© 2017 SCER
There is still a large question hanging over future trade talks after the UK leaves the EU – even with the transition period of 20 months. In this time there may still be no real possibility of concluding substantial trade talks with the EU, our biggest trading partner, until an amazing mountain of details are known and dealt with. The optimism of the UK government that trade will automatically fall to the UK by default, or because market economics dictates it, is to say the least somewhat misplaced. Living in a post-Brexit UK may seem like a dream to some Brexiteers, but, for others, to look at the prognosis for post-Brexit trade is to see the writing on the wall.
According to the Senior European Experts report UK Trade Policy after Brexit, there are three broad categories of trade arrangements which the UK can undertake to secure future trade deals.
Firstly, an option already dismissed, is the current EU customs union where the existing EU arrangements remain in place. This has already been ruled out by the UK government, as it could further destabilise the government, living with such a slim majority and dependent on every vote to survive. This is the crux of the problem, as to quote the report directly:
‘The UK is a major trading country with the sixth largest economy in the world. It exported over £545 billion of goods and services in 2016.
(If it stopped there, then all very well and good, but…)
‘The largest market for the UK is the EU, at 43 per cent of our exports. We also import more from the EU (54 per cent) than from any other market.’
Therefore, every credible predicted scenario post-Brexit sees the volume of UK-EU trade decline significantly, leaving a massive hole to be filled by trade with the rest of the world.
The second approach the report suggests is that the UK could replicate the existing EU free trade agreements (FTAs). Actually the UK would have to recreate all international arrangements, including FTAs, covering different economic sectors which are currently in place – all 750 of them. The problem here is more technical than anything else, as the deals that are currently in place are made up of many parts allowing for a spread of opportunity among many member states. Car manufacturing is a key example, whereby car assembly is made up of a spread of parts from among the member states. Ford, for example, produces cars made up of parts from across many EU countries including engines in the UK. This has been politically driven as well as commercially agreed through tough negotiations. Undoing all of this by conferring tariffs on parts from the UK, for example, could cause car companies to rethink where they produce. This applies particularly to Japanese manufacturers, which are looking to see if deals currently agreed on an EU bilateral basis (e.g. Japan FTA, agreed 2017) will be impacted.
Similarly, geographical indicators (GIs) for agricultural products impact most trade texts which include agriculture. These tend to be names and origins of products such as cheese, meats and wines like champagne, to name but a few. Any new arrangements could force the UK to decouple from these heavily technical arrangements, while at the same time jeopardising a future positive EU deal itself.
A third option the report gives is to forge new free trade agreements (FTAs) – which is where the UK government wishes to go. This means conducting trade negotiations virtually from scratch with third countries. A major problem with this option is related to the size of UK market versus the size of the EU market. Simply put, the EU, with its current population of 500 million and average per capita income of €26,000, makes it the biggest economy in the world. It’s where everyone wants to do business and as a result has a large amount of clout. The UK, whilst being the sixth biggest economy, is not the biggest marketplace for the rest of the world. Moreover, the biggest trading partners for the UK are in the EU.
Inevitably, the UK would wish to focus on other large economies. These include the USA, China, Australia, Brazil, Argentina and India. But there are significant problems for potential deals there – not least among them is the UK-US proposed deal. Although this seems to have the support of President Trump, the reality from the rhetoric may be quite different – see the steel tariffs.
Moreover, trade in agriculture promises to be a huge hump to overcome. Standards in the UK are currently EU-compliant and the UK agriculture sector will no doubt face stiff competition from less regulated agri-products such as hormone beef, GMO crops and chlorinated chicken, to name but a few ‘hot potatoes’ dominating trade talks under the precautionary principle.
India too: while it looks on paper a good-sized trading partner, it is 130th out of 169 countries which have the highest levels of difficulty to do business with. Protection of Indian markets has been a consistent problem for EU-Indian negotiations, which have been ongoing since 2007. Moreover, in 2016 India unilaterally denounced 58 bilateral trade and investment treaties, including those with the UK. Indian courts are slow and bureaucratic when it comes to resolving disputes, and concerns over this have unravelled these and previous prospective deals. India is therefore a difficult country to do business with. New Zealand and Australia can also offer new trade relationships, but farmers in the UK are on high alert as to the impact this will have on the domestic industry.
Finally, and perhaps most telling a problem, is simply time and expertise. Trade deals are complex and heavily political arrangements, as well as extremely time-consuming. Delays in progress between biannual trade talks can frustrate even the best of intentions and their conclusions. The army of bureaucrats dealing with trade deals in the European Commission are multilingual legal specialists, number in the hundreds and have decades of experience between them. If they find it hard, how does it seem likely that the UK will master its trade negotiations in just 20 months?
While it is not impossible to conduct successful negotiations between the UK and the rest of world and the EU, it is nonetheless, according to the Senior European Experts, near on impossible to get anything as good as the UK has now inside the EU customs union. Whilst it is important to disregard the political rhetoric behind much of the so-called ‘fake news’ and false claims, this report nails down some unpalatable truths for anyone who has anything to do with international trade. Of course, this is not a fact of what’s to come but, just like Ebenezer in Charles Dickens’ A Christmas Carol, a future borne from disregarding the past or the present. That has its own consequences – and those who ignore the warnings bear the responsibility for the future to come.
David Martin MEP is a Member of the European Parliament’s Committee on International Trade, where he is Socialist and Democrat Group Coordinator. He is Advisory Board member of the Scottish Centre on European Relations.