Not only will a trade deal with Europe take a long time—it should – Prospect

Credit: Original article can be found here

His stated aim of completing a trade deal next year is not just unfeasible but undesirable. Photo: HUGO PHILPOTT/UPI/PA Images

The commitment is clear, even in a Conservative manifesto of frequent vagueness. “We will negotiate a trade agreement next year—one that will strengthen our Union—and we will not extend the implementation period beyond December 2020.” There continues to be much discussion about whether such a timetable is feasible, given the EU has never concluded a major trade agreement in anything close to that time and the UK has for decades now not concluded any at all.

There is another big issue with the timescale which has been less discussed. For some time, when discussing a future UK-EU trade agreement, I’ve used the following formulation: the EU couldn’t agree a trade deal in one year, and the UK shouldn’t. I rather suspect that many of those pushing for a quick trade deal don’t actually know what tends to be in them, in particular that they involve fixing the rules of trade between partners for the foreseeable future.

Trade deals are often considered with analogies to dating, marriage, and in the case of Brexit, divorce. In most trade deals there’s a phase in which the two parties consider the likely scope of agreement before starting formal negotiations, to make sure asks are roughly compatible (something like dating). But clearly 11 months isn’t long enough to do much scoping, and the UK and EU will be instead like a divorced couple trying to instantly write a contract for a new marriage. Only the marriage contract is going to be over 1,000 pages long and will go into great detail about every aspect of the relationship. It isn’t a perfect analogy, but it should provide some pause for thought.

Let’s look at some of those details of a trade agreement that one should take time over. Start with tariffs, where there is a widespread assumption that a deal will ensure there are no tariffs between UK and EU. Wrong. Only a UK-EU customs union could remove all tariffs; the best a trade agreement can do is to set them at zero provided certain conditions, known as “rules of origin,” are met. Get the rules of origin wrong, and either your producers will still face tariffs or they will have to change their sourcing of components or ingredients. For example, a report last year commissioned by the Food and Drink Federation found that UK-made milk chocolate bars and ready-made chicken curry meals might not be eligible for zero tariffs under rules like those in the EU-Canada CETA agreement.

Maybe that doesn’t sound like a big deal, except that in 2017 we exported £680m of chocolate products. This process also has to be repeated across all manufacturing sectors, with the government making sure it has data for all. Then it has to try and achieve a result which least affects UK exports, and if it fails to do so immediately, consider which asks to prioritise. All while savvy businesses are lobbying the government and MPs. The process takes time.

There’s an equivalent process for services, where in the EU-Canada agreement there are over 200 pages of detail of areas in which Canadian companies are not allowed to compete on equal grounds with companies from within the EU. Thus to pick a couple of random examples, in Sweden “Natural persons who are owners of periodicals that are printed and published in Sweden must reside in Sweden or be nationals of a member state of the EEA,” while in Malta “Non-nationals of a member state of the EU may not acquire immovable property for commercial purposes.” More could be added for a UK deal, and the UK government needs to understand the impact of each requirement in order to focus on those of particular importance. Bearing in mind the UK exports nearly as much in services as in goods.

On the EU side you can be sure that individual member states will also be checking priority sectors to make sure their own companies can export goods and services, and are protected from what they may see as unfair UK competition. One way they may ask for protection is through insisting the UK has to meet various EU rules, such as on animal and plant health (known as SPS, or “sanitary and phytosanitary” in trade speak), or on technical standards (part of a standard “Technical Barriers to Trade” chapter in all agreements). These asks may be directly contradictory to asks by the US, which would inevitably cause problems for the UK. Similarly the extent to which the UK should follow so-called level playing field rules on labour, environment, competition and state aid will be a hot topic in Brussels, and should be so in London, as this will constrain domestic policy choices.

The resolution of each of these issues takes time in a trade agreement. Negotiating multiple trade agreements, as the UK proposes to do with the EU, US, Japan, Australia and New Zealand all in its sights, massively increases the complexity. All the same, individual issues have to be considered. But then we also have to consider cumulative effects, such as whether all countries should be allowed to export all agricultural produce to the UK free of any tariffs or quotas. Farmers may have something to say about this. Equally, if we’re hoping to play off the EU and US against each other to get the best possible deal from both, this could easily require time which the Conservatives have committed not to take, while the EU and US are both well aware of the UK’s desperate situation.

The decisions we make, the priorities we give to different sectors, are for a generation. If we decide to prioritise the car sector over domestic agriculture we need to be confident the car sector will survive as a major UK employer, and that this won’t have knock-on effects on other manufacturing sectors. If it is to be financial services then we need to know our asks couldn’t be met outside of a trade agreement.

A trade deal creates the international framework for the entire domestic economy for years to come. It is not only worth taking the time, it probably can’t be done at all unless you do.