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The UK’s Multilateral Trade Future

With Brexit looming, the UK has no choice but to redesign its future trading relationships. As a major producer of sophisticated components, its long-term trade strategy should focus on gaining deep and unfettered access to integrated cross-border supply chains – and that means adopting a multilateral approach.

CAMBRIDGE – As the United Kingdom negotiates the terms of its divorce from the European Union, it would be wise for the country’s leaders to begin looking further into the future to determine what approach to international trade relations would serve it best. Does the UK really want to hang its future on bilateral agreements with a long list of individual trade partners? Or would it be better off joining existing mega-regional free-trade agreements, while working to strengthen the global multilateral system under the World Trade Organization?

The bilateral approach would demand a huge amount of time and resources, with UK negotiators engaging in a series of discussions with each and every country with which they wanted to do business. The end result would be a tangled network of deals that would only exacerbate the balkanization of the international trading system.

This approach limits gains from trade. For example, the Inter-American Development Bank reports that the trade gains from Latin America’s 33 small regional trade agreements have been meager. The key to boosting those gains, according to the IADB, is to adopt a new strategy that expands access across and within markets.