IEA unveils its comprehensive, alternative framework for Brexit
Yesterday the Institute of Economic Affairs unveils a comprehensive, alternative framework for future trade relationships between the United Kingdom and the European Union, and, just as importantly, with the rest of the world.
The report, Plan A+: Creating a prosperous post-Brexit U.K., calls for the adoption of a four-pillared trade policy strategy, taking unilateral, bilateral, plurilateral and multilateral action to deliver a more competitive and thriving UK economy.
Plan A+ has been written by Shanker Singham, Director of the IEA’s International Trade and Competition Unit (ITCU) and Dr Radomir Tylecote, ITCU Senior Research Analyst, with input from leading economists and trade experts from across the world, including Sir Lockwood Smith, Alan Oxley, John Weekes, Eduardo Perez-Motta, Stuart Harbinson, Peter Allgeier and Professor Srinivasa Rangan.
The report makes recommendations about what initial moves the UK could make to realise the benefits of leaving the EU, including proposals for how the UK should negotiate with the EU and others, what it should seek in the negotiations and how it can improve its domestic regulatory environment in areas like agricultural policy and fisheries policy. It also promotes solutions to the Irish border and trade agreements with the EU and other countries around the world.
It argues that now is the time to reset the EU-UK negotiation – in a wider global context – to advocate an advanced free trade agreement, with maximum regulatory recognition. The government should seek to retain all of the agreed elements of the Withdrawal Agreement (including the financial settlement, citizens’ rights, and the Transition Period), but propose a new backstop and framework for a future relationship.
The new backstop would comprise of a basic Free Trade Agreement (FTA) 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.
The new framework would aspire to securing a better FTA during the Transition Period, in the style of a UK-EU Free Trade Plus deal.
UK-EU Free Trade Plus deal
An enhanced FTA between the UK and the EU post-Brexit would include:
- Full market access and national treatment
- Zero tariffs in goods including agriculture
- Maximum regulatory recognition for both goods and services and a mechanism to manage differences that arise due to divergence in future
- Baseline intellectual property protection, government procurement and investment rules
- Regulatory coherence, including specific sectoral annexes (e.g. pharmaceuticals)
- Mutual recognition of occupational licensing
- Specific sectoral annexes in key areas including telecoms, data and financial services
UK customs clearance processes must accommodate a potentially five-fold increase in customs documentation between the UK and EU on the day of Brexit.
The key element of an agreed arrangement is to separate the movement of goods from the processing of forms (electronically or otherwise) for as many traders as possible.
This could be achieved through:
- General inter-agency and authority cooperation and information sharing
- Use of simplified procedures and data processing at points of departure and destination
- Expedited procedures to be made available to qualifying operators and mutual recognition of Authorised Economic Operator programmes
- Operation of self-assessment for importers to declare imports periodically and account for any duties payable
- Agreement that physical inspection of goods is only to be carried out by means of random checks, except in duly justified circumstances
- Recognition of equivalence of security-related risk management systems, and agreement to apply such measures in respect to third country trade
The Irish border issue is solvable with more bespoke technical solutions, including trusted trader schemes and streamlined procedures for small businesses.
To address the Irish border, the UK should:
- Make inland clearance available to all traders (electronic export and import declarations followed up if necessary with checks at premises away from the border)
- Commit to aligning trade relevant aspects of the food and animal health regime in Northern Ireland with that of the EU, with suitable powers devolved to the government of Northern Ireland to enable local politicians to fully cooperate and coordinate with the Irish authorities, in accordance with the Belfast Agreement.
Free Trade Agreements with the United States, China, and other partners
Brexit creates an historic opportunity to form trade agreements with partners around the world.
