Brexit: UK-EU Trade Deal – A Bridge Too Far?

Written by: Ollie Watts

The UK may have left the European Union, but the Brexit saga continues. Tensions remain. Uncertainty still lingers – well, mostly on point of trade. The EU is the world’s largest trading bloc, and was the UK’s until it’s departure in January 2020. Whilst we now reside outside the EU, we still inhabit Europe. From that perspective, surely the UK would want a close future relationship with Europe in which it still dips into European markets? If the EU withdrawal negotiations were anything to go by, it is surely no surprise that these trade negotiations are also a sparring match. The clock is ticking and soon there will be a time when a trade deal is not possible, and the UK will trade with the EU on World Trade Organisation (WTO) rules. Is a trade deal really a bridge too far? More importantly, does one side want such a trade deal to purposely be a bridge too far?

Free Trade Deals: a brief overview

Now the UK has left the EU, it is no longer a member state but a ‘third country’ – one where its people are not citizens of the European Union. The EU has agreed free trade deals with several ‘third countries’ before. The most famous is that with Canada: the Comprehensive Economic and Trade Agreement (CETA) – which was agreed in 2014. In its most basic terms, a free trade deal encompasses trade regarding both goods and, more recently, services. These are provided for by the General Agreement on Tariffs and Trade (GATT) and General Agreement on Trade in Service (GATS). Unlike a customs union, such as that operated by the EU, free trade deals do not operate using common tariffs. Therefore, the EU and the third country negotiating a free trade deal will agree a completely different set of tariffs and custom duties regarding imports and exports.

For example, some UK specialist products – say Welsh Lamb – that used to have hefty tariffs applied when the UK was an EU member state may become tariff-free if the UK-EU free trade deal is agreed. The third country may further take measures to impose trade restriction on certain products. A good example of such measures is US President Donald Trump’s ongoing trade dispute with the EU which thereby raised import tariffs on US specialist products such as Levi jeans, Harley Davidson motorbikes and Jack Daniels whisky. However, it is important to note that President Trump suspended US negotiation on the proposed US-EU free trade agreement – the Transatlantic Trade and Investment Partnership (TTIP) in April 2019. Nevertheless it gets at the type of measures a county may take when negotiating a free trade deal to protect its economic interests.

The UK-EU trade deal saga

The trade deal talks began in March 2020 and a whole six months later, there is close to zero sign of breakthrough. To date it has been a verbal sparring match with both sides unwilling to lower their barriers to any significant degree. In this sense, there is very little substantive information to cite! The deal – if one is agreed – hopes to agree on regulatory alignment, fisheries policy, European law, financial services and security. Each of these are rather contentious as the UK intends to take a hardline stance – this stance will be explored further in a later section. For example, the UK wants zero tariffs, whilst the EU seeks fair competition – which would invariably mean some tariffs. The UK wants complete control over its water for fisheries, whereas the EU seeks a quasi-form of the Common Fisheries Policy to remain. The EU seeks any issues of EU law related to certain topics to be under the European Court of Justice’s remit, whereas the UK wants another judicial or arbitration body to have oversight. The financial services sector is of vital importance to the UK: London is Europe’s financial services capital regardless of Brexit.

As such, it seeks complete access to the European financial market, but EU Chief Negotiator Michel Barnier has stood firm. He has stated such access will be considered only where it is beneficial for the EU and its financial wellbeing. It is abundantly clear that both sides are playing hard ball. Where the UK wants a deal that fully respects its sovereignty, the EU is only willing to dangle half a carrot for want of a metaphor. That is not to say either side is right or wrong, but it does increasingly create an environment of irreconcilable tensions.

Such tensions are now being heightened by a legislative dispute in Parliament: the UK Internal Market Bill. Though there is revered debate amongst Conservative and Labour MPs alike over its impact and effect, it has been admitted by a Conservative minister -Northern Ireland Secretary Brandon Lewis –  to break international law in a ‘specific and limited way. Whatever way you look at it, lack of adherence to the rule of law. This breach of international law contained within the Bill seeks to triumph absolutist sovereignty of Parliament now we have left the EU. Not a flaw in isolation, as it is the cornerstone of the UK’s uncodified constitution. In the context of the Withdrawal Agreement, however, such absolute sovereignty breaches the agreement’s terms which take effect in international law. After all, the UK made compromises to reach the agreement. It cannot now just reverse them in hindsight.  As the UK is quick to denounce states which fail to adhere to international law and the rule of law more widely, such as China and Russia, this move is egregious to say the least. Negotiations are to be made in good faith, not deceit.

