Sovereignty must be compromised to achieve free trade: Lords report

There is always an inherent trade-off between liberalising trade and the exercise of sovereignty, according to the joint report of two House of Lords committees published today.

The report, Brexit: the options for trade, by the House of Lords EU Internal Market and External Affairs Subcommittees, considers the possible frameworks for UK-EU trade following the vote to leave the EU. It recognises that the Government is seeking a bespoke agreement with the EU post-Brexit, but concludes that tailoring existing trade models will be difficult. A free trade agreement (FTA) with the EU would take longer than two years to negotiate.

The Government will need to agree a transitional trade arrangement between the UK leaving the EU and full implementation of new trade terms. The report concludes that a temporary extension of participation in the Customs Union would be one important element of this.

It also urges the Government to establish a clear "game plan" for a transitional arrangement at the outset of negotiations under article 50.

After evaluating the four main models for future UK-EU trade, the report concludes:

• The European Economic Area (EEA) is the least disruptive option for trade, but it is unlikely to be reformed to limit free movement or give the UK voting rights on EU legislation.
• The Government urgently needs to decide whether or not the UK will remain in a customs union. Doing so would mean no border checks for goods between the UK and EU, but would restrict the UK’s ability to sign trade deals with the rest of the world. It does not cover services.
• A free trade agreement (FTA) with the EU is the most flexible option and could lead to a bespoke deal, but would be complex and take longer than two years to negotiate. Even the most advanced FTAs do not provide terms for UK-EU trade equivalent to membership of the single market.
• Trade under World Trade Organisation (WTO) rules would have the most dramatic effect on trade, resulting in significant tariffs for goods and increased restrictions on services. Establishing independent WTO schedules will not be straightforward.

Baroness Verma, chairman of the EU External Affairs Subcommittee, commented: “It is unlikely that a bespoke EU trade agreement can be agreed within article 50’s two-year period, so a transitional deal is vital for protecting UK trade, and jobs that rely on trade.

“The Government should focus on trade with the EU and its WTO schedules. Deals with non-EU countries are contingent on the outcome of these negotiations, and need to be sequenced accordingly.

“The complexity of the issues and the tight timetable require a significant scale-up in capacity in Government departments and clear leadership across Whitehall.”

Chairman of the EU Internal Market Subcommittee, Lord Whitty, added:

“Trade-offs will need to be made in whatever trading framework we eventually agree. The Government is committed to curbing the free movement of people and the reach of the European Court of Justice. This is incompatible with full single market membership.

“While a FTA would provide the greatest flexibility, and no commitment to freedom of movement, there is no evidence that it could provide trade on terms equivalent to membership of the single market.”