Written by Robert Lee
This article was first published in Briefings for Brexit and we republish with their kind permission.
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Now that Brexit “will get done”, focus switches to the EU/UK FTA negotiations. Can a trade deal be done by end 2020? Some Brexit opponents say it will take much longer, and the EU would prefer an extension. However, a deal is not only possible but very likely. The UK is now in a strong bargaining position, with a majority government prioritising the potential regulatory freedoms of Brexit. With a weak economy the EU needs to protect its huge trade surplus as the UK conducts parallel trade negotiations with non-EU countries. The parties start talks with full regulatory alignment and zero tariffs. The Political Declaration allows for the relatively limited goal of a Canada style FTA. This is eminently achievable.
“Take Back Control” and “Get Brexit Done” are two of the most effective slogans in British political history. Opposition parties in the recent election argued that the latter slogan was misleading, because the trade talks were still to come. However, the Brexit Withdrawal Bill now going through Parliament means that we will legally and politically leave the EU on Jan 31st. That is Brexit. The trade and other talks that now follow – and upcoming debates on new policies for Immigration, Agriculture, Fishing, and Regional Development amongst others – are the consequences of Brexit. This is what normal, independent democratic nations do – they conduct trade talks and devise their own policies. This is “Take Back Control” in action! The trade talks are the first item on our agenda as a fully independent country, and here are the reasons why they are likely to be successful.
The UK has a Strong and United Government
The UK now has a strong majority government that is remarkably united in its post-Brexit goals. The key Tory Remain rebels of the last Parliament have gone, and the new intake is heavily indebted to Boris Johnson’s leadership. He was heavily criticised for attempting a lengthy prorogation of Parliament, and then expelling rebel MP’s from the party. These drastic measures backfired from a short term tactical viewpoint, but they served to demonstrate the PM’s firmness of purpose. This will serve the UK well in the upcoming negotiations.
There is a Firm Deadline to the Talks
Trade experts agree that a firm deadline is vital if trade talks – particularly with the EU – are not to get bogged down. This need for a deadline became clear in the Withdrawal talks, when only the credible threat of No Deal forced the EU to re-open the original Withdrawal Agreement. A deadline of 31st Dec 2020 is contained in the revised Political Declaration, and both sides have committed in that declaration to meet that deadline. The UK has gone further – in a clear signal of intent – by putting this date into UK law in the Brexit Withdrawal Bill.
The EU Bargaining Position is Weak
The EU27 maintained a united front in the Withdrawal talks, but it was easy to maintain consensus while looking for protection for EU citizen’s rights, large UK payments to the EU, and strong adherence to EU regulation post-Brexit. This unity will be much harder to achieve in trade talks as the needs and priorities of the individual countries differ markedly. The EU would prefer the transition to be extended – thus securing more payments for the EU and keeping the UK closely aligned – but the UK has signalled that it is determined to achieve regulatory freedom. If the UK holds firm on this the EU’s unity will crack.
This is partly because the EU economy has slipped into recession in recent months, and it has little room for policy manoeuvre to combat any economic slowdown. The EU has in any case a very low sustainable growth rate, due amongst other factors to excessive regulation, and its financial system is highly vulnerable to a renewed banking crisis. In contrast, the UK economy has slowed but avoided recession, and should recover in 2020 on the back of rising real wages, fiscal stimulus, and a bounce in business confidence and investment. The EU therefore cannot afford to risk losing significant access to a relatively buoyant market where their exporters have been very successful. The EU’s surplus in traded goods with the UK was £99bn in 2018, with most of the EU’s exports to the UK concentrated in sectors such as agriculture, clothing and motor vehicles where the EU obliges the UK to impose high tariffs on non-EU products. In contrast, most UK exports to the EU are in low tariff sectors and in services (zero tariffs). The EU therefore needs a zero tariff agreement more than the UK does.
