Is the Brexit Blueprint achievable?
Can the Government actually deliver the Brexit Blueprint which was set out in the Prime Minister's speech? The "negative" aspects of the Brexit Blueprint are easily achievable: two years after the Government triggers Article 50, the UK will automatically leave the European Union, the Single Market, the jurisdiction of the Court of Justice and the Customs Union. The real questions are: (i) what agreement can be negotiated with the EU; (ii) how long will that agreement take to negotiate; and (iii) how easily can the UK enter into trade agreements with other countries.
It is almost impossible to determine what any future agreement between the EU and the UK might look like. Whilst the EU has extensive experience in negotiating trade agreements these are generally either with countries which have the ultimate aim of joining the EU or with countries which are never going to join the EU. The trade links between the UK and the EU are deep and in certain sectors (such as financial services) a simple trade agreement would not be a suitable vehicle for ensuring that the UK retained an ability to provide services to the Single Market. In addition to provisions relating to customs duties and rules of origin, any agreement between the EU and the UK would need to include agreement on the regulation of services to ensure that UK companies were not prevented from providing services to the EU due to different regulatory systems. The invisible barriers to trade can often be more difficult to overcome than the immediately visible ones of customs duties and import paperwork.
It will not be possible for a final trade agreement to be reached before the UK leaves the EU. The EU's experience of negotiating complex trade deals suggests that any trade deal will take several years to agree. The agreement between the EU and Canada took seven years to negotiate and was almost stopped by a vote of the Wallonian parliament. When the EU negotiated a trade agreement with Mexico, the negotiations took more than six years to complete.
Given the complexity of the trade agreement which will be required between the UK and the EU and the political sensitivities involved, we can expect any final agreement to take significantly longer than two years to negotiate. A particularly difficult negotiating point will be whether financial services companies based in the UK will have free access to the Single Market. Both the French and German governments are keen to encourage the growth of financial services in their own countries and they may extract a very high price in return for granting the UK passporting rights in financial services.
Fortunately, the UK is likely to be able to agree free trade deals with some other countries in a much shorter time. Countries like New Zealand have an excellent track record of being able to agree free trade agreements in a relatively short time period (for example, New Zealand's free trade agreement with China took only three years to negotiate). Whilst the UK has one of the world's largest economies, when negotiating trade agreements it will have far less bargaining power than the EU. In addition, other countries are very aware that the Government will be desperate to conclude free trade agreements and this will further reduce the leverage which the UK is able to exert in its negotiations with other countries.
The UK also has the advantage of being a member of the World Trade Organization (WTO) in its own right. However, since the UK became a member of the European Economic Community in 1973, the UK's membership of the WTO has become intertwined with its membership of the European Union. The UK does not have its own "schedules" under the various WTO agreements and, as the Prime Minister acknowledged in her speech, the UK will need to negotiate its own schedules with the other WTO members. These schedules set out the commitments which each WTO member makes in relation to market access for goods and services. At present, all EU member states fall under the EU's schedules. It is not clear what the relationship will be between the UK, the EU and the WTO after Brexit but the Prime Minister's desire for the UK to have its own schedules (which is perfectly sensible) will require the Government to enter into negotiations with all other WTO members to agree revised schedules. This is likely to be a lengthy and difficult process.
It should also be noted that the UK's membership of the WTO imposes commitments upon the UK which will limit the Government's ability to negotiate free trade agreements. Membership of the WTO requires) the UK to ensure a level playing field between domestic goods and services and foreign domestic goods and services and also to ensure that goods and services from one foreign country are not given preferential treatment to those from another, unless such preferential treatment arises from a free trade agreement which covers substantially all of the trade between the treaty parties. This may cause difficulties if the UK seeks to negotiate special terms of market access with the EU in certain areas (for example, in relation to the export of cars).
Whilst the Prime Minister has provided some much needed clarification on the Government's aims and the UK's future relationship with the EU, the scope of any future agreement with the EU remains unclear. The Government now faces the difficult task of attempting to negotiate an exit from the EU at the same time as it seeks to negotiate a free trade agreement with the EU. In addition, the Government will need to deploy scarce resources to the WTO and other countries around the world in an effort to lay the foundations for free trade agreements. The UK will face uncertainty for a number of years as the Government seeks to enter into agreements with its trading partners around the world and this is likely to have a significant impact in industries which have deep cross-border links with the EU such as financial services.