Brexit requires compromise between sovereignty and liberalising trade, report says

13 December 2016

The EU Internal Market and External Affairs Sub-Committees today is publishing a report on frameworks for UK-EU trade after Brexit. This report evaluates four main models for future UK-EU trade. It concludes there is always an inherent trade-off between liberalising trade and the exercise of sovereignty.

Inquiry: Brexit: future trade between the UK and the EU

Background

The Government has stated that it will trigger Article 50 by the end of March 2017. This means the UK's current terms of trade with the EU will end after the two-year period specified for the exit negotiations, unless extended unanimously.

Key findings

The report evaluates the four main options for the UK's trade relationship with the EU after this time and concludes:

The European Economic Area (EEA) is the least disruptive option for trade, but it is unlikely to be reformed to limit free movement or give the UK voting rights on EU legislation
The Government urgently needs to decide whether or not the UK will remain in a customs union with the EU. Doing so would mean no border checks for goods between the UK and EU, but would restrict the UK's ability to sign trade deals with the rest of the world. It does not cover services
A Free Trade Agreement (FTA) with the EU is the most flexible option and could lead to a bespoke deal, but would be complex and take longer than two years to negotiate. Even the most advanced FTAs do not provide terms for UK-EU trade equivalent to membership of the Single Market
Trade under World Trade Organisation (WTO) rules would have the most dramatic effect on trade, resulting in significant tariffs for goods and increased restrictions on services. Establishing independent WTO schedules will not be straightforward

Transitional arrangement

The report recognises that the Government is seeking a bespoke agreement with the EU post Brexit, but concludes that tailoring existing trade models is difficult. It notes that a FTA with the EU would take longer than two years to negotiate.

It concludes that:

The Government will need to agree a transitional trade arrangement between the UK leaving the EU and full implementation of new trade terms;
Temporary extension of participation in the customs union could be one important element of this; and
The Government should establish a clear ‘game plan' for a transitional arrangement at the outset of negotiations under Article 50.

Chairmen's Comments

Chairman of the EU External Affairs Sub-Committee, Baroness Verma, said:

“It is unlikely that a bespoke EU trade agreement can be agreed within Article 50's two-year period, so a transitional deal is vital for protecting UK trade, and jobs that rely on trade”
“The Government should focus on trade with the EU and its World Trade Organisation (WTO) schedules. Deals with non-EU countries are contingent on the outcome of these negotiations, and need to be sequenced accordingly”
“The complexity of the issues and the tight timetable require a significant scale-up in capacity in government departments and clear leadership across Whitehall”

Lord Whitty, Chairman of the EU Internal Affairs Sub-Committee said:

“Trade-offs will need to be made in whatever trading framework we eventually agree. The Government is committed to curbing the free movement of people and the reach of the European Court of Justice. This is incompatible with full Single Market membership”
“While an FTA would provide the greatest flexibility, and no commitment to freedom of movement, there is no evidence that it could provide trade on terms equivalent to membership of the Single Market.”

This report is the second out of six, published by the House of Lords European Union Committee this week, which examine the impact of Brexit will have on a variety of topics.

Further information

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