David Henig / Nov 2019
Another day, another Brexit extension, another three months, and yet there is little sign that the UK’s political difficulties are leading to growing support for reversing the decision to leave the EU. It remains likely that we will at some point leave, on the basis of a deal, and start negotiating a future relationship. The overview of that relationship was laid down in a Political Declaration agreed by EU and UK in November 2018, and subsequently revised under PM Johnson in October 2019.
In the view of the UK government the future EU relationship is a Free Trade Agreement that contributes to a new global Britain, in which we conclude trade deals covering 80% of UK trade by 2022 according to Secretary of State for International Trade Liz Truss. Given that nearly 50% of UK trade is with the EU, and around 20% with the US, both must be completed by that date. The priority list probably also includes Japan, Australia, New Zealand, and quite possibly UK membership of the Comprehensive and Progressive Trade Policy Partnership (CPTPP). This seems heavily optimistic when we examine the detail.
As is relatively well known there are fundamental differences between the US and EU approaches to trade on geographical indications and food safety regulations, and there is also a less well known disagreement over what constitutes an international voluntary standard. These differences are going to cause the UK considerable difficulty, even once the UK actually has detailed negotiating objectives. A trade negotiator from a third country who was involved in simultaneous talks with EU and US once described this to me as a nightmare, and that was before US / EU differences were as wide as they are now.
The UK have already agreed to continue recognising EU Geographical Indications through the Withdrawal Agreement, meaning US producers of products with these names will not be able to access the UK market as a result of a new UK-US deal. On food safety regulations the UK has probably inadvertently committed to continuing alignment with the EU in the Political Declaration, through language suggesting treating the whole of the UK as a single entity (paragraph 23) when we have already agreed to Northern Ireland following EU rules. In any case, there are weekly press stories forcing the UK government to deny we’d allow US food like the now infamous chlorinated chicken. The same paragraph suggests “common principles” on standardisation, which would almost certainly be those of the EU.
The only other major US ask of the UK, for transparency in the process of NHS drug pricing, is already proving controversial. On top of the UK already struggling to meet US asks, the extension of EU membership until January 2020 gives only a few months for a trade deal to be agreed before the US Presidential election, and the President’s power to make trade agreements, Trade Promotion Authority granted by Congress, then runs out in 2021. It is possible we will get one of Trump’s “great” deals that doesn’t mean a huge amount, but that would be some way short of the project of some Brexiteers to replace EU regulatory alignment with the US, which is now in deep trouble.
The UK faces different but no less problematic challenges in completing a Free Trade Agreement with the EU, notably that in the timescales available they will be under considerable pressure to avoid no-deal by compromising heavily, as happened with the Ireland protocol of the Withdrawal Agreement. The UK only has until December 2020 to reach agreement, though this can be extended by up to two years. Even with the extension this will be ambitious, but it is possible if the UK mostly signs up to the EU’s terms.
From the Political Declaration it seems that the EU has in mind a Ukraine type agreement, with a Free Trade Agreement plus widespread UK alignment with EU rules. This is brought out in text such as “This partnership will be comprehensive, encompassing a Free Trade Agreement, as well as wider sectoral cooperation where it is in the mutual interest of both Parties” and “The Parties should uphold the common high standards applicable in the Union and the United Kingdom at the end of the transition period in the areas of state aid, competition, social and employment standards, environment, climate change, and relevant tax matters.” Such a relationship would make the UK an obvious rule-taker, but any deal is likely to mean that, with the UK having only limited ability to seek better treatment, where the priorities may be financial services and fishing.
Other countries are likely to wait for the UK-EU relationship to be clarified before committing to new trade agreements. In particular the government’s own analysis shows inconsistencies between CPTPP and the likely EU deal, while Australia and New Zealand will be keen to conclude agreements with the EU first. Meanwhile Japan’s first priority is UK access to the EU market for their investments here, meaning again that the EU relationship will be prioritised over an FTA.
A final restricting factor for the UK government will be that as from Brexit day they will have to take over all market access cases for UK companies, including in case of any trade barriers experienced by companies in trading with the EU. This is likely to be a more onerous task than is currently forecast, as US retaliatory tariffs against Scotch Whisky have already shown. The UK government is only just establishing business consultation mechanisms, and these will have to be considerable strengthened both for market access resolution as well as establishing trade agreement priorities.
Most UK trade experts feel that ultimately whatever Brexit looks like initially there will in the medium term be a close economic relationship, simply given the size of the neighbouring market, and the strong political support. The current government’s objectives are ostensibly different, but already being confronted by uncomfortable realities, and this is only likely to become more evident over time. Global Britain is still likely to start with EU trade.