In light of the BREXIT vote, the UK will need to rapidly stand up a serious trade capability in the form of a Special Trade Representative with Cabinet rank. There are plenty of precedents for doing this. The best one is the Office of the United States Trade Representative which was a special agency in the Office of the President to conduct trade negotiations and enforce trade agreements. In the late 1980s, President Salinas of Mexico approached a number of countries for trade agreements with Mexico. This outreach ultimately resulted in the NAFTA and some 45 FTAs and Investment Agreements. Chile also has some 27 FTAs and other agreements with a range of countries. In both cases, the negotiations created a very strong trade negotiating capability within the governments. In the case of Mexico, a cadre of officials were able to assist other countries with their trade negotiations. The reality is that all countries that have embarked on significant free trade initiatives have been intentional about how to manage the trade negotiating function.
This does not have to be, nor should it be a massive bureaucratic exercise. Indeed USTR works so well in the US precisely because it is lean and incorporates some of the world’s best private sector negotiators. If the UK established an STR, it would be a much sought after posting. Most trade lawyers in the US have at some point spent time inside USTR.
In addition, the UK needs to establish and formalize the currently informal process of private sector input into negotiations. The US model of cleared advisors who serve on specific Industry Trade Advisory Groups is instructive. In this way business input into negotiations can be effective. In the US, USTR listens carefully to the advice of business, environment and labour voices who have cleared access to confidential texts as they are developed, and so can give better quality advice.. Any negotiation the UK has on trade must be driven by commercial interests, and this is how those commercial interests can best be channelled.
The UK’s STR would need to do the following over the next two year period;
- Market access and contestability for Britain’s powerful services industries. This includes financial services passporting, legal services access, and access for other key professional services. With the passage of MIFIR, financial services passporting is guaranteed for UK entities even as a third country.
- Freedom of movement of persons. While this became the bugbear of the referendum, the reality is that a deal on access to the single market can relatively easily be struck as long as Britain agrees that if a national of a European member state is offered a job in the UK, they should be entitled to take it. This is precisely the kind of immigration which any country should want – it is the highly skilled immigration that has transformed the City of London into one of the most powerful economies on earth, and breathed a dynamism into London which makes it the envy of the world.
- Britain now has an opportunity to divest itself of one of the most odious policies that has been foisted on it – the Common Agricultural Policy (and its partner in crime, the Common Fisheries Policy). New Zealand, over the last two decades finally got rid of its agricultural subsidization and the result has been to create one of the most competitive agricultural offerings in the world. Britain does not have the same defensive interests in agriculture that plague member states such as France. This is Britain’s chance to break free of a policy that has directly pushed people in developing countries into poverty, and visited untold harm on billions, to say nothing of the overproduction and waste it causes.
- Lord Denning once described European law seeping into the rivers of English law, and it is true that English law and European law is inseparable at this moment. There will be divergence once the negotiations are over, but this divergence will be gradual. There need be no fear of an uncertain legal environment. It is also possible that Europe will continue to regulate in ways that exacerbate this divergence. That will be a matter for the Council of Ministers and the European Commission.
- Already a number of countries are indicating that they would be interested in free trade agreements with the UK. Mexico, Colombia on behalf of the Pacific Alliance, NZ, Australia, Canada, Iceland, Ghana, India, and South Korea to name just a few. The UK should move quickly to negotiate deeper integration agreements with like-minded countries such as the US, Australia, New Zealand, Switzerland, and Canada that cover the structural issues that would enable them to lower their own internal economic distortions. If this block lowered its internal distortions to zero, that would correspond to an additional 3% Gross World Product every year, leading in fifteen years to a Gross World Product which is fully 60% larger than it would otherwise be.
The UK’s particular competitive strength lies in services, and this is where some of the most pernicious roadblocks to international trade exist. The current situation allows an opportunity to think about the way that the UK can better negotiate a reduction of barriers to its services, and to aggressively go after that with as many markets as it can. A Special Trade Representative should also have a portfolio that reflects the reality of modern global supply chains and the modern global economy. The STR should be equally concerned about domestic measures in the UK that damage competition and competitiveness and should be empowered to break these down, just as it is empowered to break down barriers to UK industry in other countries.
Shanker Singham, Director of Economic Policy, Legatum Institute (the writer is a cleared advisor to the US government on trade, but the views here are his own).