Yesterday, the Prime Minister, Theresa May, delivered a much anticipated speech setting out the UK Government’s priorities for Brexit.
To date, there had been little indication as to what strategy the UK Government will pursue in Brexit negotiations or what aspects of the UK’s future relationship with the EU would be prioritised. Yesterday’s speech sought to clearly set out the UK Government’s approach.
As had been widely trailed, the Prime Minister restated her red line position that the UK is not prepared to continue being subject to free movement of persons or to the jurisdiction of the CJEU. She repeated a commitment to continue to trade “as freely as possible” with the EU. However, she also stated categorically that the UK would no longer be a member of the single market. Rather, the UK would seek the “greatest possible access” to it – and on a reciprocal basis.
The Prime Minister indicated that Britain will seek a bespoke free trade agreement (FTA) with the EU. This treaty would be unique in terms of international trade deals considering that the UK is departing from a comprehensive trade and economic integration model.
The Prime Minister emphasised that by the end of the two year period contained in Article 50 of Treaty of the European Union, the UK and the EU should have concluded the FTA. This deadline is unprecedented in trade negotiations and challenging. Any FTA will need to be agreed by all of the European Parliament and possibly by all Member States as well, not all of whom will have aligned interests. Experience shows that trade deals take time to be crafted, even between partners with similar levels of development. For example, negotiations for the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU started in 2009 and it is not yet in force.
But time will not be the only constraint. Specific technical issues intrinsic to trade negotiations alongside some political issues might arise, not to mention the need to deploy huge resources and capabilities.
As the Prime Minister also stated, she does not want the UK to be part of the Customs Union to the extent that it currently restricts the ability of the UK to agree trade agreements with other countries. However, she does nevertheless want to retain as part of a new partnership with the EU some elements related to the customs union and other pre-existing arrangements. This may add to the complexity of the negotiation process also risking further delays for the conclusion of the agreement within the expected timeline.
While the Prime Minister ruled out continued large contributions to the EU budget, she nevertheless stated that the UK might continue to make some payments in return for access to certain programmes. What these would be remains to be seen but the intention appears to be to allow scope for negotiation on sector-specific deals: if so, a challenge might arise concerning the compatibility of those sectoral deals with WTO rules that require FTAs to cover substantially all trade between the parties.
The Prime Minister also said that third parties (such as the China, Brazil and the Gulf states) have already expressed interest in negotiating FTAs with the UK, and that the UK has already started conversations with Australia, New Zealand and India. Also, she noted that negotiations between the UK and the US might be in the pipeline. While it is a strong stated policy of the UK to establish itself as a global trading nation, concluding FTA negotiations with third party states might prove to be challenging as those countries will wait for the agreement with the EU to be concluded before agreeing to any bilateral deal and there are political and legal constraints on the UK negotiating those agreements before exiting the EU.
As also noted by the Prime Minister, the UK will retake its full membership in the WTO to reach new trade agreements with non-European countries. Presenting its own schedule of tariffs and commitments might by itself bring specific challenges as third countries might raise concerns in the organisation.
Finally, the Prime Minister stated that she would not seek an open-ended transitional arrangement as this would result in uncertainty. However, she would seek a phased process of implementation for the new partnership with the EU that would avoid a cliff edge for business. The extent to which these aims can be achieved will of course become clearer as negotiations progress – and moreover, will be dependent on the agreement of the EU. However, the Prime Minister sought to make clear that the arrangement she was proposing was in the EU’s interest as well as the UK’s. She also echoed Phillip Hammond’s comments that if no deal could be reached, the UK would be prepared to change its economic model.
Yesterday’s speech cannot by its nature address questions of detail. Nevertheless we now have a much clearer idea about what Brexit might ultimately look like, which in turn will provide businesses with greater confidence in undertaking their planning decisions.