PLAN A+ Creating a Prosperous Post-Brexit U.K
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PLAN A+ Creating a prosperous post-Brexit U.K. Shanker A. Singham Radomir Tylecote IEA Discussion Paper 95 With some exceptions, such as with the publication of lectures, IEA Discussion Papers are blind peer-reviewed by at least one academic or researcher who is an expert in the field. As with all IEA publications, the views expressed in IEA Discussion Papers are those of the authors and not those of the Institute (which has no corporate view), its managing trustees, Academic Advisory Council or senior staff. 1 Contents Acknowledgements 3 Authors 5 Glossary 7 Preface 11 Executive Summary 13 Introduction 21 1: Keeping Our Eyes on the Prize 23 2: How Independent Trade and Regulatory Policy Delivers 39 the Brexit Prize 3: Why the Chequers Proposal Removes Independent 45 Trade and Regulatory Policy 4: A Deeper Dive into the Four Pillars of Independent 59 Trade and Regulatory Policy 5: Strategic Approach 113 6: Domestic Reforms for the UK 127 Annex: Regulatory Coherence 131 2 3 Acknowledgements The authors are grateful for the contributions and advice of the many people who have contributed to this document. We would especially like to thank Catherine McBride, Victoria Hewson, Julian Jessop, Jamie Whyte, Mark Littlewood, Kate Andrews, Darren Grimes, among others at the IEA, Prof David Collins at City University, as well as the members of our Advisory Council: Sir Lockwood Smith, Eduardo Perez Motta, John Cooke, Srini Rangan, Alan Oxley, Razeen Sally, John Weekes, Peter Allgeier, and Stuart Harbinson. 4 5 Authors Shanker Singham, Director, International Trade and Competition Unit Shanker Singham is the Director of the International Trade and Competition Unit of the Institute of Economic Affairs. The Unit is focussed on providing advice to the UK government, industry and media on the Brexit negotiations, among other trade policy issues. As one of the world’s leading trade and competition lawyers, he has worked on the privatisation of the UK electricity market, the transition of the Soviet, Central and Eastern European economies and the apertura in Latin America, as well as the WTO accessions of a number of countries, including China and Russia. Shanker was educated at St. Paul’s School, London and has an M.A in Chemistry from Balliol College, Oxford, and postgraduate legal degrees in both the UK and US. Dr Radomir Tylecote, Senior Research Analyst, International Trade and Competition Unit Dr Radomir Tylecote is the Senior Research Analyst for the IEA’s Trade and International Competition Unit. He has a background in trade and high-tech sectors, and was formerly at the Behavioural Insights Team (BIT), where he was an external advisor to HM Treasury and helped develop the Industrial Strategy Challenge Fund, launched in the Industrial Strategy 2017. He has an MPhil from Cambridge University, and his double-scholarship PhD from Imperial College London Business School studied the impact of China’s innovation policies and regulation on its technology firms and growth. 6 7 Glossary ACITA: Association for International Trade ACMD: Anti-Competitive Market Distortion AEO: Authorised Economic Operator AMS: Aggregate Measure of Support AVMSD: Audiovisual Media Services Directive BEIS: Department for Business, Energy and Industrial Strategy BIP: Border Inspection Post CAP: Common Agricultural Policy CET: Common External Tariff CETA: EU-Canada Comprehensive Economic and Trade Agreement CEN: European Committee for Standardisation CENELEC: European Committee for Electrotechnical Standardisation CFP: Common Fisheries Policy CFSP: Customs Freight Simplified Procedures CMA: Competition and Markets Authority COREPER: Committee of Permanent Representatives of the European Union CPTPP: Comprehensive and Progressive Agreement for Trans-Pacific Partnership CSA: Customs Self-Assessment CTA: Common Travel Area DEFRA: Department for Environment, Food and Rural Affairs DIT: Department for International Trade EBA: Everything But Arms EEA: European Economic Area EEZ: Exclusive Economic Zone EFTA: European Free Trade Association ETSI: European Telecommunications Standards Institute FCA: Facilitated Customs Agreement FTA: Free Trade Agreement G7: Group of Seven GATS: General Agreement on Trade in Services 8 GATT: General Agreement on Tariffs and Trade GDPR: General Data Protection Regulation GPA: Agreement on Government Procurement GRP: Good Regulatory Practice GSP: Generalised System of Preferences HMRC: Her Majesty’s Revenue and Customs ICES: International Council for the Exploration of the Sea ICJ: International Court of Justice ICN: International Competition Network ILO: International Labour Organisation IMF: International Monetary Fund ITRP: Independent Trade and Regulatory Policy MiFID II: Markets in Financial Instruments Directive II MFP: Multilateral Framework on Procedures MFN: Most Favoured Nation MRA: Mutual Recognition Agreement NAFTA: North American Free Trade Agreement NATO: North Atlantic Treaty Organisation NCP: New Customs Partnership NEAFC: North East Atlantic Fisheries Commission NTB: Non-Tariff Barrier OECD: Organisation for