WHAT ARE THE UK’S PROSPECTS POST BREXIT?

The UK and the EU have finally signed off a trade deal that allows for tariff and quota free trade in manufactured and agricultural goods. What are the main contours of the deal and what are the prospects for the UK outside the EU?

In addition to free trade in goods the deal also takes Britain out of the regulatory orbit of Brussels.  It has some latitude to diverge from EU standards in labour and environmental standards. Furthermore, in the case where one side claims that the other has gained an unfair advantage, say via generous state aid to some of its domestic companies, dispute resolution will be governed by international law and not the European Court of Justice.

However, despite the free trade agreement UK companies will now face significant non-tariff barriers when doing business with Europe. For example, pharmaceutical and manufacturing companies will face two separate pre-sale certification and testing regimes. Car manufacturers will have to demonstrate that the components of their cars are substantially UK/European to qualify for zero tariffs. Finally, manufacturers exporting to Europe will have to bear the costs of increased delays at the border associated with the extra paper work and product standards checks.

The other significant cost associated with Brexit is that the deal does not cover trade in services. They account for around 50 percent of overall UK exports. Although there is an expectation that there will be an accord on financial services later on this year the scope for a wide-ranging agreement on services is seen as limited. This is because trade deals, around the world, do not cover services and are almost exclusively focused on trade in goods.

Whilst Brexit imposes significant short-term costs on the economy it does offer significant long-term opportunity. Innovation, across the economy, is likely to be easier outside the grip of the Brussels bureaucratic machine. It will also allow Britain to form closer ties with the world’s two most dynamic economies: The United States and China.

However, to grasp these opportunities will require a national change of mindset. It will need: a much greater focus on developing and commercialising technology; many more entrepreneurs with backers willing to invest for the long term; an enhanced appetite for embracing and applying new ideas and a renewed relish for commercial risk taking amongst the UK’s existing corporates.

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This post was written by Robin