Free trade deals are not a reason to back the UK government’s deal

 

The UK government is in full-scale selling mode, plugging the deal agreed by the Prime Minister with the EU. On its official campaign website numerous benefits are listed, including ‘We will be able to strike free trade deals around the world.’

Phrased as such, this claim is fully accurate, yet at the same time somewhat misleading, and probably not as significant as many are being led to believe. Let’s start with some good news.

The Political Declaration is quite clear that ‘The future relationship…. must also ensure the sovereignty of the United Kingdom and the protection of its internal market, while respecting the result of the 2016 referendum including with regard to the development of its independent trade policy.’ There is no ambiguity in that statement.

Further good news, from my own conversations with diplomats and negotiators from other countries: there is no doubt that there is plenty of interest from them in the UK and the possibilities of completing trade deals. The Secretary of State is right to say this, and to further point out that these countries will be happy to start negotiations.

Finally, best of all, under the Withdrawal Agreement the EU is to write to all those countries with whom there is an existing trade agreement, informing them that such agreements should continue to apply to the UK during the transition period.

It is not known what would happen if any were to refuse, but equally no country has as yet suggested they will regard the request as problematic.

Business will be happy in particular that the Withdrawal Agreement can give certainty about current trading conditions being maintained potentially until 2022.

Thereafter, however, the government’s statement that ‘We will protect jobs with a deal that is good for our economy’ starts to look more questionable. As indeed do the future trade deals.

As a reminder, the transition period is to be followed by either the future relationship or the backstop. The Political Declaration provides some thoughts as to what the future relationship will look like, but these continue to be contradictory.

While emphasising the UK’s independent trade policy, it also contains the controversial clause that suggests the economic partnership ‘build and improve on the single customs territory provided for in the Withdrawal Agreement which obviates the need for checks on rules of origin.’

This is clearly a customs union in another name – the existence of which would be rather incompatible with an independent UK striking trade deals that give countries preferential tariff rates.

Now the Political Declaration does also suggest that ‘…facilitative arrangements and technologies will also be considered in developing any alternative arrangements for ensuring the absence of a hard border on the island of Ireland on a permanent footing.’

So perhaps the parties could agree a looser economic relationship, and technology could play the role some believe it can in preventing a hard border.

But here we are reminded that no country outside of the EU has a border without infrastructure to enable checks, and that neither the EU nor the vast bulk of customs or technology experts believe a solution without such infrastructure is possible any time soon.

So back to our ability to strike trade deals. Yes there is nothing to stop these being negotiated and implemented as soon as the UK is out of a customs union.

But each of those negotiators who have said they are ready to talk about free trade agreements with the UK has also said that they would need to know first what our relationship with the EU will be.

The UK government could be optimistic and say that this will be known by 2020, but no serious trade negotiator believes a new agreement with the EU could be struck by then – and even 2022 is optimistic.

Even then, in the absence of any other solution to the Irish border, we will continue to part of a customs union with the EU. So the country concerned is likely to say “It’s great that we have opened negotiations. Let’s come back to them once you have a clear date for control of your own tariffs.”

This also applies on the regulatory side, where countries will want to know in what way we are likely to diverge from EU regulations. At the moment we clearly don’t know, which isn’t going to be a very productive basis for a discussion.

This is something that has been picked up by experienced negotiators as well, as they will ask “Why do you actually want these trade agreements when you don’t know what your priorities are?”

It isn’t as if the trade agreements will make much economic impact, according to government modelling issued earlier this week.

This considers the impact of successful trade agreements with the United States, Australia, New Zealand, Malaysia, Brunei, China, India, Mercosur (Brazil, Argentina, Paraguay and Uruguay) and the Gulf-Cooperation Council (UAE, Saudi Arabia, Oman, Qatar, Kuwait and Bahrain) and puts it at an increase of 0.2% of GDP, potentially rising to 0.4% in the case of ambitious deals including diverging our regulations from that of the EU.

Now this looks a little on the low side, but is not out of keeping with typical models of trade agreements.

When one also considers that agreeing such deals would be challenging in the extreme, noting for example the clause in a recent US trade agreement in effect prohibiting partner countries from entering such an agreement with China, it becomes clear that trade agreements as a benefit from Brexit are being wildly oversold.

Benefits yes, but not significant. And not happening until we reach an agreement with the EU to use technological solutions to the Irish border that don’t yet exist.

By David Henig, director of the UK Trade Policy Project at the European Centre for International Political Economy and co-founder of the UK Trade Forum.

Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of the UK in a Changing Europe initiative.

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