The Government’s stated target of agreeing a free trade agreement (FTA) with the EU within two years is inherently ambitious, according to an influential House of Lords body.
If the UK and EU are unable to agree an FTA within the two years provided for in Article 50, then preferential terms for trade between the UK and the EU would cease, and World Trade Organization (WTO) rules would apply.
In order to avoid that outcome, the Government must try to agree a transitional arrangement with the EU members of the House of Lords External Affairs Sub-Committee.
The peers have urged the Government “to establish at the outset of negotiations a clear strategy for a future transitional agreement, with specific proposals to what form it should take”.
The report Brexit: Trade in Goods focuses in particular on the potential impact that Brexit might have on trade in six sectors: chemicals and pharmaceuticals; capital goods and machinery; food and beverages; oil and petroleum; automotive and aerospace; and defence.
Goods dominate UK trade and the EU is our largest trading partner, Committee Chairman Baroness Verma pointed out.
Trade in goods between the two is worth almost £357 billion each year, she added, and it is therefore imperative that a trade deal with the EU seeks to avoid the imposition of tariffs on trade in both directions.
Baroness Verma also pointed out that non-tariff barriers can pose as significant or even a greater barrier to trade than tariffs – and warned that they would be more difficult to resolve in an FTA.
“The Government will need to make a trade-off between mitigating barriers to trade, and the exercise of regulatory sovereignty,” she concluded.
