Brexit: government seeks to establish contingency trade measures in event of no deal

Government Affairs Alert

This article has previously been published in Lexis PSL and is reproduced with permission.

The government's White Paper on trade, published by the Department for International Trade (DIT), sets out to establish the principles which will guide future UK trade policy and to lay out the practical steps to support those aims. The DIT says the White Paper paves the way for legislation to allow the UK to operate as a trading nation as it leaves the EU, and prevent disruption to trading arrangements. The DIT is also inviting views both on the specific legal powers the government is seeking, and on its broader developing approach. Lawyers from DLA Piper and Bircham Dyson Bell LLP examine the contingency measures in the event no deal is reached, while noting that the paper acknowledges the UK isn't yet ready to go it alone, and needs to identify EU measures that are essential to UK business.

The government has repeatedly expressed confidence that a positive trade deal can be reached with the EU--adding, however, that 'it is only prudent that we prepare for every possible outcome'.

In its paper, 'Preparing for our future UK trade policy', the government says it will be guided by what delivers the greatest economic advantage to the UK, and by three strategic objectives:

  • Ensuring UK-EU trade is as frictionless as possible
  • Avoiding a 'hard border' between Ireland and Northern Ireland
  • Establishing an independent international trade policy

The paper explores the DIT's emerging approach to the third of these objectives. These include:

  • Taking steps to enable the UK to maintain the benefits of the World Trade Organisation's (WTO) Government Procurement Agreement
  • Ensuring the UK can support developing economies by continuing to give them preferential access to UK markets
  • Preparing to bring existing trade agreements between EU and non-EU countries into UK law
  • Creating a new, UK trade remedies investigating authority

Overview of the White Paper

The paper is set out in two parts:

  • Part one outlines the current world in which the UK trades and the role of trade 'in an economy that works for everyone'. It sets out how the UK's future trade policy will have implications for the its global reputation and influence, its bilateral relationships and its ability to deliver its international interests
  • Part two outlines the basic principles which the DIT says will shape the UK's future trading framework, and its developing approach to a future trade policy. This includes five key components, and specific areas where the government is preparing the necessary legal powers to ensure the UK can operate independently as it exits the EU

'A commitment to free trade and high standards'

Prime Minister Theresa May, in a statement to Parliament on the UK's future trade arrangements, said she was 'proposing a unique and ambitious economic partnership. It will reflect our unprecedented position of starting with the same rules and regulations. We will maintain our unequivocal commitment to free trade and high standards. And we will need a framework to manage where we continue to align and where we choose to differ.'

An opportunity for Northern Ireland and Wales

Secretary of State for Northern Ireland, James Brokenshire MP, said the White Paper was 'another crucial step towards helping Northern Ireland businesses make their mark on the global market, and shows the UK government is committed to working with all parts of the UK in ensuring we deliver an EU exit that works for everyone'.

Secretary of State for Wales Alun Cairns was also optimistic: 'We now have the opportunity to shape our own ambitious trade and investment opportunities in Europe and beyond, and put Wales and Britain firmly at the forefront of global trade and investment.'

Feedback on the paper

As part of its engagement on the legislation (including a trade Bill and a customs Bill) which the government intends to introduce, it is inviting feedback on:

  • Its commitments to an inclusive and transparent trade policy
  • Its approach to unilateral trade preferences
  • Its approach to trade remedies

Feedback should be sent to [email protected] by 6 November 2017.

The 'no deal' scenario

Paul Hardy, Brexit director at DLA Piper, comments: 'The significance of the government's trade paper lies not so much in what it says about the future direction of UK trade policy, but its emphasis on putting contingency measures in place now so that the UK can become an independent trading nation in the event that no deal is agreed in the negotiations. The paper is a timely reminder that this outcome is a distinct possibility for the government, and it is preparing for it. Businesses with significant UK-EU trade flows take note--a no-deal Brexit means a hard trade border between the UK and EU after March 2019.

'In terms of future trade policy, the paper foresees a "time-limited implementation period" post-Brexit during which the government will be able to negotiate (but not apply) new trade deals, and continue to participate in existing EU trade agreements. The former is likely to be possible, the latter requires the EU's consent. The words "implementation period" imply that a new UK-EU trade deal will have been agreed before Brexit—"transition period" is a more accurate expression. But it is good to see "time-limited" being used, with its implicit flexibility, because it may take more than two years to agree new trade terms with the EU.'

'A belief in free-market liberalism'

Aaron Nelson, senior associate at Bircham Dyson Bell LLP, says: 'Establishing an independent international trade policy post-Brexit is one of the government's three strategic objectives (along with ensuring UK-EU trade is as frictionless as possible and avoiding a "hard" Northern Irish border), and this paper prepares the ground for that policy by setting out some "future trade policy principles".

'These are unashamedly shaped by a belief in free-market liberalism—the paper proclaims its "overwhelmingly positive impact on prosperity" and its ability to lift people out of abject poverty. So, the government looks forward to regaining its seat at the WTO, and will work to see red tape cut, tariffs scrapped and subsidies phased out worldwide. It will appoint new Trade Commissioners to help develop trade with nine regions overseas, and will reach free trade agreements with "old friends and new allies", while complying with any EU obligations so far as required under the exit deal.

'But this won't be a "race to the bottom"—the government is confident that free trade supports and promotes sustainability, security, environmental and development goals, labour protections, human rights, anti-corruption and animal welfare. (Of course, those on the left would say those benefits are achieved rather more through market control, such as international agreements and harmonised regulations.) And the paper acknowledges that, notwithstanding the benefits of free trade, a "remedies framework" will be needed to protect certain UK industries against "unfair and injurious" trade practices—in practice, the UK may want to put duties on cheap imports (particularly steel, ceramics and chemicals).'

'The UK won't be ready'

He continues: 'The biggest issue in the short term is that the paper acknowledges the UK won't be ready and lacks expertise: the government needs "to identify existing EU measures that are essential to UK business" and "to develop the capability to participate fully in every stage of a trade dispute"--which rather suggests it hasn't done so already.

'The paper also suggests that the "strictly time-limited implementation period" to be agreed between the UK and the EU, to allow business and people time to adjust, and to allow new systems to be put in place would be on "current terms, so that people and businesses will only have to plan for one set of changes in the relationship between the UK and the EU"--ie the UK will, to all intents and purposes, remain a member of the EU during that period.'

Source: Policy paper: Preparing for our future UK trade policy

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