The UK will be Conducting Parallel Trade Talks with Non-EU Countries
The UK will simultaneously conduct trade talks with other countries, with the USA, Japan, Australia and New Zealand seen as priorities, as well as joining the Pacific trading bloc TPPII. These talks will put strong pressure on the EU to reach a deal. This pressure is exerted in at least two ways. Firstly, it strengthens the credibility of the Dec 2020 deadline, as the sooner we are able to offer other countries better access to our market the quicker progress will be. Greater regulatory freedom will also improve our offer to non-EU trading partners. Secondly, the more progress we make in other trade talks the more the EU will fear a shift of UK trade away from them and towards these faster growing markets (which after Brexit will comprise 85% of the global economy).
The Political Declaration Has Already Set Out the Direction of Travel
Most of the attention in the weeks leading up to the final withdrawal deal was focussed on the Irish border issue. However, crucial improvements were made to the Political Declaration. In particular, it was made clear that the very close economic partnership post-Brexit envisaged in Mrs May’s deal was to be replaced by a more conventional Canada-style FTA allowing greater regulatory divergence by the UK. The Declaration states that: “a free trade agreement [should] ensure no tariffs, fees, charges, or quantitative restrictions across all sectors”.
The EU/UK talks start with Zero Tariffs/Quotas and Regulatory Alignment
The former International Trade Secretary, Dr Liam Fox, has been unfairly lampooned for writing that the EU/UK trade talks should be “the easiest in history”. The Withdrawal Agreement certainly took an absurdly long time, but he was specifically referring to the trade talks which of course can only formally begin after Jan 31st 2020. He was pointing out that these upcoming trade talks start from the uniquely advantageous position that there are no tariffs or quotas to abolish or reduce – the usual meat and drink of trade disputes – and that this should greatly reduce the time taken to reach a deal.
Dr Fox also rightly emphasises that the EU’s insistence on achieving “harmonisation” of regulations between trading partners goes against the grain of modern trade agreements. The great majority of WTO members now favour the “outcome-based equivalence approach”, which means ensuring standards and outcomes are similar but without rigid rules as to how these should come about. This enables the market to determine the most efficient ways of achieving outcomes.
Much depends in the forthcoming EU/UK trade talks on whether the EU is prepare to bend towards the equivalence approach. If not, this would imply that only a relatively limited trade deal will be possible, along the lines of the EU/Canada trade deal (CETA), which can be used as a template. CETA focuses mainly on manufactured goods and agricultural products and even there not all tariffs were abolished. In line with most trade agreements there was only limited progress on services. It may be that the main talks on services and data sharing occur post-2020. As a heavily services-dominated economy the UK may end up devising a new worldwide template for trade agreements in services.
Conclusion
As set out above, the conditions are there for the EU and the UK to reach a successful trade accord in 2020. If the political will is there the relatively short time available is not a limiting factor. The USA, Canada, and Mexico have just achieved a major and complex re-negotiation of NAFTA (North American Free Trade Agreement) in less than twelve months, far sooner than all pundits suggested. The EU is a notoriously inflexible trade negotiator, but economic realities suggest that it will bend. Both negotiating teams are to be largely led by the same people who came to agreement in October last year, and success feeds on success!
(Robert Lee is former Chief Economist, Board of Executors (South Africa), an economic consultant (UK), and a private investor.)
Our failures as a Nation of people, plus PM May, gave more than three years of delay to our leaving the EU. – THIS IS NOW EXHAUSED !
The people gave PM Johnson the tools ! – In so doing, a clear message was given to the EU that we will accept no more nonsense !
End of this month, we have left ! – End of this year we have a deal with the EU, or not ! – Strength IS IN THE HANDS OF BORIS !
….. Did you see the cringe-worthy display from the new head of the EU, at the LSE ? – She was at the LSE for about a year, and her comments in her presentation was so ‘friendly’ towards UK/GB, as to be sickening ! – My own analysis of her performance, is that she knows full well that the EU will need to tread carefully with us, or blow a big hole in EU wishes and financial standing ! Good grief, a net contributor is leaving, and might well take their Trade with them, as well as the UK’s money tree !
