Why should a post-Brexit, UK-EU free trade agreement be so complicated?

Why should a post-Brexit, UK-EU free trade agreement be so complicated?

Those who wish to frustrate Brexit have a vested interest in arguing that negotiation of a new EU-UK Free Trade agreement would be both enormously complicated and time consuming. They also argue that the UK would potentially be exposed to falling off a cliff if the EU refused to reach an agreement.

The UK is the EU’s largest single market. EU exports to the UK of €350bn dwarf UK exports to the EU of €200bn. The EU’s exports were heavily concentrated from half a dozen EU countries. In the current economic and financial climate in Europe the loss of the UK market would be politically catastrophic and undermine yet further the credibility of the EU.

The EU is responsible for negotiating all trade agreements on behalf of its member countries, and as a result has to reconcile the often, conflicting requirements of its members. To date the EU has negotiated some fifty or so trade agreements, of varying kinds, but almost entirely with smaller countries. It has failed to negotiate trade agreements with any of the major economic powers, including the US, China and India. The EU does, however, trade successfully with the rest of the world under WTO rules.

The EU has rightly trumpeted the recently-negotiated bilateral trade agreement with Canada as a success story and it is expected to increase bilateral trade by €30bn per annum. It is interesting to note that the EU/ Canada deal does not involve any of the following six components: the Single Market; the Customs Union; free movement of people; payments for access to the single market; jurisdiction of the European Court of Justice; or, the application of EU regulations, other than to actual trade between the two countries (“the Six Components”). The Canada-EU agreement covers a large number of issues, which can be considered as optional; but otherwise the agreement can serve as a template for further agreements.

All trade between the EU and the UK is currently compliant with the regulatory regime of the Single Market and is subject to the remainder of the six components referred to above. All trade with third countries, which is governed by WTO rules, also needs to be compliant with EU regulations, and vice versa.

Given the scale of the UK market for EU exports, it is self evident that it is to the overwhelming advantage of the EU to continue to trade tariff free with the UK. This can be readily achieved by agreement that on the day following Brexit, all trade, including trade in services, continues seamlessly, stripped of the six components. At a stroke the EU will have put in place its most important FTA, without the need for any complex, long drawn out negotiation. There would be no cliff edge and all uncertainty would be removed. The reality is that the UK-EU free trade agreement is already in place and merely has to be renewed.

Momentum is now gathering within EU countries for pragmatism and common sense in framing new bilateral arrangements with the UK. There is a growing realisation that continuity is in the best interests of all concerned; and that the EU’s continuing access to the UK market, including in particular to the City, is as important as the UK’s continuing access to the Single Market.

As the Canadian deal has shown, the six components are not a requirement for trading. For those who still refuse to face the new reality, the prospects will become increasingly bleak. President Trump has committed himself to swiftly agreeing a mutually advantageous US-UK trade deal. This may be overambitious, but he is making the point that FTAs need to be rethought, and stripped of their unnecessary complexity, which undermines their value. Aside from the US, we have an incredible line-up of countries wishing to sign up bilateral trade deals. This provides the UK with the opportunity to pioneer a new form of slimmed-down FTA.

Should the EU still not be convinced of the merits of a seamless progression from the Single Market, and all its encumbrances, to a FTA, we would fall back on trading under WTO rules, with our bilateral trade subject to tariffs. With a US-UK FTA in place immediately after Brexit, accompanied by agreements with others who have already clearly indicated their enthusiasm for free trade with the UK, the EU would be placed at a major competitive disadvantage, and would see their most important market being hoovered up by those enjoying tariff-free trade.