Towards a Framework for Trade and Investment Policy in post-Brexit United Kingdom

Abstract:

The United Kingdom is entering into the Brexit process at a time when the global economy is gradually recovering from the effects of the global financial crisis. Current projections indicate that growth may continue to be sluggish in the medium term. Brexit will have many dimensions but key among these is the conditions under which the United Kingdom and the European Union elect to conduct merchandise trade. The choice on this matter will be important in setting the broader environment for the conduct of trade and commerce between the United Kingdom, the European Union and other countries into the future. The stark choices are between: (i) the United Kingdom remaining in the Single Market through continued membership of the European Economic Association (EEA); (ii) exiting the Single Market and seeking to negotiate preferential trade deals with other trading partners and trading blocs; and (iii) committing to full unilateral trade liberalization to place local business in the best position to compete locally and internationally. This paper looks into the economic implications of each of these alternatives. For rules of origin reasons and the extended time lags involved in negotiating preferential deals, the pursuit of the second option would be costly to industry and the community more broadly. While full unilateral liberalization would be difficult and the intention to leave the European Union has ruled out remaining in the Single Market, the United Kingdom would be best served by aiming for one of these seemingly impossible alternatives. Policy formulation that favoured greater trade openness and economic reform particularly in the area of capital-finance markets would help smooth the Brexit process and improve growth prospects. Given the complexity of the Brexit process, consideration could be given to the establishment of a national review body to investigate and raise public awareness in the United Kingdom of policies in the national interest during Brexit and beyond.