Prime minister Theresa May announced a “bold and ambitious” trade plan for the UK this week as she finally outlined the country’s strategy for exiting the European Union. In her much anticipated speech, she clarified that the UK will not remain part of the single market nor the current customs union agreement, but would seek to become a ‘Global Britain’.

“As a priority, we will pursue a bold and ambitious free trade agreement with the EU. But I want to be clear. What I am proposing cannot mean membership of the single market,” said May.

She outlined that membership of the single market required four freedoms: freedom of goods, capital, services and people and complying with the EU’s rules and regulations that implement those freedoms, which would to all intents and purposes mean not leaving the EU at all.

“I don’t think anything about the policy substance was particularly surprising. In many ways we’ve been wondering why we haven’t heard it before now,” chief economist at advisory firm Global Counsel, Gregor Irwin, tells GTR.

“She very sensibly reset the base line to the negotiation. So instead of the UK trying to cling on to single market privileges, she has unequivocally taken the UK out of the single market and set the UK and the EU the challenge of trying to negotiate a mutually advantageous trade relationship from that baseline.”

The UK pound rallied on the news suggesting it was received well by businesses and the market.

“I think it provides clarity for what the plan is going to be. That clarity is good for businesses and financial markets,” says IHS Markit chief economist Nariman Behravesh.

Timing targets

While the clarity of May’s message was generally welcomed, the suggested two-year time frame for making exit trade agreements with the EU have been described as unfeasible and overly ambitious.

Following May’s speech, the European Commissions’ chief negotiator for Brexit, Michel Barnier, reiterated the EC’s stance that the UK must invoke Article 50 and settle the Article 50 agreement, which is expected to take two years itself, before any future relationships with trade can even begin.

“Clearly what the UK has in mind is a concurrent negotiation. It may have to be informal, legally speaking, and even though it cannot be ratified before the UK leaves, there is a political deal (in place),” explains Irwin.

“May said we need to avoid a cliff edge – the way in which she wants to do that is have an implementation phase. For that kind of transitional arrangement, you need to move towards a known end point. So you need to have agreed what the end point is. Her strategy is based on the belief that at the very least a political deal can be struck with the EU in two years. That is hugely, hugely ambitious.”

The UK’s engagement in any agreements outside the EU can only be considered after it formalises its arrangements with the bloc. The other key preliminary for the UK will be to establish its World Trade Organisation (WTO) profile – determining tariff rates, quotas and trade commitments to WTO members.

This template matters, because without knowing what the UK plans to offer WTO members as a basic, it won’t be possible for countries to negotiate ‘preferential’ agreements. The new profile will need to be agreed on and confirmed by all WTO members individually and then collectively. The WTO’s consensus-based decision-making means that in both theory and practice, the opposition of only one of its members can force everyone back to the negotiating table.

“No deal”

While May’s announcement constantly referred to the UK’s European neighbours as “friends” and “partners”, she also made clear that the UK was prepared to walk away with no deal, if it had to.

“Britain wants to remain a good friend and neighbour to Europe. Yet I know there are some voices calling for a punitive deal that punishes Britain and discourages other countries from taking the same path,” says May.

“Britain would not – indeed we could not – accept such an approach. And while I am confident that this scenario need never arise – while I am sure a positive agreement can be reached – I am equally clear that no deal for Britain is better than a bad deal for Britain.”

The prime minister went on to add that exclusion from accessing the single market would mean the UK would be free to set competitive tax rates and policies, which was largely received as a threat to make the UK into a tax haven.

Meanwhile, on the other side of the pond, US president-elect Donald Trump reversed the outgoing Obama administrations’ stance of the UK being at the back of the queue for trade negotiations, by saying he was ready to start talking within weeks of taking office and that a trade deal could be finalised within a year.

“It will not happen. It is not feasible. It is not realistic,” says Irwin.

“The UK has no legal authority to negotiate any trade deals before Brexit and if it doesn’t respect that it will come at a price. It will be received very badly on the EU side. The UK would need to be willing to use up some serious political capital in that relationship at a time when it’s in desperately short supply.”