The UK Secretary of State for Trade, Liam Fox, has made some unscripted but widely reported remarks about his future ambitions for UK global trading policies post-Brexit. He claims that the UK has “undersold itself for too long, we are not fulfilling our potential and we should be influencing the world around us”. He also claims, more controversially, that UK business is underperforming in the global export race.
Liam Fox is right about one thing. Britain has undersold itself for far too long as a global champion for open trade, and for its negotiating and diplomatic skills in the difficult task of breaking down barriers and simplifying access to markets. For the last 30 years it has been playing a leading role in the development of the EU Single Market, a uniquely open international trading arena, in which companies can operate with certainty, within a common framework of rules that minimise their costs and maximise their opportunities.
Through stewardship of the UK economy, it encouraged the development of major enterprises and small businesses to take advantage of Single Market membership. The UK has become a world leader in cross-border goods and services, underpinned by thriving pan-EU supply chains. Its welcoming business climate, combined with easy access to the wealth of the world’s biggest market, has proved an irresistible attraction to global investors.
For goods exporters, cutting or eliminating tariffs plays only a small part in creating a fully functioning marketplace. Agreeing uniform standards, in areas like product safety and environmental performance, is their priority. But it would not be enough just to agree standards, without making sure that all EU countries accept goods complying with them. This has required groundbreaking enforcement and notification measures. A recent OECD study of global trade agreements commented on the EU’s achievements. “The system of removing existing and pre-empting new technical barriers to trade ……. is a radical and highly ambitious approach for providing market access.”
After goods, the UK then took the political lead in opening EU services markets, where Britain is a world leader. Here there were thousands of protective measures in place, and opposition from many trading partners to removing them. Ten years ago, breakthrough measures were agreed and globally competitive UK companies are exploiting them, with financial services at the forefront. There is still more to come here, with more opportunities to be realised.
The trade neighbourhood
Trade theory correctly predicts that opportunities can be maximised with partners “in close proximity”. This ease of access for goods and services has provided an ideal “nursery” in which smaller UK companies have expanded market horizons. As well as simple procedures – no customs formalities or other barriers to shipping goods, for example – small companies can take advantage of a single regime to protect their trademarks and designs. Soon single patents will be available. There are avenues of recourse for late payments, and in the event of default, judgements can be enforced. Opening up airline routes to competition – another area of UK political leadership – has made travel to meet distributors, supplies and customers remarkably easy.
The UK has also promoted access to public markets. one of the most protected areas and the most difficult goals in any global trade agreements. The EU has a common set of tendering rules that should be applied without discrimination, not favouring national suppliers. Excluding small value contracts, all tenders are publicised on a database with any prospective supplier able to respond. No other trade arrangement has such an open regime, but the level of cross-border trade remains much too low. There is a real opportunity for ambitious British companies here. But there is a continuing political task to enforce the rules.
Britain led the way in opening up state monopolies to competition, starting with electronic communications and energy. Land transport, both road and rail, is now opening up fresh opportunities. British companies are deeply involved in all of these markets, and poised to take new contracts.
But there is substance behind Dr Fox’s criticisms of Britain’s export performance. Despite extensive investment of political capital, there is disappointment that the UK has not done better in the world’s biggest “single market”. After its biggest ever enlargement in 2004, British companies seemed rather slow off the mark in seeking for new opportunities. Indeed, the policies for trade promotion, run by Dr Fox’s predecessors, often took the opportunities close at hand for granted and encouraged companies to undertake more difficult markets over extended distances. It has been noticeable that, in the case of China, a significant amount of business has now been “resourced” back to the UK because of problems in running such extended supply chains.
Next Steps for UK Trade policy
So what should Dr Fox and his team now do, since the UK will or may no longer have such a central role in pushing the European single market forward? First, they should look at the lessons from Britain’s single market history. These give an excellent basis for constructing the fully functioning economic partnership agreements, outside the EU, that the UK needs to keep its economy moving forward. Just saying that we agree on “free trade” is clearly not enough. The European Commission’s trade negotiators have already been deploying their single market lessons in constructing new economic partnership agreements, with South Korea being the most successful so far.
At the same time, it will be a complete waste of past British achievements if the UK is not able to maintain the maximum advantages from its continued engagement with the single market. The custom-made agreements for its EU exit that the UK prime minister advocate will need to reflect its central importance to British exporters.
Of course, the management and operational benefits of the free movement of skilled people across the European Single Market is one of the reasons why it’s been so successful for the UK. The majority of British people want the Government to control movement of people into the UK. But we must ensure that this is not done at the expense of freedom for our enterprises, large and small, to be able to transfer expertise and knowhow into their thriving European businesses.
Dr Fox and his new department will take the lead on a new direction for UK trade policy. They would do well to approach this with the same determination and focus that launched the EU single market 30 years ago.