What comes next?

Getting a good deal with the EU will be priority number one for whoever our next Prime Minister is, but as important as that is, they shouldn’t lose sight of the huge opportunities that being outside the EU will give us. Big reforms to trade, farming and fisheries will be open to us no matter what deal we go for with the EU, so we should get moving on them right away.

• We should sign free trade agreements, based on mutual recognition, with as many countries as possible. I’m torn between unilateral free trade, which cuts prices for consumers, and free trade deals that get other countries to cut their tariffs in exchange for us doing the same. But, thanks to the WTO, tariffs are a relatively small part of the picture nowadays – regulatory barriers to trade matter much more. The UK should get talks started to sign Mutual Recognition Agreements with every other OECD state that is interested. Mutual recognition is a more flexible and widely-used mechanism for bringing down regulatory barriers to trade than harmonisation, which the EU prefers internally. It will take time, but it could open up huge new markets and substantially reduce prices for British consumers. I also like Matthew Lynn’s idea to try to join existing regional trade deals like NAFTA and the Trans-Pacific Partnership. In the longer run, Roland Smith's piece about 'agile trade', where sectoral agreements move much more quickly than comprehensive deals, may outline the way forward.
   
• Establish an “Everything But Arms” protocol for trade with as many developing countries as possible. The EU exempts most imports from “Least Developed Countries” (mostly in sub-Saharan Africa) from tariffs and quotas, though a lot of countries that are still very poor aren’t quite poor enough to count. We should establish the principle that imports from developing countries under a given (and more generous than the EU's) Human Development Index threshold are exempt from all import restrictions that aren’t related to security or safety. These countries are not large export markets for Britain, so the case for unilateral free trade to boost development there is much stronger. Ultimately this may not do a huge amount of good compared to those countries improving their own regulations and governance, but it's a start.
   
• Follow New Zealand in phasing out agricultural subsidies. New Zealand’s Labour government had to deal with an uncompetitive farming sector that was dependent on state income supports, price floors, tariffs and direct subsidies to survive. Rather boldly, they cut almost everything in the space of a few years – “Support to pastoral agriculture, expressed in PSE terms, fell from 34% in 1984 to 23% in 1987 and 3% in 1994 (Sandrey and Scobie, 1994). As a proportion of public expenditure, support to agriculture fell from 9% in 1983 to 7% in 1985 and 1% in 1989.” The result was a doubling of agricultural productivity growth (from 1% to 2-2.3% per annum) and farm profitability beginning to rise steadily. 11% of farm labour jobs were lost, but because of increased automation, not because farms were competed out of existence; only one percent of farmers couldn't adjust themselves.
  It would be rather brutal to pull out the rug from small family farms overnight, and they of course are not the biggest beneficiaries of agrisubsidies – according to the BBC, "about 80% of farm aid goes to about a quarter of EU farmers - those with the largest holdings." To protect smaller farmers from being harmed by these reforms, we should pay a five-to-ten year "transition allowance" equal to their average subsidy receipt over the last five years to family-scale farmers.
   
• Harness incentives to restore Britain’s fisheries. Fisheries have to be managed somehow, to avoid a tragedy of the commons where no individual has an incentive to preserve stocks. The EU’s approach is to micromanage things: specifying total allowable catch numbers, for instance, which until recently meant huge numbers of caught fish would be thrown back, dead, into the sea. Since “Hugh’s Fish Fight” this discards problem has been addressed by the EU – with a ban on discards, which might just add to the problems we have.  
  A better approach might be to bring in “Individual Transferable Quotas” (ITQs), which basically is cap-and-trade, but for fish. A government agency sets a total allowable catch for a season for a given part of the sea, and owners of ITQs get to bring in whatever percentage of that total their ITQ gives. ITQs persist over time, and 2% of ten tons is less than 2% of twenty tons, so fishermen have a direct incentive to hold back from overfishing to allow the stock to grow. A review of over 200 studies of ITQs found that fishermen participating in schemes like this break the rules less often and often lobby for lower total catch numbers to boost the long-term sustainability of these stocks. It’s property rights in fish, and it seems to work much better than central planning.

It's understandable to be nervous about what Brexit means, but with a sensible deal with the EU and a willingness to be bold, some wonderful opportunities may lie ahead.