Brexit and Free Trade

Amid the ongoing turmoil and fallout from the June 23 UK referendum in which British citizens voted to leave the European Union, it is easy to overlook that in addition to emotional reasons on issues like migration, some in the “Leave” camp made more important economic arguments.

Certain pro-trade “Leave” campaigners had recently argued that outside of the EU, the UK may actually be in a better position to negotiate a comprehensive trade agreement with the US as well as with the Latin American Mercosur nations.  Free traders in the UK recently alleged that efforts to protect farmers in France and other EU member states from Latin American imports are holding up progress with Mercosur, and that the UK could do better on its own.  Brexit post-mortems will reveal how important this argument factored in decisions to vote “Leave.”

Given the close ties and enduring special relationship between the US and UK, the negotiation of a free trade agreement between the two partners appears imperative.  As it is still unclear how quickly the UK will “disentangle” itself from EU trade policy and be able to begin bilateral negotiations, it may be fortunate that the President’s Trade Promotion Authority extends to 2018, well into the next Administration.

When the TTIP negotiations were launched in 2013, the ambitious agenda was to negotiate a “next –generation” trade agreement, with an important focus on regulation.  At the core of this was an effort to turn comparatively high but often divergent US and European health, safety and other standards into global “gold” standards – keeping the transatlantic allies in the driver’s seat with respect to China and other emerging economies.

Three years into difficult negotiations, disagreements and public opposition tied to issues like agriculture, GMOs and privacy may derail TTIP and its ambitious goals.  France and Germany (despite Angela Merkel’s steadfast commitment to TTIP) tend to be the drivers behind these important disagreements and public opposition.

Britain’s vote to leave the EU and the important decisions that need to be made in Washington, DC and London on how to accommodate the $35.8 billion trade between the two countries can now test the argument made by some in the “Leave” camp that the UK can achieve better trade agreements on its own.

Less encumbered by some of the EU “baggage” on issues like GMOs and geographic indicators (whose influence on public opinion is entirely disproportionate to their economic importance), the UK and US could be in a position to negotiate the type of “next-generation” trade agreement that TTIP was intended to be.  With a strong focus on harmonizing regulation and built around areas of real economic significance, such an agreement could become an important step in reaching broader consensus across the Atlantic.

As FedEX CEO Fred Smith noted in the Wall Street Journal in March, while aviation is – correctly – not part of the transatlantic trade negotiations, there are lessons to be learned from this inherently international sector.  In the 1990s, when the UK found itself in the protectionist camp on aviation, the US and Germany stepped up to the plate and negotiated a bilateral US-German Open Skies Agreement.  That agreement in turn put pressure on the UK and ultimately opened the door for broader US-EU negotiations, culminating in the highly successful US-EU Open Skies Agreement in 2007.

If the pro-Leave free traders are correct and the UK negotiates better free trade deals on its own, the silver lining in yesterday’s vote could be that, Brexit could ultimately lead to improvement in important aspects of transatlantic trade relations and global positioning.

Max Schmitz