Richard North, 26/01/2018  

One of the great unknowns in the Brexit process is what is going to happen when the many trade deals agreed between the EU and the rest of the world cease formally to apply to the UK after Brexit. To this day, it is not clear how and under what terms arrangements will apply to the UK during the transition period.

What is certain, though, is that once we are clear of the transition process – however long that takes – we will be on our own, having to make direct agreements with the rest of the world to replace those forged by the EU upon which we have been relying.

To that effect, the government has set up the Department for International Trade under the leadership of Liam Fox, specifically to negotiate trade agreements with non-EU countries. And now, according to the National Audit Office (as conveyed by the national media and available here), the department is being criticised for falling behind schedule. It is, we are told, struggling to make deadlines and recruit staff.

Specifically, NAO auditors found that the department was falling behind in some areas. "Delivery of the work streams will be challenging and DIT has put back some of its delivery milestones as the timetable for legislation and the overall negotiation process has moved on", their report says.

As big a problem, it seems, is that the traditional civil service model, which sees staff move every few years, is "not best suited" to developing specific trade and negotiation skills, and there would be a "premium" on retraining and recruiting outside employees. "Considerable work will need to be done to build skills that have not existed in government for a generation", the NAO says.

Considering these findings in the round, however, there should be no real surprise that the situation is as found. The civil service is not known for its flexibility and speed of adaptation and it has not had responsibility for negotiating trade agreements since we joined the (then) EEC on 1 January 1973.

It would be wholly unrealistic to expect it to acquire the full spectrum of skills needed to function as an independent trade department within the relatively short period since the 2016 referendum.

As relevant, since the referendum, there has been a long period of uncertainty as to government intentions as to its future relationship between the UK and the EU, and in particular the nature of the "end state" trading agreement. To this day, it is not possible to say with any certainty where we are going and what are the precise intentions of the government.

On that basis, it must be very difficult – if not impossible – to firm up any trading arrangements with the rest of the world (RoW). The details will rely to a very great extent on the nature of the relationship with the EU, not least to avoid any conflict between EU and RoW expectations.

Although I feel no great compunction to be fair to Dr Fox and his cohort of civil servants, in the interests of equity it has to be said that we could not reasonably expect much more from the DIT than it has already delivered - which seems to be very little indeed.

That notwithstanding, that is not to say that the inability of the DIT to make deals with other countries is not problematic. It is. Within the current international trading framework, bilateral deals between countries form an important element of the whole.

As it stands, though, if the real work of negotiating non-EU trade deals cannot start until we have finalised our trading relationships with the EU, and we will not have finalised our relations with the EU until the end of the transitional period, then it is questionable as to whether Dr Fox's department can get fully to grips with its brief until the beginning of 2021 (assuming the transition period ends at the end of December 2021).

This much seems to be recognised by NAO auditors. Their report says: "While DIT continues to plan for successful delivery on the key scenarios, uncertainty around the nature of the UK's future relationship with the EU and any implementation period mean that it needs to be flexible and keep its plans under review". A DIT spokesman then adds to our understanding of the problem with the observation that, "the final shape of our capability will be determined by the outcome of EU xit negotiations".

Thus for the NAO to criticise the DIT for its lack of performance is perhaps to miss the point. Dr Fox and his not-so-merry men have been set an impossible task. That there are small individual failings are a matter of detail and largely irrelevant.

Yet, the lack of delivery begs the question of how the UK can manage its trading relations with the RoW until such time as new trade agreements have been finalised. There looms the probability (if not possibility) of an uncomfortable gap between the point when the UK formally leaves the EU (on 29 March 2019) and the completion of the trade agreement with the EU – which will not be the end of the transition period.

About what happens during that period we get an uncommon vagueness. We know that, under proposed transitional arrangements, the EU intends that the UK should obey the acquis communautaire in its entirely and from that, there seems to be an assumption that existing trade agreements between the EU and the RoW will continue to apply to the UK.

By what magic this alchemy is to be achieved has not been specified by either the EU or the UK government. Although there is no automatic presumption of continuity, one might expect the EU to ask the parties to its trade agreements to treat the UK as an "honorary member" an thus to allow existing trade arrangements to continue unchanged.

There are legal and practical precedents for this type of arrangement but, in that implementation will require the formal assent of all the parties involved, this will require from the EU external action services a considerable investment in time and diplomatic resource to secure such assents.

The UK will, therefore, will need the active cooperation of the EU and its goodwill throughout the process. And for that, there will be a price in terms of political capital expended. Our vulnerability is such that we are in no position to call the shots.

Assuming we can get cover over the transition period, Dr Fox's moment will come during that period when he must systematically work through the list of countries with which we wish to do business, agreeing draft deals which must then come into force to coincide with the end of the transition period.

In volume terms, that is a Herculean task. Taking into account technical but nevertheless trade-related agreements, such as the civil aviation accords, there are well over 1,000 individual instruments which must be renewed – with or without an element of redrafting and renegotiation. Some of these are so technical (such as the aviation agreements) that they will require a multi-agency approach and the careful coordination of several different departments.

To proceed with any degree of speed, Dr Fox's department will – as his spokesman indicates - need a very clear "steer" from Mr Davis and his Brexit department as to the nature of the agreement Mrs May will want negotiated with the EU. But then, of course, there is the response of the EU to factor in – what we ask for is not necessarily what we will get.

So far, though, there is no indication that any of the required elements – needed for Dr Fox successfully to perform his tasks – will be in place in good time, sufficient to allow his civil servants to complete the many agreements that we need.

More and more, then, the idea of an extension to the transition period begins to look not only realistic but essential, especially if mainstream EU negotiations are only concluded by the end of the transition period. It is then and only then that Mrs May's implementation period will start for real.

Until then, there is no real value in asking for or expecting miracles from Dr Fox. The trade and other agreements for which he is responsible will take as long as they take, and there is no rushing them.

In the context of the current Brexit debate, what is now remarkable, therefore, is not so much the reality of our situation – where concluding new trade agreements is going to take a long time – but that so few people appear to appreciate the likely outcome of the process we are undertaking.

We have, for instance, Mr Rees Mogg complaining about the nature of the transition process. Evidently, he has yet to focus on the RoW trade agreement negotiation process and doubtless will have a litany of complaints when he realises what is involved and the delays likely to be encountered.

Had he put all the elements together, one likes to think that he might have realised that his objections to the Efta/EEA option were inappropriate. But what we see with such people is that, where they think about such things at all – those that are even capable of creative thought – they tend to think in compartments, one issue at a time. Rarely are they willing or able to look at the whole picture, a process which requires joined-up thinking.

Brexit as we are experiencing it, therefore, is taking on the aspect of a collection of Russian dolls (Matryoshka), only one visible currently but each one concealing another. By the time they are all laid out, we will be responding to their discovery, rather than planning for them.

Planning for the event, it seems, was too much to ask. We had to wait until each problem emerged and address each one in sequence. And that is one of the reasons why the Brexit process is going to take so long and is going to be such a mess.

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