Feature

Free trade – the UK regaining the right to negotiate

Putting comprehensive Free Trade Agreements in place will inevitably take time – especially with complex political and economic issues to reconcile.

 

AT THE HEART OF THE ‘LEAVE’ CAMPAIGN was a vision of the  UK standing on its own feet, successfully agreeing a host  of  independent trade deals with all the world’s most important economies.

The argument ran in the UK that the EU had always been an inefficient trade negotiator on behalf of its 28 member states and that, by going it alone, the UK could negotiate much better deals, much more quickly.

Dr Liam Fox, the UK Government’s international trade minister and a long-term advocate of Brexit, has argued that the UK could quickly tie up new trade deals, especially if the UK was to withdraw from the EU’s customs union.

In practice, that process is likely to be fraught with difficulty.

While still a member of the EU, the UK cannot even begin to discuss trade deals with any potential trading partner without being in breach of its Treaty obligations. This is because it has delegated its competence to negotiate deals under the World Trade Organization (WTO) umbrella to the EU.

Over the years, the EU has negotiated and concluded 53 trade agreements – with countries as diverse as Mexico, South Korea and Thailand – on behalf of its member states.

The UK will lose all 53 of those deals on leaving the EU and will have to renegotiate them from scratch, as well as trying to conclude new deals with other sought-after partners, such as the U.S., Canada and India.

This is a formidable and lengthy undertaking. Despite some arguing that deals could be put in place more quickly than in the past, it is instructive that Canada’s trade deal with the EU – itself potentially a good deal simpler than the one the UK may want to agree with the EU – has taken seven years to negotiate.

To begin freely negotiating new trade deals, the UK must first win back its rights to negotiate independently under the auspices of the WTO. If the EU does not agree to this, the UK may then have to approach the WTO to secure its blessing.

However, it’s conceivable that the WTO would refuse to talk to the UK while there was a danger of the UK being in breach of its Treaty obligations. We understand the WTO is currently considering the UK’s position as a potential member.

A NEW RELATIONSHIP WITH THE EU – BREXIT LITE OR BREXIT HEAVY?

Two models for the UK’s future relationship with the EU are frequently cited – Norway and Canada. But neither would appear to satisfy the UK’s desire to remain an active participant in the EU single market.

Norway is outside the EU – a member, instead, of the European Economic Area (EEA) alongside Iceland and Liechtenstein, and a part of the European Free Trade Association (EFTA), which also includes Switzerland.

Norway participates fully in the single market but, in return, has to accept full free movement of goods, services and people and make contributions to the EU budget without having any representation on the EU’s decision-making bodies.

It’s clear that the UK Government would be unlikely to try to sell a deal to the UK electorate which involved free movement of people – it is one of the issues that they made clear they were most vexed about. That is likely to make the Norway model unworkable as far as the UK is concerned.

Canada’s EU trade agreement includes tariff-free access for manufactured goods, but less favourable terms for services. For an economy heavily reliant on its services sector, the UK would be unlikely to want to replicate such a deal.

The likelihood is that the UK will try to negotiate an entirely independent deal. Some have suggested that this could be ‘Norway-lite’ – with access to the single market safeguarded and with some limits agreed on the free movement of people, such as an emergency brake when levels of immigration reach an agreed level.

It was just such a deal on migration that former UK Prime Minister David Cameron sought to clinch ahead of the referendum. He was abruptly turned down.

Although such proposals may again be brought forward by the UK, it is unlikely that EU leaders would now be more willing to accept these requests. As some, including French President François Hollande and German Finance Minister Wolfgang Schäuble, have pointed out, access to the single market is unconditionally linked to free movement of people.

There may be one area of wriggle room, however. The UK, like other EU member states, remains a ‘contracting party’ to the EEA. Some have assumed that the UK, once it drops out of the EU, would also automatically drop out of the EEA.

However, the EEA Treaty has its own exit provisions – Article 127 – under which members are given a year to withdraw. The UK might, in theory, be able to remain a contracting party to the EEA – perhaps as a stopgap while it renegotiates its competence with the WTO to sign its own Free Trade Agreements.

This would also mean it could still benefit from key elements  of the EEA agreement, such as the rules on free movement of goods, but would no longer be subject to rules on free movement of people, because it is neither an EU nor an EFTA member state.

This could buy the UK some time and leave it with one strong card to play in an otherwise rather uninspiring hand.

Brexit_Read more_norway-510x325

Norway, Switzerland, bespoke-UK – no option looks easy

Read more
Brexit_Read more_complex-web-510x325

A complex web of deals

Read more
Brexit_Read more_uk-business-510x325

UK business must help shape Brexit

Read more