International Comparisons:

CETA – EU & Canada, 2014

The biggest triumph this free trade agreement makes is one to which the UK aspires in its own negotiations for a deal: tariff-free trade – in its entirety.  To this end it also does away with trade protectionism, something the UK government and fervent Brexiteers have always denounced the EU for with its harmonisation and common standards on trade. Moreover, it allows EU nations access to key Canadian sectors such as financial services which, as we have seen in the previous paragraph, is paramount for the UK in its quest for full market access from the EU. An element that may frustrate the UK is equal treatment for EU investors in Canada is provided for by CETA, and by consequence, no fetters on access. CETA is the EU’s first free trade deal with a ‘third country’ where all sectors bar a few are fully liberalised and open access – using the negative list approach. Due to the lack of substantive progress on the UK-EU trade deal, we are none the wiser as whether this approach would be taken. Given Brexit hostilities, I feel it somewhat unlikely the negative list approach will be used so liberally.

TTIP – EU & USA, ongoing negotiation

Like CETA, this agreement also adopted the negative list approach. Naturally, with his America first approach, President Trump removed the USA from the negotiations in 2017. He is very protectionist of American industry. The US currently places much heavier import rates on American products going to the EU. For example, American train carriages imported to the EU have a 10-14% tariff whereas EU built ones going to the USA only had a rate of just under 2%. Hardly a level playing field. Of course free trade deals are not supposed to replicate the conformity to universal standards as in the EU, including tariffs, but some balance of fairness is surely ideal. TTIP also proposed to allow procurement freedom, giving EU firms unfettered access to bid for US procurement contracts. Again, President Trump disliked this. From a trade perspective, far more isolationist. TTIP, although suspended and not yet agreed, is a prime example of when one side will not back down on its standards.

EU & Japan, 2019

As one of the EU’s most recent free trade deals, it is hallmarked as two of the world’s biggest economies uniting against protectionism and extolling the virtues of truly free trade. Japan has high product standards, whereas the USA is controversial, especially in respect of chlorinated chicken and hormone-injected beef cattle. The deal set out to remove tariffs entirely – similar to CETA – and thus drive up export levels. In practice, driving globalisation further. Japan has an impressive motor vehicle and transport equipment market, which the EU can now make good use of. Although the deal is so liberal on market access, it does ensure that public services such as education and healthcare are kept public where they have previously been kept public. In this sense it strikes a sensible balance of liberal trade but protections that don’t stretch into staunch protectionism.

Deal or no deal – premeditated purposeful intent?

Although most free trade deals take years to negotiate, and the UK and EU are legally limited to a short timeframe, the fact no ground has been made leads to a pertinent and worrying question. Is the UK purposefully trying to walk out with no deal? No deal on trade, although not fatal, is not in the EU’s interest and it has never posited or advocated no deal. However, the UK, prior to its departure, was one of the blocs largest trading partners. The ideology-driven approach taken to the Brexit Withdrawal Agreement negotiations – seeking the purest and most romanticised form of Brexit – by the UK government seems to be here to stay. Prime Minister Boris Johnson’s Brexit deal was, as previously noted, just a slightly tweaked version of his predecessor’s Theresa May’s deal. It was not the purist Brexit he had advocated for and hoped would be reached.

As such, the Conservative Party is still squabbling over Europe. Mr Johnson is now battling with both wings of his party. This is transcending into the trade negotiations with the EU. It looks increasingly likely that the UK is threatening no deal not as a negotiating tactic to reach a deal, but with real purposeful intent. Why? To spite the EU for its lack of a purist Brexit in the first place. Of course, there is no absolute concrete evidence in black and white for this. It is opinion and conjecture. Yet it is increasingly evident through inference that the UK government is pursuing no deal on the trade front. If it is proved and further still, motivated by ideological pursuits, it is a dangerous position to be taking. Pragmatism and good faith is what should be at the heart of trade negotiation.

Conclusion

We have seen that a protectionist approach to free trade deals often results in no deal or a stalemate – as is the case with TTIP. Such protectionism is driven by ideological views on trade and national industry – look to President Trump for this in practice. It may chime with some voters for electoral gain, but in the real functioning and globalised world, it isolates. Prime Minister Boris Johnson has long talked of finally giving the UK unfettered ability to choose its own destiny, including its trade relations with the world. Yet in the UK’s trade negotiations with the world’s biggest trading bloc, it is playing incessant hard ball. If no deal prevails, it does not instill other nations with good faith to agree free trade deals with the UK. Is a deal a bridge too far? It appears increasingly so, and fuelled by all the wrong motivations.

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