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Brexit: trading places

2019-11-29 05:45:29

Despite continued speculation, it seems to me to be pretty obvious that, in the eleven months that Johnson is allowing for the negotiation of our "future relationship" trade deal with the EU, there isn't going to be enough time to conclude a Canada-style comprehensive trade deal, much less a "super-plus" Canada deal, or whatever the pundits want to call it.

It is also a matter of record that the Tory manifesto does not promise to secure a comprehensive trade deal with the EU, for such is any Canada-style deal. The word "comprehensive", in relation to any trade deal, is noticeably absent from the manifesto. In fact, the word is only used once in the entire document, and that refers to a review of pension schemes for women.

One can also take note of the simple fact that a free trade agreement is a variable quantity. It can be a hundred or so pages long, or it can be several thousands of pages. It all depends on where the parties set their sights.

Putting these simple facts together, we can conclude as we have already done that Johnson has no intention of concluding a Canada-style deal with the EU by the end of December 2020. It will not happen because it cannot happen to achieve such a deal is simply impossible in the time. Therefore, any discussions on the impact of such a deal are irrelevant. We need to be focused on likely scenarios.

Assuming that Johnson intends to honour his manifesto commitment, we already know that he can agree a "bare bones" or de minimis treaty with the EU and get it signed in time for it to take effect when the transition period finishes, at the end of December 2020. Logic tells us that this would certainly amount to a basic agreement on tariffs and quotas, perhaps with some provisions on rules of origin and anything else that can be achieved in the time.

Some pundits argue that the EU would necessarily impose conditions before it would agree to freeing up tariffs, etc., but there is no logic in this assumption. A tariff-free deal would be to the greater advantage of its Member States so there is no reason why the EU should block such a basic treaty or complicate matters by imposing conditions.

As to the rest, one must recall that the EU made considerable preparations for a no-deal exit by the UK as did the Member States. These and other provisions still stand and can be reactivated to fill in the gaps left by a "bare bones" treaty, in order to keep the wheels of commerce turning.

Since Barnier has already conceded that he is prepared to entertain a deal which encompasses just the "core trading arrangements", it is safe to assume that both the EU and UK are moving in this direction and this is the most likely outcome. That, in turn, renders very unlikely a no-deal scenario for the end of December 2020. Whatever the pundits say, this is not really on the cards.

Nor must it be assumed that an initial "bare bones" treaty will be the end of the matter. We know that the EU very pointedly made it clear that it would not entertain so-called "mini-deals" in the event of the UK leaving without a withdrawal agreement. But Johnson intends to leave the EU at the end of January 2020 with his version of the withdrawal agreement in place assuming the Tories win the election.

Thus, the original prohibition on negotiating a series of mini-deals no longer stands. Furthermore, there are longstanding precedents applying to the EU and third countries such as Switzerland and Norway which allow for such an incremental approach to treaty-building.

Once we have broken away from the EU at the end of the transition period, therefore, we can reasonably expect the EU and UK negotiators to return to the table and conclude a further series of agreements, either as protocols to the basic treaty, or as stand-alone treaties in a process that could last a decade or more.

Such a scenario I have already rehearsed in a number of posts, but it is worth summarising it here as it is as I see it the most logical outcome for our trading arrangements with the EU, and one that we should at least explore. It serves as an antidote to the steady stream of ill-informed commentary polluting this subject.

As to the consequences, we can expect a sharp downturn in the volume (and value) of goods that we export to EU Member States. Not least, we will almost immediately lose an estimated 20 percent of our trade which relies on mutual recognition of standards.

The exact volume, nobody knows, as even the Commission is guessing when it comes the extent of trade which comes under this category. Those goods most affected may be high-value, speciality food products, and things like building materials and components where use is subject to local by-laws or the national equivalent.

Obviously, services will be badly affected the extent of which will depend on many different factors, which are difficult if not impossible to predict. But it is inevitable that we will take a substantial hit, especially if there is no reciprocal agreement on the movement of workers, rights of establishment and mutual recognition of qualifications. Business should be lobbying to have these issues placed high on the list of negotiating priorities.

In one area, we can possibly afford to be optimistic stemming from the fact that we are already fully aligned with EU standards. This is in respect of conformity assessment, where UK notified bodies are already operating in accordance with EU law. It should be a relatively simple matter to tack on a mutual recognition agreement on conformity assessment to a basic treaty.

On this, and other matters, it would be exceedingly helpful if one of the first things a new Johnson government did was to publish a White Paper, setting out our negotiating objectives with the EU, and some idea of how we intend to proceed with negotiations.

In some ways, the incremental approach does have its advantages (even if the economic costs may be high). It cuts short the politically sensitive transition period and removes the need to pay ongoing contributions to the EU budget. Crucially, it also takes away the time pressure (and removes the talks from the headlines). Negotiators will be more able to proceed at their own pace, without agreements being forced by artificial deadlines.

Needless to say though, that is not that way our government works not of any colour. Our political masters seems to be great proponents of "mushroom management", and it is unlikely that we will see any coherent statement of the government position.

That is especially the case with any Johnson government, as it is quite evident that we as a nation are undergoing a substantial policy change in respect of trade, dropping the European preference and moving over to an Atlanticist stance, brought to fruition by a comprehensive UK-US trade agreement.

Such a policy change is not a necessary consequence of Brexit. We could, for instance, have maintained a "Europe first" stance by adopting the Efta/EEA option. But it has been clear for some time and increasingly so, of late that the Tory Right is using Brexit as an excuse fundamentally to reorientate our trade policy (and much else besides).

This is far wider, with far more profound consequences than the narrow concern over the effects on the NHS (which are probably overstated), and it is a pity that Labour's paranoia has been allowed to dominate the debate. Such a profound policy change should be widely and openly debated before it becomes accepted as the way to go, and the hole-in-the-corner approach by the Conservatives is intolerable.

That notwithstanding and in the absence of any open declarations we must assume that a new Johnson government intends to make up for losses in European trade with increased trade from America and other third countries.

If that is the intention, then this should also be stated openly with estimates of expected losses and the time taken to recover them from other sources. Business needs this in order to prepare. It is thus wholly unacceptable that we should be having to guess government intentions on such an important matter, and especially during a general election campaign.

Instead, I fear we are going to be subject to the same patronising, low-grade misinformation from our political masters, bolstered by the usual flow of speculative drivel from our legacy media and their favoured "experts".

We deserve better.