Brexit talks: ob­vi­ous prob­lems aren’t the big ones

Is­sues such as in­tel­lec­tual prop­erty rights and tech­ni­cal stan­dards will prove harder to re­solve than tar­iffs and quo­tas, writes Larry El­liott

The Guardian - - FINANCIAL - Con­tainer ships at Felixs­towe. Pascal Lamy be­lieves cre­at­ing a free trade zone will be sim­ple Pho­to­graph: Peter Mac­di­armid/ Getty Images

Brexit has turned Bri­tain into a na­tion of trade nerds. In the past nine months, trade has gone from be­ing too bor­ing to men­tion into a sub­ject about which every­body has a view. Those whose eyes would once have glazed over at the men­tion of bound tar­iffs or trade fa­cil­i­ta­tion agree­ments can now wax lyri­cal about what it would mean for Bri­tain if it had to rely on World Trade Or­gan­is­tion rules af­ter it leaves the EU.

The new sex­i­ness of trade was il­lus­trated last week when the for­mer head of the WTO made a speech at the In­sti­tute for Gov­ern­ment in Lon­don. Pascal Lamy spent some of the best years of his life strug­gling to pol­ish off the Doha round of trade lib­er­al­i­sa­tion, and an over­spill room was needed to hear what he had to say about Bri­tain’s likely post-Brexit deal.

Lamy has no il­lu­sions about the dif­fi­cul­ties of the ne­go­ti­a­tions that will fol­low the trig­ger­ing of ar­ti­cle 50 by the gov­ern­ment. He had a nice metaphor for the likely com­plex­ity of the talks: sep­a­rat­ing an egg from an omelette. And a warn­ing born of ex­pe­ri­ence: it won’t be achieved within two years.

Lamy di­vided the is­sues fac­ing the ne­go­tia­tors into three cat­e­gories: things that will be sim­ple, things that will be more com­plex, and things that will be re­ally com­plex.

In what might come as a sur­prise to the UK’s new army of trade ex­perts, Lamy said the cre­ation of a free trade deal would be sim­ple. It was a “no brainer” that there would be zero tar­iffs so that in­te­grated sup­ply chains did not suf­fer. It would be easy enough for the UK to keep the trade with coun­tries that have signed bi­lat­eral agree­ments with the EU. Fish­ing could also turn out to be less dif­fi­cult than ex­pected if the EU and the UK main­tained mu­tual ac­cess for their fleets.

Lamy then out­lined a few of the more com­plex is­sues. The EU has de­fences to pro­tect against the dump­ing of goods at be­low global mar­ket prices. It also has rules gov­ern­ing the state aid that mem­ber coun­tries can pro­vide to their do­mes­tic firms and a pub­lic pro­cure­ment regime that al­lows Ger­man com­pa­nies to bid for gov­ern­ment con­tracts in the UK. There are com­pe­ti­tion laws, and a com­mon EU ap­proach to en­vi­ron­men­tal stan­dards and to cli­mate change. The EU ne­go­tia­tors will say that a free trade deal with the UK can­not hap­pen if West­min­ster wants to tilt the play­ing field in favour of Bri­tish com­pa­nies through state aid or pub­lic pro­cure­ment.

Nor would the EU be will­ing to see any di­lu­tion of its reg­u­la­tions that set the tech­ni­cal stan­dards for goods that can be sold across the sin­gle mar­ket. This, Lamy said, is where the is­sues be­come re­ally com­plex. It is one thing, he added, to have a trade deal that is tar­iff-free and quota-free, but the EU has tough prod­uct stan­dards.“That’s a ma­jor prob­lem un­less the UK agrees sys­tem­at­i­cally to fol­low the con­ti­nen­tal stan­dards,” Lamy said. And that would prob­a­bly prove po­lit­i­cally un­ac­cept­able to the UK gov­ern­ment.