I do hope Boris saw this too. – He has them on the ropes and the bell is not due for ninety seconds. – Full attack is now required to end this to our advantage. – ( Our advantage would also be the EU’s advantage too, but that will only be seen in Brussels when they sober up ) ! Negotiations is just a fancy word for what should be common sense, but then we are talking about the EU !
Thankfully the Remain fools let their thinking degenerate into a total pudding ! – Farage was responsible for a ten percent benefit against Labour, and as usual got nothing for it ! – Some Remain dickheads had to vote for Lib/Dem’s anti-democratic nonsense, and our FPTP vote system did the rest ! ….. Admittedly I am a natural optimist, but I recon that if our PM and his Government do their job properly, this year could be ours, and at long last we could be shot of the EU. – So chins up but heads down ( ? ), this new year could be rather successful !
If we really want a top deal – don’t send in the Civil Service Clowns – send in Farage and half a dozen Premiership Football Agents.
We need a hard-nosed greedy, money-grabbing gang who are willing to ‘take a cut’.
Barnier will be ‘mon-dieuing’ it for months afterwards.
Some of those agents have squeezed enormous, gargantuan, amounts of money from the Premiership, beyond the wildest dreams of their ‘grass-eating’ clients – some of whom are at best simpletons.
Secondly, but of equal importance, don’t have too many fee-consuming, time wasting lawyers hanging around, or preferably none at all, except as clerks.
Unless of course they have been able to ‘bung’ the opposition – their usual M.O.
Don’t forget – we are already ‘bunging’ the EU something like 39 Billion……..before we even start.
So Nigel would, for starters, no doubt keep that at the forefront of any negotiations, and will want the correct evaluation placed on THAT even before ‘kick-off’.
Well, that’s MY form of diplomacy. Kick ’em hard – and keep kicking – and make them bleed the way Barnier has made us bleed for over three years.
Farage facing up to Barnier? Nigel will be in his element – and give Nigel the fullest power to squeeze in the Barnier fashion ………….In other words ‘Quid Pro Quo’………………..
mrpaul5a we agree again! Apart that is from the football agents that I know nothing of. I wonder if it IS possible to get Nigel into the team – probably not unfortunately, and won’t our MEPs have lost ‘that place’ to cause mayhem – shame. However knowing him he will find some way to get his views heard.
Robert Lee is very upbeat and hopefully right about our strong position but as mrpaul says the civil service clowns could undermine us if they get the chance.
Also, Mr Lee has not mentioned PESCO was it? our armed forces that we discussed yesterday. ‘We legally and politically leave the EU on January 31st’. That probably does not nullify the agreement that traitor May signed.
So I think 1st Feb, 2020 our government should enact legislation rescinding or whatever it’s called that agreement.
Pauline – it is just as well you don’t know about the malarkying of Football Agents.
Suffice to say they are in the same league (sorry for the pun!) as Barristers and Lawyers – and Judges, on occasions, are – I think in the vernacular the word is ‘bent’.
Their very presence in football is a totally inflationary influence so the least you know of them the better.
But just to give you a taste – Mezut Ozil the Arsenal player is apparently getting ( NOT EARNING I HASTEN TO ADD!) around £250,000 PER WEEK.
Yes, Pauline – A WEEK.
Bloomin’ ridiculous!
What are you like at football? Any good? We could earn a few quid maybe.
I recall the guy whose idea the premier league was featured in the book “The 50 People who buggered up Britain” and well deserved in my view as a football outsider.
mp5a
Underlining everything our Government says and does and wants to do.
They haven’t got the money.
It goes daily on Silly little Lefty ideas in a trickle that is now a flood.
On committees and departments on Quangos, and treating ills not curing them
Find another Cummings for Farage.