trade lawyer”, for “failing to grasp the basics of international trade”. And having failed so spectacularly, Singham goes to prove “he really was as stupid as he sounded”, suggesting that post-Brexit, “the UK might do some individual trade deals with separate EU countries”.
This is part of the Singham fantasy where he advocates an “alternative approach” to the Brexit negotiations. He argues that the UK would seek to put “pressure internally on EU Member States”, where there would likely be significant losses in the event of no EU trade deal. These, he says, include Bavaria (cars and dairy), Ireland (beef and dairy), Catalonia (cars and dairy), and Northern Italy (textiles and dairy).
This would amount to manipulating tariff rates, causing many EU producers to have different agendas, allowing divergence between Member States, which the UK could then exploit.
Clearly, we are being enjoined to adopt a variation on the strategy already adopted by the UK, where it has sought to split the Member States from the Commission and then practice its “divide and conquer” techniques to engineer splits in the unity of the members.
But, if we have learnt nothing else from the last two years, the one thing that should have sunk in is that the Member States are rock solid behind M. Barnier, and will not allow the UK to divide them.
Another illustration of the fantasy world in which the IEA and their favourite child, Shanker “Snake Oil” Singham, lives can then be seen in these immortal lines in his report, which address bilateral deals with countries where an EU FTA should be rolled over.
“Negotiations”, Singham writes, “should be accelerated to roll over existing agreements and agree a new FTA with EFTA. the (sic) Department for International Trade (“DIT”) should seek to conclude these negotiations provisionally, so they can come into effect on 30 March 2019 in case of no Withdrawal Agreement and no Transition Period”.
The reason why this is fantasy is not at all difficult to determine, especially if we take our cue from the Vienna Convention on Succession of States in respect of Treaties , which sets out the customary or settled law on the matter of continuity of treaties.
The essential point made several times in the Convention is that the law would have the effect of requiring the consent of all parties to a treaty before the UK could participate in treaties in which it had previously enjoyed participation by virtue of its membership of the EU.
Since in all the cases where the UK wants to roll over bilateral deals with countries where there is an EU FTA, the EU would, perforce, be one of the parties from which consent would be needed.
There lies the rub. In the event of the UK leaving the EU without a Withdrawal Agreement – a “no deal” Brexit – it is highly unlikely that the EU will give its consent to the UK’s continued participation in its external trade deals. With no consent, the treaties simply cannot be rolled over. The UK would have to start again, and negotiate new treaties from scratch.
Given how vital these deals are to the UK, in enabling it to maintain its post-Brexit global trade, it is therefore, essential that we keep on good terms with the EU. And that effectively precludes the UK leaving without a Withdrawal Agreement and Transitional Period. Thus, the core part of the IEA/Singham case collapses.
The actual name of the Singham extravaganza is “Plan A+ – Creating a prosperous post-Brexit UK” but I prefer to call it “Plan A for amoeba”, my title representing the number of brain cells expended in producing it. Mostly, it is a tired amalgam of regurgitated Legatum ideas which include the wholly impracticable proposition that the UK can trade with the EU on the basis of “mutual recognition”, this giving us the fabled status of “regulatory autonomy”.
“The UK”, Mr Singham says, “should put forward an open and constructive offer of mutual recognition with the EU. Autonomy would be followed by recognition by the UK of EU regulation, standards, and conformity assessment, meaning institutional competition for the UK, commercial competition from EU imports, and avoidance of unnecessary trade barriers on imports”.
Here, one does not have to rehearse, once again, the reasons why the EU cannot and will not accept mutual recognition. Suffice to say that there is no prospect, whatsoever, of this forming the basis of any trading relationship with the UK.
But, if the idea itself is fantasy, Singham then lurches into madness. “If the EU refuses to recognise UK regulations on day one of Brexit”, he writes, “the UK should be prepared to take action in the WTO under the GATT and the SPS and TBT Agreements”.
Setting out what is involved here, we have a situation in Brexit whereby the UK acquired the status of a third country, whence the EU then applies the full corpus of regulation applicable to third countries – as indeed it must under the non-discrimination rules of the WTO.
Under WTO rules, every contracting party is permitted to frame its own standards and require imported goods to meet them, with the further requirement that conformity may be demonstrated, by means of border checks.
The EU customs code, with the revised version now being implemented, works within the framework of WTO rules and, despite multiple challenges over the decades, has proved WTO compliant. There are no obvious or straightforward grounds on which the UK could base any action.
Yet Shanker Singham, hailed by some as “one of the most brilliant trade experts of his generation” asserts that these established points, which have so far resisted global challenge, can be taken on by the UK, acting on its own.
This silly, dismal, venal little man is so far from the real world that it has become a modern mystery as to why anyone could take him seriously. What he proposes it utterly barking mad, with not the slightest possible chance of success.
Nevertheless, he has just enough brain cells to understand that “such claims can take years to resolve”. To Singham, though, that is not the point. The UK, he says, “should use threats of trade litigation to help support its negotiating objectives, as is normal practice around the world”.
So here we go: the UK is supposed to re-enter the Brexit negotiations with an “alternative approach” which involves demanding the impossible from the EU against the threat of invoking the WTO dispute procedure, launching cases which would have absolutely no chance of success.
And, despite the EU being fully in compliance with WTO rules, Singham then goes on to tell us that “the purpose of these actions is not because we expect them to cause an immediate change in EU behaviour”, but “because this is one of the ways we can highlight that the EU is in fact an outlier in its behaviour”.
With only just over six months left for negotiations, just precisely where could that stance take us, except to an ignominious “no deal” outcome? But that then leaves The Times complicit in the Singham madness. “The Brexiteers’ alternative comes late in the game”, it writes, “and is short on detail, but would be better than no deal at all”.
Singham’s efforts, courtesy of the increasingly sinister IEA, are nothing but a recipe for a “no deal” Brexit. His facile, nonsensical nostrums go beyond unrealistic into the territory of lunacy, so bad that even the BBC smells a rat. They are an insult to all right-thinking people who have put the effort into exploring what is needed to secure a workable exit plan.
And those who support him, or fail to point out the fatuity of his work, are almost as bad as the man himself. For some, such as Ambrose Evans-Pritchard in the Telegraph – who sees that plan as “a breath of fresh air” – it represents a final retreat into bovine stupidity.
Richard North 25/09/2018
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