Other is­sues likely to cause prob­lems were tax, in­tel­lec­tual prop­erty pro­tec­tion and the de­par­ture of the UK from Euro­pean Atomic En­ergy Com­mu­nity (Eu­ratom). Tax is a par­tic­u­larly tricky is­sue be­cause out­side the EU it would be open to Bri­tain to make rad­i­cal changes to VAT. The boost to ex­port com­pet­i­tive­ness since Brexit is a demon­stra­tion of how the UK al­ready has more mone­tary pol­icy flex­i­bil­ity than those EU coun­tries in­side the eu­ro­zone: the EU27 will want as­sur­ances that the UK will not ex­ploit fis­cal flex­i­bil­ity as well.

The re­cent his­tory of trade talks sug­gests Lamy is right when he says the less ob­vi­ous stuff will be the tough­est. The ne­go­ti­a­tions be­tween Wash­ing­ton and Brus­sels for a Transat­lantic Trade and In­vest­ment Part­ner­ship ran into dif­fi­cul­ties pri­mar­ily be­cause agree­ing com­mon tech­ni­cal stan­dards is an ar­du­ous busi­ness. It had lit­tle to do with tar­iffs, which are al­ready low. Like­wise, trade ne­go­ti­a­tions are now dom­i­nated by ar­gu­ments about in­tel­lec­tual prop­erty rights. So when Lamy says it might take five or six years for the UK and the EU to fi­nalise a deal, that seems rea­son­able.

One way of short­en­ing the process would be for the UK to de­clare uni­lat­eral free trade no mat­ter what the EU does. An­other would be to take a leaf out of Don­ald Trump’s book and turn more pro­tec­tion­ist.

Lamy’s anal­y­sis sug­gests a third op­tion is pos­si­ble, though not easy. The UK would not be a mem­ber of the sin­gle mar­ket or the cus­toms union but it would get a free trade deal with the EU. That would mean Bri­tain would not be sub­ject to free move­ment of labour – the big prize for Theresa May in the ne­go­ti­a­tions. But there would be a price. The UK gov­ern­ment would not have a free hand when it came to state aid or tax. It would have to ac­cept EU reg­u­la­tions, not just now but in the fu­ture as well.

Would this be an ac­cept­able deal? Per­haps not to the ul­tras on ei­ther side. There might be some across the Chan­nel who would con­sider this as not tough enough on Bri­tain. There are cer­tainly some free-mar­ket zealots who be­lieve one of the big ad­van­tages of Brexit is that it will lead to a bon­fire of EU reg­u­la­tions.

Yet, as Lamy pointed out, any­thing that has costs for the UK has costs for the EU27 as well. And these are costs the Ital­ian, Greek, Por­tuguese, French, Fin­nish and even Ger­man economies could do with­out.

The UK gov­ern­ment, for its part, would have to con­sider whether such a deal would be sell­able to the pub­lic. It prob­a­bly would be. Brexit hap­pened be­cause of con­cerns about im­mi­gra­tion not be­cause vot­ers wanted the free­dom to have dirt­ier beaches or less safe nu­clear power sta­tions.

It will take time to ar­rive at this sort of com­pro­mise be­cause ne­go­ti­a­tions al­ways be­gin with both sides in­sist­ing that they get every­thing. It will prove im­pos­si­ble if there is no give and take.

Jeremy Browne, the for­mer Lib­eral Demo­crat MP who is now the City of Lon­don’s spe­cial rep­re­sen­ta­tive to the EU, said at the Lamy talk that the re­sult of the ref­er­en­dum meant Brexit had to hap­pen but that there was no rea­son why it should be as ac­ri­mo­nious as some were ex­pect­ing. “Ne­go­ti­a­tions nor­mally start with a dys­func­tional re­la­tion­ship,” he said. “But this [the re­la­tion­ship be­tween the UK and the EU] is a func­tion­ing re­la­tion­ship. The ques­tion is how much dys­func­tion­al­ity do the politi­cians wish to in­ject?”

When Lamy says it might take five or six years to fi­nalise a deal, that seems rea­son­able

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