Let’s stop the posturing and get serious about Brexit trade deals
Last October, I wrote an article for The Sunday Telegraph saying that some sort of transitional arrangements would be necessary on exiting the EU. Despite criticism at the time and protestations that we could get everything sorted within a period of two years, I am relieved some sense is now prevailing.
While we are a long way from agreeing these interim arrangements, it is worthwhile to consider what we should be doing to redefine our global trading arrangements and the difficulties that will lie ahead.
Firstly, let’s remember why trade agreements are important. Critics on both the nationalist right and left ignore basic economics about the advantages of free trade. It is not a zero sum game but a win-win for all countries involved. Small businesses are big beneficiaries. Large multinationals can set up production almost anywhere to get around protectionist rules. Small businesses struggle with bureaucracy and multiple standards. Too often, they respond by just not exporting. The other great winners are us – consumers. We benefit from more, cheaper and better products and services. Some sectors will struggle to adjust. Government should provide support for these industries and their employees to change. An example of how they can is the New Zealand farming industry. It went from being cosseted and inefficient to a world leader and driver of the NZ economy after losing its major customer when the UK joined the EU.
A common riposte is that free trade agreements don’t matter. After all, the US is the UK’S largest individual country export market.
That is true. However, it is also true that exports to the US per head of population are half of those to the EU. Removing trade barriers can and does make a huge difference.
The UK needs to prioritise the quality and breadth of any agreement over speed. When one side is in a rush, and the other is not, it tends not to end well for the time-constrained party. And we need to appreciate that a foreign government saying they would like to do a trade deal is about as close to actually doing one as applying for gym membership is to winning an Olympic medal.
So where do we start? It has to be with the EU. Not far short of half our exports go there. UK supply chains, such as in aerospace and motor vehicles, are currently based on a tariff-free and unencumbered flow of goods across the EU. In addition, negotiations with any other country will be dependent on our agreements with the EU on everything from regulatory conformity to preferential access for EU products.
Our existing arrangements with the EU provide a reasonable starting point, but a deep and comprehensive trade agreement will not be the “easiest in history”, to quote our current Minister for International Trade.
Once we have a reasonable view of an EU agreement, we can move on to countries where the EU already has or had negotiated agreements. Canada, Japan and South Korea should be top of this list. Next, we should look at Australia and New Zealand as reasonably straightforward options, but they will involve some pretty tough decisions about agriculture.
The Government needs to be thinking hard about not just how to replace the Common Agricultural Policy but also how to support our farmers if we choose to open up agriculture to worldwide competition.
‘Now is the time for the UK to stop the grand statements. Government must work out what is actually deliverable’
At the same time, the UK should be championing service sector deals. The UK is the second largest service exporter in the world. Services are also an increasingly integral part of goods exports but not well covered by traditional trade agreements. This could be done in bilateral agreements or multilateral deals such as the ongoing Trade in Services Agreement (TISA) talks between the EU and 25 other countries. These started in 2013 and are currently stalled – highlighting the problems of getting these deals over the line.
Noticeably I have not put the US, India and China as priorities. It would be great to have a trade deal with these huge countries, but the likelihood of delivery is low. I was the first UK minister to have a substantive meeting in India with prime minister Modi. He is a courteous, highly competent and single-minded leader. However, he is also a nationalist who champions “Made in India” as his slogan.
India’s protectionist approach to their farmers almost scuttled the last substantive round at the WTO, despite it almost wholly benefiting less developed countries.
Visa relaxation will be high on India’s agenda, which I suspect will not be palatable to those who want to “take back control” of our borders.
China may be prepared to do some sectorial deals. However, its approach to state control and intellectual property, to name but two challenges, makes a wide-ranging trade deal a lot more difficult.
A deal with the US would be a priority but with a Trump presidency, it will be hard to deliver. The only deal likely to be acceptable to Trump is one which will materially reduce the US deficit in trade with the UK. Already, the chlorine-washed chickens have started clucking. The medical grounds for banning them are pretty weak but the public outcry is predictable.
Meanwhile, the US bans imports of haggis as containing ingredients “not fit for human consumption”. Special relationship or not, our countries do not currently see eye to eye on even what is food, let alone the complicated details of how to trade it. When president Obama was in office, there was substantial agitation against an EU/US agreement, based on untruths that it would lead to lower standards and privatisation of the NHS. Under a Trump presidency, both the offer made by the US and the acceptability to the UK public are likely to be less favourable, so I’m not holding my breath on this deal.
Now is the time for the UK to stop the platitudes and grand statements. Government must work out what is actually deliverable. It needs to consult with business, unions and consumer groups to understand what is important. Then start the detailed negotiations in priority order as soon as allowed. In business, success is one part strategy and nine parts execution – trade deals are much the same.