Brexit Britain’s trading options

Posted on September 10, 2016

A video grab from footage broadcast by the UK Parliament's Parliamentary Recording Unit (PRU) shows British Secretary of State for Exiting the European Union (Brexit Minister) David Davis as he speaks in the House of Commons in London on September 5, 2016. Britain's Prime Minister Theresa May sought to drum up trade deals on Monday for a post-Brexit world as she faced increasing pressure to define what that would look like. Dozens of pro-Brexit campaigners rallied outside parliament as Davis spoke and MPs held a separate, non-binding debate on a second EU referendum triggered after four million people signed a petition. / AFP PHOTO / PRU AND AFP PHOTO / JUSTIN TALLIS / RESTRICTED TO EDITORIAL USE - MANDATORY CREDIT " AFP PHOTO / PRU " - NO MARKETING NO ADVERTISING CAMPAIGNS - NO RESALE - NO DISTRIBUTION TO THIRD PARTIES - 24 HOURS USE - NO ARCHIVES JUSTIN TALLIS/AFP/Getty Images©AFP

Brexit minister David Davis

David Davis, flanked by his fellow Brexiters, made his first statement in Parliament this week on Britain’s impending EU exit since starting his new job. It was a masterclass in speaking while saying nothing. Questions of substance were dodged by the Brexit secretary under the sensible-sounding pretext that the government wants to “take the time to get it right”.

The reality is that time is not on our side. Prime Minister Theresa May has made a commitment to implement Article 50 at the beginning of 2017; from that point on, we only have two years to put everything in place to ensure a smooth transition to the sunny uplands Mr Davis told us awaits.

    Brexit
    will make a deep mark on British life. Most importantly, it will upend our trading relationships with Europe and the rest of the world. Only 15 per cent of UK total trade is with countries that are neither members of the EU, nor covered by an EU trade agreement that is in force or under negotiation.

    Brexit ministers have argued that, far from creating risk, leaving the EU will unlock growth by freeing us to sign trade agreements with whomsoever we please. Unlike Michael Gove, the pro-Brexit former justice secretary, I think we need to listen more to experts, not less. In an attempt to ensure someone is holding the government to account, I have been working with experts to find answers to the difficult questions the government is refusing to address.

    Since the vote in June, we have been analysing the implications of Brexit for trade, and on Thursday I presented the findings on a platform alongside Peter Sutherland, the former founding director-general of the World Trade Organisation. The conclusions are stark. The idea that we will be signing any new trade deal in the next two years is a pipe dream because of what government officials call “sequencing”. We will have to do things in a particular order and it will take time.

    15%

    Total UK trade with countries that are neither members of the EU, nor covered by an EU trade agreement that is either in force or under negotiation

    First, Article 50 has to be triggered, which sets the clock ticking on the exit negotiations. These talks are primarily about how we disentangle ourselves from the EU. Trade discussions will start during this two-year period but they are very unlikely to conclude rapidly because of the number of issues to be resolved. While this is going on Liam Fox, international trade secretary, would like to be lining up new deals with China, India and the US. He can try but, as Australia has made clear
    , we will not be able to progress beyond informal talks because the UK is not legally able to sign its own agreements until it leaves the EU customs union.

    In practice, no one will want to sign deals with us then either. Potential partners will want to see what trading terms we manage to negotiate with the EU before they put forward their own offer. This means waiting until a full UK-EU agreement is negotiated, which is likely to take several more years. The closest model, the EU-Canada trade agreement, was launched in 2007; it has still not been ratified
    .

    The most likely scenario is that the UK leaves the EU without any preferential trade deal in place. We will therefore lose access to more than 50 existing free-trade agreements

    A trade agreement with the EU will, in some respects, make doing business with the continent much harder. Exporters in the UK have been promised a red tape-free “Eutopia” but they have been sold a pup. Substituting Britain’s current arrangement for a free-trade agreement will create a deluge of paperwork for exporters, who will have to put their products through exhaustive customs checks and comply with complex “rules of origin” to prove where their goods and component parts were manufactured.

    Even with a UK-EU agreement in place, there is one further hoop to jump through. The UK will have to establish its own “schedule of commitments” — the tariffs it proposes to levy on imported goods and services — at the WTO before any country will do a deal with us. This requires negotiation with 163 other countries, any one of which could derail the process in the hope of extracting concessions.

    Our analysis suggests the most likely scenario is that the UK leaves the EU without any preferential trade deal in place — and without a WTO schedule of commitments. We will therefore lose access to more than 50 existing free-trade agreements. For these reasons we recommend trying to negotiate an interim arrangement, possibly based on the Norwegian model, with continued membership of the single market but the flexibility to pursue our own trading deals.

    May tells Tusk UK wants smooth EU divorce

    LONDON, ENGLAND - SEPTEMBER 08: British Prime Minister Theresa May (L) greets the President of the European Council Donald Tusk in Downing Street on September 8, 2016 in London, England. This will be the first meeting between the two since Mrs. May became the UK prime minister, with Brexit set to feature on the agenda. (Photo by Leon Neal/Getty Images)

    The primie minister said the UK needs time to prepare for its exit from the EU but was anxious to make it a “smooth process”.

    So where is the government on all of this? Not even at first base. Mr Davis breezily says it will make a decision whether to leave the customs union before Article 50 is triggered. The Conservatives are stuck between a rock and a hard place: stay in the customs union and Mr Fox’s department might as well close its doors. Leave, and British exporters to the EU will be hit by a tangle of red tape.

    Ministers must make their plans for Britain’s trading relationships clear as soon as possible. We are in the calm before the storm. Whatever form Brexit takes, it is going to be a rough ride.

    The writer is the UK’s former deputy prime minister

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