The UK hasn’t got the resources to create a new model of trade agreement

No need to reinvent the wheel

December 02, 2017
FLORENCE, ITALY - SEPTEMBER 22:  British Prime Minister Theresa May gives her landmark Brexit speech in Complesso Santa Maria Novella on September 22, 2017 in Florence, Italy. She outlined the UK's proposals to the EU in an attempt to break a deadlock ahe
FLORENCE, ITALY - SEPTEMBER 22: British Prime Minister Theresa May gives her landmark Brexit speech in Complesso Santa Maria Novella on September 22, 2017 in Florence, Italy. She outlined the UK's proposals to the EU in an attempt to break a deadlock ahe

According to popular belief, the Brexit negotiations are not going well. Eight months after the prime minister called for the official process of leaving the European Union to begin, no meaningful progress has been made. While exchanges of bad humoured comments on the timing of the negotiations and the Brexit Bill make for entertaining media commentary, the UK government has still not defined what sort of trade relationship it seeks with the EU. The government’s plans, if they exist, have not been scrutinised. British companies, citizens and even MPs have been kept, so far, in the dark. It is unclear whether there would be a transition period of a maximum of two years, a shorter transition period or no transition at all.

The only thing we know is what the UK-EU relationship will “not be”: as the government has ruled out membership of the single market and the customs union, if an agreement is reached with the EU, it will be worse than the one the EU has with Norway, Iceland or Turkey. And if the UK does not manage to negotiate an agreement at all, it will have a worse relationship with the EU than South Korea, Algeria or Azerbaijan.

As a result, the only option available to the UK is to rush to negotiate a network of trade and investment agreements with non-EU countries that could compensate for the trade and investment that will be lost with the EU. The task is a monumental— and highly unrealistic—one, as geographical proximity is a crucial factor in trade. As the government knows, even if the UK managed to double its current trade with the United States, Canada, New Zealand, India and Australia, it will still trade less with all those countries combined than it currently trades with the EU.

The government is in such a panic about this that it has asked all sorts of countries (big and small) for trade meetings over the coming months, in the hope it can convince them to sign agreements with the UK. Faced with a shortage of negotiating resources and skills, what the government is asking from most countries is to “copy and paste” the agreements that they currently have with the EU and to sign on the dotted line. As a result, the UK may end up just copying treaties that were made by and for the EU as a whole, instead of negotiating treaties that suit the needs of the UK economy.

Rumour also has it that the government may have engaged in bilateral trade “discussions” with the US. Those “discussions” are said to be led by officials at the very top of government. But while this takes place, the trade relationship with the US is under strain: the US has imposed 219 per cent tariffs on Bombardier products from Northern Ireland and is threatening further action. It is also opposing the UK in its attempts to redraw agricultural quotas in the World Trade Organisation (WTO). All these bilateral discussions are happening while the UK is still a member of the EU. Since the EU Treaties prevent the UK from negotiating bilateral agreements on its own, the UK government is coming dangerously close to a breach of trust with its European counterparts on this.

Unfortunately, despite all these efforts, the UK is unlikely to find what it desperately seeks: a predictable, open and unbureaucratic regulatory environment for trade with European and non-European countries. Indeed, the whole game in trade nowadays is not tariffs, duties or the liberalisation of services, but regulatory barriers and rules. The WTO model hardly deals with regulatory barriers. I was myself an EU negotiator for the first WTO services agreement that contained regulatory provisions, the 1997 Agreement on Telecoms, but attempts in the 1990s to extend the remit of the WTO to regulatory matters more widely, failed. Likewise, trying to cover regulation in bilateral agreements will face two hard facts: governments (especially those from big economies such as the US and the EU) are not willing to relinquish their regulatory powers; and it is difficult to agree far-reaching regulatory commitments without a neutral referee to interpret those rules.

In practice, what all this means is that in order to tackle regulatory barriers, the UK will have to “invent” a new sophisticated model of trade agreement, one that currently does not exist. An alternative and simpler option for the government would be to allow for the European Court of Justice to keep an overseeing role over any regulatory commitments negotiated with the EU. In fact, the UK Government left open the possibility for this (on a limited basis) in their Dispute Settlement paper. Given the political climate in the UK, the government may find it difficult to allow the European Court of Justice to continue playing a role. But regardless of whether there is political appetite for this or not, it is worth exploring this option further, because it is a sensible one. Much unlike what the government is currently doing: unrealistically dreaming of revolutionising the world of trade without the necessary resources or even skills for it.

Brexit Britain: the future of industry is a publication which examines the future of UK manufacturing through the prism of the recently released Industrial Strategy White Paper. The report features contributions from the likes of Greg Clark MP, Miriam Gonzalez, Richard Graham MP and Frances O’Grady.

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