Britain is drowning trying to land trade deals

Opinion piece (The Evening Standard)
Sam Lowe
05 February 2018

Brexit equals new trade deals. With the US, with China, with India, with everyone. All that’s needed is a Royal Yacht, decent jam to sell and a “go get ’em attitude” — at least according to some of the loudest Leavers.

As ever, reality doesn’t feature much in their pool of eternal optimism. With the transition agreement set to bind the UK to the EU’s rules until at least 2020, fresh free-trade bounty looks a long way off indeed.

Theresa May has been attempting to forge fresh trade links with China lately, but she might pay more attention to the 40-plus trade agreements to which we’re about to lose access because of Brexit.

These free-trade agreements that the UK signed up to as part of the EU are with countries receiving up to 15% of our total exports, including Switzerland, Turkey and Canada. This might not sound like much, but it is far from insignificant when you consider that the EU and US eat up the vast majority of our exports, leaving not much left for the rest.

Until recently, the UK government claimed it would be ready to replace all of these deals on Day One of Brexit. Trade Secretary Liam Fox said a while back: “I hear people saying ‘Oh, we won’t have any [free-trade agreements] before we leave’. Well believe me we’ll have up to 40 ready for one second after midnight in March 2019.”

This was never possible, and so it has proved. With every best intention there is simply too much to do.

Recreating multiple trade agreements takes time and institutional capacity, both of which are in short supply. This is not a simple cut and paste job. Partner countries have their own ambitions and domestic procedures too. And many have already indicated that they will seek to tweak the existing agreements. South Africa wants bigger quotas and fewer safety restrictions for its food exports, for example.

To make matters worse, speeding up the process is not a priority for the EU’s FTA partners, whose exporters will still be able to sell into the UK under the same conditions as now.

This is because any “status-quo” transition period will require the UK to apply the EU’s tariffs and safety checks on goods coming from non-EU countries, to maintain the integrity of the EU’s internal market.

Thankfully the UK has changed tack. In a letter to business leaders, the Government says it now intends to “work together with the EU to ensure the UK remains covered by those international agreements, including free-trade agreements, to which it is currently a party” through the transition period.

But it remains to be seen whether the EU agrees to help, and whether the Government can convince the bloc’s FTA partners to continue treating British exports as they do now during the transition. It depends to a large extent on the EU’s goodwill. And it will require the UK sucking up all of the EU’s demands for transition, including full protection of EU citizens’ rights, until it is concluded.

So long as the EU and UK provide a convincing legal justification it is difficult to imagine a partner country, which faces no practical change in circumstance throughout the Brexit transition phase, lodging a substantive complaint. This isn’t to say none will voice their displeasure.

The transition — which should more accurately be referred to as a standstill agreement — will buy the UK more time. But the free-trade agreements will still need to be replaced, and it remains a tight deadline. Although partner countries might accept a temporary EU/UK-imposed solution during the transition, the likelihood of their seeking recompense in the form of additional concessions from the UK afterwards are high.

And even if the agreements are replaced, they will prove less useful to UK exporters than before. This is because products will struggle to qualify for the free-trade agreements because they do not contain enough local, UK, content to meet the necessary qualifying thresholds. We’ll need the help and goodwill of the EU to overcome this.

Brexit might one day place the UK at the forefront of global trade liberalisation, striking free trade deals with far-distant lands.

But first the British government has to save the numerous deals it already has, and agree what is going to be a complicated new trading arrangement with the EU itself, the destination for around half of the UK’s exports.

It will be many years before the UK will have the bandwidth to start concluding deals with new countries. In the meantime, it is destined to spend the coming months and years treading water, arms up in the air, begging the EU to throw it a lifebuoy.

Sam Lowe is a research fellow at the Centre for European Reform