The immediate direction of travel for UK-EU trade relations is now clear. Both the EU and UK have set out their positions for a Free Trade Agreement between the parties, aiming essentially to maintain tariff-free trade. For the EU, this needs to come at the price of strict level playing field conditions on things like workers’ and environmental rights, to ensure competition is fair. For the UK, these conditions are unnecessary. That’s an argument likely to be at the heart of discussions this year, as the deadline of 31st December approaches.
It may well be that the two sides can come to an agreement, though time is tight. Many rightly point out that Boris Johnson conceded his red lines to reach a Withdrawal Agreement last year, then claimed he didn’t. They think a repeat is likely. On the less optimistic side it is pointed out that the time available is unprecedented for an EU trade agreement, and that Johnson this time has the parliamentary majority to do whatever he likes—including leaving with no trade deal.
In either case though we are likely to spend most of our time analysing the progress of talks, and not nearly enough considering the entire ecosystem of UK-EU trade. For a Free Trade Agreement reducing tariffs will still mean the erection of all manner of new trade barriers. The significance of the emerging UK position may be less in its stance on the level playing field, but more in the way that what seems to be a refusal to align or accept anything involving European Court of Justice (ECJ) oversight is actually implemented. For if both are interpreted as absolute red lines this will ensure that the UK has a very shallow trading relationship with the EU overall.
The cost of non-tariff barriers, which include differing regulations and associated border checks among other things, is usually estimated as being somewhat greater than the cost of tariffs. Some of the border checks can potentially be streamlined in an FTA, but others are harder to remove. Globally, until the election of President Trump and the Brexit vote, the trend was towards regulatory alignment in different ways. Since 2016 tariffs have returned to being a major trade issue, with Trump setting off a spiral of increases with…