Richard North, 26/07/2016  

I was given sight of a draft paper recently in which it was argued that we should "exit" the Single Market and then negotiate a free trade agreement between the UK and the EU.

This is common enough fare, but when it came to how long this might take, the author averred that, after Norway had rejected EU membership in 1972, the Norwegians negotiated a trade deal with the EU in just under eight months.

We are advised that our agreement "might take rather longer than", but "with the prospect of German car manufacturers and French wine producers losing market share in the UK, the pressure to get a deal concluded within the two-year period allowed by the Lisbon Treaty would be substantial".

In the first instance, therefore, we are invited to accept that because Norway concluded a deal with the six Member States of the EEC, some 44 years ago, this provides some guidance as to how long an agreement between the EU and the UK might take during the expected negotiations.

However, if we look at the 1973 Norway Agreement, we find that the full dossier runs to 113 pages. The actual, substantive treaty runs to seven pages, and most of the rest deals with tariff reductions, the basis for which had already set by the GATT Agreement.

When we look to contemporary examples of free trade agreements, though, we see a rather different picture. The EU agreement with the Republic of Korea runs to 1,426 pages. This is accompanied by a 64-page framework agreement, with negotiations having started in 1993 and running on for 18 years before the agreements entered into force on 1 July 2011.

Another well-known treaty is the EU-Canada Comprehensive Economic and Trade Agreement (CETA) which runs to 1,598 pages. More than seven years after the main negotiations started, it is still not in force.

With this and much more, I think it is fair to say that the overwhelming balance of probability is that a comprehensive free trade agreement between the UK and the EU would take more than two years to negotiate. Almost certainly, it would be a "mixed agreement" so it would have to be ratified by all the 27 remaining EU Member States – which could present further problems.

Ratification aside, we are told that the" prospect of German car manufacturers and French wine producers losing market share in the UK" would create substantial pressure to get a deal concluded within the two-year period allowed by the Lisbon Treaty.

But, in fact, EU Member States does not need a trade deal to export to the UK, and neither can the UK impose any barriers to goods from the EU, without also imposing those self-same barriers on all other countries selling goods to the UK. This is part of WTO non-discrimination rules, where the UK acquires Most Favoured Nation (MFN) status.

On the other hand, the EU – as an established Regional Trade Agreement (RTA) – is allowed to impose discriminatory access rules to its members' markets, applying to nations defined as "third countries" a complex series of hurdles that make import difficult and expensive.

Since it is extremely unlikely that the UK would want to beggar its economy by erecting trade barriers (over and above those already in existence, and perhaps not even those), it is unlikely to impose any significant barriers to trade with the EU. By contrast though, EU barriers apply automatically to "third countries", built into the EU acquis.

Thus, the UK needs a trade agreement with the EU far more than it needs an agreement with us. And if the negotiations take us up to the two-year limit set by Article 50, that puts EU Member States in a very powerful position. They will be able to use an agreement to extend time as leverage to extract any number of unwelcome concessions.

Now, let's walk away from the land of fixed positions and their attendant certainties and ask how likely it is that we reach a full-blown free-trade agreement with the EU inside two years – not forgetting that it must be ratified and ready to come into force on the day we leave the EU?

If there is an element of uncertainty – and it is hard to argue that there isn't – then the next issue to address is the potential consequences if we fail to reach an agreement in the time, or the price demanded for a time extension is unacceptably high.

There are those who argue that the price of failure would be relatively modest – the imposition of the EU's common external tariff on a range of our products, which would render some of them less competitive, thereby reducing overall our exports to the EU-27 and increasing marginally our trade deficit.

This, however, neglects the impact of non-tariff barriers. Within the Single Market, most of these have been eliminated but, on exiting the market, many would re-emerge.

A small indication of the problems we would face are illustrated by this blogpost, illustrating the vital role of product certification as a requirement for access to Community markets. As we have discussed previously, this goes to recognition of conformity assessment. Outside the Single Market, existing arrangements lapse, as does mutual recognition of standards.

In the first weeks after we leave the EU, without any agreements in place, there is no doubt that importers attempting to bring goods from the UK into circulation within the Community would have a torrid time.

As the narrative to which I have linked above indicates, the crucial element of the EU system is that it is the importers' responsibility to ensure compliance of products presented to EU Member States ports, without evidence of which they cannot be released into circulation.

Without formal arrangements for testing and recognition of the associated documentation, consignments which were previously allowed through on the basis of documentation checks alone will have to be physically inspected. In many instances loads will have to be sampled and detained while testing is carried out.

The effects will be drastic. By comparison, the current delays in Dover are a minor disturbance, but they do show how quickly even small disruptions can turn into a crisis.

Nor have I even sketched the half of it. The inspection regime discussed applies to general goods, but for food and agricultural products, a different regime applies. Products from third countries - which the UK would become, without a trade agreement - must enter through Border Inspection Posts (BIPs). 

To equip BIPs capable of handling the traffic from the UK would require a major investment in infrastructure, personnel and systems. Exports of food to the EU-27 could cease, until facilities were made available.

No rational British Government would want this to happen. But under pressure from those who advocate exiting the Single Market, this Government with its slender majority could be forced into making a series of negotiating errors which could drive it down the path to disaster.

This becomes all the more relevant with a Daily Express poll which has 98 percent of respondents - 3,548 people – wanting immediate withdrawal from the EU. John Redwood, we are told, has come up with a plan to get Britain out of the EU "in just a matter of weeks". This "simple solution" involves repealing the 1972 European Communities Act and then informing the EU that the UK is no longer a member but intends to trade tariff free.

If the EU then decides to impose tariffs (which, of course, it would have to do under WTO rules) then Britain would respond. But because the UK has a trade deficit with the EU of almost £24 billion, Redwood has it that a trade war would be more damaging to European countries especially Germany which could lose its biggest car market.

There is no point in beating about the bush here. Such nostrums are insane - they drive a cart and horse through treaty and international law, and would precipitate a massive crisis in the UK, bringing EU trade almost immediately to a halt. Why, after the years of debate on exit strategies, is anyone even talking about immediate repeal of the ECA?

Handled properly, the benefits of Brexit for the UK could be huge, but there should be no illusions about the effects of a botched exit, based on this sort of insanity. We thus need people to stop playing fantasy Brexit and to focus on reality. We really cannot afford these games.

comments powered by Disqus

Log in

Sign THA

The Many, Not the Few