These can be pursued if the UK:
- Agrees with existing FTA partners that EU FTAs can be rolled over
- Creates a different model of growth through more even-handed Economic Partnership Agreements with developing countries
- Seeks membership of major existing arrangements which involve more than one country, including the Comprehensive and Progressive Trans-Pacific Partnership and the North American Free Trade Agreement
- Joins numerous WTO groups as soon as possible, and acts as a liberalising force within the organisation
Unilateral Action on independent trade and regulatory policy
Post-Brexit, the UK will have the opportunity to make unilateral moves in domestic policy and trade policy. Many EU regulations are bad for growth. Reform could include:
- Lower tariffs to zero on a unilateral basis for intermediate goods, so increasing the competitiveness of domestic manufacturing
- Lower tariffs to zero for agricultural products that the UK does not produce, lower the price of the increasing the supply of these goods to the UK market (e.g. bananas, oranges, rice, avocados)
- UK to join the North East Atlantic Fisheries Commission and consider joining other Regional Fisheries Management Organisations, participating in international negotiations on Total Allowable Catches for different fish stocks
- Negotiating bilateral agreements with EU, Norway, Iceland, and the Faroe Islands on access to respective Exclusive Economic Zones and management of fish stocks
- Consider replicating Sustainable Fisheries Partnership Agreements to support developing countries and allow UK fisherman to access more fish stock.
- Subsidies to fishermen should be phased out, while a mechanism is put in place to enable fishermen to seek remedies against imports that have benefited from government distortion.
UK Financial Services
- Apply the EU’s capital requirements only to internationally active banks as intended by Basel III.
- Allow EU-headquartered financial institutions presently passporting into the UK to remain operating in the UK, provided there is cooperation and deference between their home state regulator and the UK financial authorities.
- Abandon the EU’s double volume cap, or at least raise it to 11% and 17% as recommended by the UK’s Financial Conduct Authority (FCA) to facilitate large transactions.
- Reduce the burdens of excessive regulation from MiFID II, CRD IV, UCITS V and Solvency II.
- Pursue a post-Brexit tax system that encourages investment, promotes start-ups and scale-up businesses, and reduces complexities; this should include scrapping the 8% bank surcharge, which pushes UK banks into a higher corporate tax rate than the US federal rate and many EU member states.
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. A new immigration policy needs to enable dynamic recruitment of skills and talent where the market requires it.
Commenting on the report, Director of the IEA’s International Trade and Competition Unit and co-author of the report Shanker Singham said:
“Brexit has been too narrowly thought of as the role of the UK in the EU, whereas the reality is Brexit is a major global event. A G7 country is embracing independent trade and regulatory policy for the first time in 40 years – an unprecedented situation. This is where the Brexit Prize lies.
“Moving forward on the unilateral, bilateral, plurilateral and multilateral pillars at the same time, will maximise the UK’s gains, and also maximise it chances of a good agreement with the EU.
“We have looked at Brexit in the wrong way, and in so doing we have hampered our ability to get a good deal with the EU. We must execute an independent trade and regulatory policy in order to capture gains from this process, and also to ensure that we have a better framework for negotiations with the EU. This plan offers comprehensive approach which shouldn’t be considered a ‘Plan B’, but rather a ‘Plan A+’ for Brexit.”
Notes to editors:
For media enquiries, contact the IEA’s Head of Communications Nerissa Chesterfield: firstname.lastname@example.org / 07791 390268.
To download, Plan A+: Creating a prosperous post-Brexit U.K., authored by Shanker Singham and Dr Radomir Tylecote, click here.
The IEA hosted an event yesterday in central London, to launch the report. Respondents to its findings include:
- David Davis MP, former Secretary of State for Exiting the European Union
- Jacob Rees-Mogg MP, chairman of the European Research Group
- Gisela Stuart, former Labour MP
- Theresa Villiers MP, former Secretary of State for Northern Ireland
To download a copy of Shanker Singham’s speech at the event (check against delivery), click here.
To download a copy of Mark Littlewood’s opening remarks at the event (check against delivery), click here.
The IEA does not have a single corporate view on Brexit and these briefings are not intended to promote one model over another. Furthermore, the IEA takes no view of the politics involved in determining the Brexit process.
Plan A+ is a piece of independent research produced by the IEA, and edited through the organisation’s peer review process. For more information, click here.
For a full list of the ITCU Advisory Council members, click here.
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA seeks to provide analysis in order to improve the public understanding of economics.
The IEA is a registered educational charity and independent of all political parties.