Economic Co-operation and Development PESCO: Permanent Structured Cooperation QMV: Qualified Majority Voting REACH: Registration, Evaluation, Authorisation and Restriction of Chemicals REX: Registered Exporter System RFMO: Regional Fisheries Management Organisation SEM: Single Electricity Market SFPA: Sustainable Fisheries Partnership Agreements SOE: State-Owned Enterprise SPS: Sanitary and Phytosanitary TAC: Total Allowable Catch TBT: Technical Barriers to Trade TiSA: Trade in Services Agreement TRQ: Tariff-Rate Quota TTIP: Transatlantic Trade and Investment Partnership UCC: Union Customs Code UKFP: United Kingdom Fisheries Policy 9 UNCITRAL: United Nations Commission on International Trade Law UNCLOS: United Nations Convention on the Law of the Sea UNFSA: United Nations Fish Stocks Agreement USTR: United States Trade Representative VIES: VAT Information Exchange System 10 11 Preface The United Kingdom’s relationship with the European Union has been a divisive issue in political and economic debate for many years, but particularly so in the referendum of 2016 and in the two years thereafter. Divisions in opinion have gone far beyond the wisdom of us staying in the EU or leaving it and now encompass a whole raft of issues about what a sensible departure might look like, whether a temporary or transitional arrangement would be open to rapid revision or would effectively be an end state and even the circumstances in which the decision to exit the EU could be revisited. The debate has not merely divided public opinion in the country at the large, but has also been the principal focus of contemporary debate between politicians and policy makers both within political parties and between them. The Institute of Economic Affairs is an educational charity which seeks to improve the understanding of the positive role free markets can play. It takes no corporate view on any specific policy matter, including the merits or the precise nature of the UK’s departure from the European Union. Similarly, the IEA takes no view of the politics involved in determining the Brexit process. It may be that one particular course of action has political or electoral implications for a specific politician or political party, but this is a matter of indifference for the Institute. However, what is undeniable is that the nature and form of the UK’s departure from the European Union – as well as our future relationship with the EU and the rest of the world – are likely to have substantial implications for the UK’s economy, its ability to trade as freely as possible across the globe and its domestic regulatory environment. 12 These are all matters of considerable interest to the Institute and our hope is that this document provides an informative and educational template of the steps the United Kingdom could take and the strategy it should implement if the benefits of a more market-orientated economy are to be realised. Mark Littlewood, Director General & Ralph Harris Fellow, Institute of Economic Affairs 13 Executive Summary Delivering the Brexit Prize The opportunity before the UK as a result of Brexit is huge: but if we squander it, the “new normal” of limited economic growth will prevail, with an EU system that is failing to respond to the challenges of the modern economy. In her Mansion House speech, the Prime Minister stated that the UK’s regulations need not be identical to the EU’s, even if they would achieve the same outcomes. But the Government White Paper (The future relationship between the United Kingdom and the European Union) proposes that the UK would have substantively harmonised regulations with the EU, which, with the customs arrangement it outlined, would make an independent trade policy all but impossible. It also described a swathe of other infringements to independence. The UK running its own economy will not render a deal with the EU impossible. It will bring back real growth, let the UK do other trade deals, and create leverage to get positive results from EU negotiations. Political, trade, and regulatory independence is therefore not just an ideological position, but what makes the gains possible. This proposal will set these out, and demonstrate what will be lost if the UK Government maintains a model similar to the approach adopted at the Chequers cabinet meeting in July 2018, further elaborated in the White Paper, or one even more closely aligned to the EU. The economic scale of the prize shows the opportunity to unleash prosperity when we liberate ourselves from a system with such serious distortions. This is a framework outlining how the UK can still attain the Brexit Prize. 14 Four pillars The governing principle of this alternative approach is the pursuit of a competitive and thriving UK economy. We have based the approach on four fundamental ‘pillars’ of prosperity, to create a joined up trade and regulatory policy. It is a central tenet of this paper that the UK’s bifurcation of EU policy and rest of the world policy has damaged its ability to use the interactions between these pillars to its advantage. The pillars are: a. Unilateral The UK should make unilateral moves in domestic policy and trade policy terms.