Richard North, 26/12/2019  
 


As we gear up to leave the European Union, with only 36 days to go before we officially break our legal ties, the one thing of which we can be assured is that, on 1 February 2020, nothing will look very different. There will be no queues at Dover, no grounded airlines, and no other obvious physical manifestations of our departure.

This, of course, is because – if all goes well – Johnson's withdrawal agreement will be in force, And, based as it is almost entirely on Mrs May's earlier version, that means we slip effortlessly into a transition period where all existing EU provisions continue to apply, barring those which allow us representation in the high councils of the EU.

If Johnson then sticks to his guns, we will have a short eleven months during which negotiations on a "future relationship" with the EU will be started, with an agreement of sorts concluded by the end of December next year. But no one in their right mind would argue that this will be anything like a comprehensive agreement.

Inevitably, therefore, some of the perturbations forecast for various "no-deal" scenarios with which we were confronted will take effect, not on 1 February 2020 but on 1 January 2021. But, until the outcome of the coming negotiations are known, it is impossible to say precisely what will and will not be affected. And, since the negotiations may go right to the wire, we will probably not know what we're faced with until days before an agreement is to take effect.

What we can predict, with a fair degree of confidence, though, is that we will be confronted with a de minimis agreement which affords only very limited access to the EU's Single Market in goods and services.

There will be those, however, who say this doesn't matter – on two counts. Firstly, there are many countries which trade with the EU without being part of the Single Market, whence it is argued that we can work on the same basis. Secondly, while it is generally accepted that this will result in a drop in trade volumes with the EU, it is anticipated that those losses can be made up by forging new trade deals with non-EU trading partners.

In the first instance, the confidence that we can continue trading with EU Member States at anything like the same levels borders on the complacent. Not least, this is because much of our trade – outside bulk goods – relies on so-called Ro-Ro shipments, where transport vehicles are allowed short-notice access to ferries without customs intervention.

Whereas goods imports from other trading partners – such as the US – require pre-notification and customs clearance, this is not so problematic when the sea journeys involved give time for the necessary processes to take place, this is hardly going to work when the UK exports to the EU, post-Brexit, when transit times are measured in hours. No customs clearance systems can work that fast.

Then, less obviously, but with potentially greater impact, is the change in the relationship between UK exporters and their customers in the rest of the EEA. At the moment, the entire EEA is treated as part of the UK's domestic market, with traders free to sell any goods (with minor exceptions) freely to any customer, anywhere in the area.

Once we drop out of the Single Market, though, this freedom disappears. In a technical sense, UK businesses cease to export, as such, to EU Member States. What happens is that legal entities, established within the EU, must import goods from the UK. To do so, they must be registered with their national authorities, and much take full responsibility for any taxes and duties, and must ensure conformity of the goods with relevant EU standards – for which they take legal responsibility.

This does not present much of a problem to large firms, or those already with subsidiaries in the EU, but small firms and those without an EU presence, will almost certainly have to appoint brokers or other intermediaries to handle their goods – in so doing, adding to costs and losing the advantages of speed and flexibility.

Because of these and other factors, we could see major losses in export volume to the EU – as much as 60 percent over term. Combined with a similar loss in services, the UK could be looking to make up well in excess of £100 billion annually in trade, which must then be struck with other trading partners.

Here complacency takes a front seat. While Johnson is planning to open parallel negotiations with the likes of the US, any trade deals could take years to come into force. But the essential point is that deals alone do not make trade. Such legal agreements simply facilitate trade. For money to change hands, willing buyers must interact with willing sellers – and that is not going to happen automatically.

Here, one might also take note of the parlous state of Boeing, after its failure to gain re-certification of its flagship 737-MAX aircraft, and the suspension of production with no re-commencement date set. This comes at a time when the EU is contemplating a review of state aid rules to allow Member States to support "Important Project of Common European Interest" (IPCEI), allowing cross-border groups of companies to become "European champions", competing with US and Chinese industrial giants.

This, therefore, does not seem quite the most appropriate time to cast ourselves adrift from what is currently our most lucrative and well-developed market. Yet, if anyone is in any doubt that we are heading for second-class status with the EU, they only need to read a single document to understand why.

The document in question was published in 1993 by the European Parliament as a working paper on the Agreement on the European Economic Area.

This "blast from the past" describes the EEA treaty as the "most comprehensive and far-reaching agreement which the European Community has ever concluded with a group of third countries", and then goes on to explain in some detail precisely the conditions that had to be satisfied before the agreement could be concluded.

Thus, on page 12 of this document do we see four basic criteria set out, which included elimination of technical barriers to trade, in parallel with "progressive integration of the Community's internal market", coordination in fields such as "transport and environmental policy", and "real reciprocity" in the sharing of costs and benefits.

Since, in all these areas, Johnson has committed to securing UK divergence, the EU itself has acknowledged that the UK and EU will become "separate markets", with inevitable consequences in terms of access.

To this date, the EEA Agreement is still, by far, as the "most comprehensive and far-reaching agreement" the EU has concluded with a group of third countries, going way beyond the EU-Canada deal (CETA) and other comprehensive trade agreements made with the likes of South Korea and Japan.

The EEA, therefore, sets the benchmark of what we must do to gain unfettered access to the EU's Single Market, and thus illustrates with utmost clarity why it is that we will gain only very limited concessions from the EU prior to the end of the transition period.

And, while it is unlikely (as far as we can ascertain) that we will depart with no-deal, the difference between a de minimis treaty and no-deal for some sectors will be so slight that it will be hard to tell the difference. Only a complete change in approach could rescue us from that fate.

As time progresses, therefore, the folly of rejecting the Efta/EAA option will become more and more apparent, as is the opportunity of using this agreement as a basis for further, more advantageous agreements with the EU. When we slip down the league of exporting nations, we will have no trouble working out why this has happened.






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