Brexiteers in Fantasyland: Trade Deals Much Harder Than They Imagine.

Summary: There is a great deal of naivety about setting up trade deals amongst the Brexiteers. The UK will have to wait in line while other countries establish their trade relationship with the EU. That will largely determine the trading rules and regulations that the UK will experience and we will have little influence upon them. If we look carefully at the claims of Boris Johnson, the UK Foreign Secretary, that countries are queueing up to sign rapid trade deals with the UK it is clear that they are quite nonsensical and do not recognise problems that have already been articulated. Most would work substantially to the disadvantage of the UK and the risk is that the UK would sign up too readily to something ultimately damaging to the UK.   (Updated 30/01/17)

There is a great deal of naivety about setting up trade deals amongst the Brexiteers. They seem to think that a trade deal is simply an agreement between two sovereign nations. In practice it’s much harder than that because each nation will have multiple trade deals with other trading blocs. Chancellor Angela Merkel is keen to pursue trade deals with Pacific Rim nations that have been jilted by the US when TPP was abandoned. The UK in trying to negotiate a trade deal with any nation will find them reluctant until they have agreed the terms with the big trading blocs such as the EU. Each country has its own standards covering safety and technical characteristics. These need to be harmonised. Single nations such as the UK when outside the EU will have to wait until the main deals are agreed.

Boris Johnson has claimed that countries are queueing up to sign trade deals with the UK after we leave the EU. Unfortunately arranging a balanced trade deal is something that is likely to be much harder than he ever imagines. Already many of these mythical trade deals are turning to dust as the British government insists on a very strict approach to such negotiations. It looks increasingly unlikely that any of these that are “queueing up” will lead to anything very serious and certainly not in the short term. Let us look specifically at the obvious candidates:

United States: Donald Trump’s trade chief, Wilbur Ross, has urged Britain’s rivals to exploit the “golden opportunity” of Brexit to take business away from the UK. Donald Trump has indicated he will withdraw from the negotiating process of the Trans-Pacific Partnership (TTP). It was never ratified by Congress so will have little immediate effect but it does indicate a very negative approach to trade deals by the US. He also wants to renegotiate the North American Free Trade Agreement (NAFTA), principally to get Mexico put at a trading disadvantage relative to its present position. Ignoring for the moment the fact that Donald Trump is pretty negative about trade deals unless they clearly benefit the US, some of the areas that US negotiators would particularly like an arrangement with the UK (and indeed the EU) include farming.

Unfortunately US regulations on food safety and the environment are much less strict than European (and therefore UK) regulations. About 70% of all processed food sold in US supermarkets contain genetically modified ingredients. The EU allows virtually no GM foods. The US also has much weaker restrictions on the use of pesticides and permits the use of growth hormones in its beef rearing, hormones that are restricted in Europe due to links with cancer.

Jobs would undoubtedly be lost to the US because labour standards and trade union rights are much weaker in the US. There is an interesting and relevant piece here:

The best guide to the motivation of US politicians in respect of trade deals is to look at the fine print of the Transatlantic Trade and Investment Partnership (TTIP) recently abandoned by the Europeans as well as being unpopular in the US. This was widely opposed throughout Europe as one of its main aims was to open up Europe’s public health, education and utilities to US companies. It was feared, with good reason, to inevitably lead to the privatisation of the NHS. Under TTIP companies can sue governments if those government policies lead to loss of profits. Any attempt to restrict NHS service provision to the NHS could lead to the British government being sued by US companies with ambitions to run those services.

It is inconceivable that the British public would accept a substantial reduction in the quality of food it would find itself consuming if such a trade deal came into being, or accepting a virtual guarantee that the NHS would be progressively privatised.

India: India has made it clear that they simply are not interested in talking about a trade deal if the British government is not prepared to open the possibility of re-negotiating Visa restrictions on Indian citizens wishing to visit the UK.

Brazil: they have already made it clear they will be negotiating on behalf of Mercosur, a trading block that includes Argentina, Uruguay, Venezuela, Paraguay and Brazil. They are also negotiating with the EU and any agreement with the UK would have to be in the shadow of such an agreement which is, to them, very much more important. The agreement with the UK would have to be entirely consistent with the one with the EU.

Australia: a key item for them is to negotiate a weakening of Visa requirements between the two countries.

New Zealand: Theresa May became very excited at the prospect of negotiating a deal with New Zealand. Our current trade with them runs around £3 billion per annum or just over 1% of our current trade with the European Union. That leaves about 99% still to find!

European Union: there has been a lot of talk about negotiating special access to the single market for specific business areas such as car manufacturing and financial services. Unfortunately the World Trade Organisation rules forbid special treatment in particular areas being given to one country and not others that have the same “most-favoured-nation” status. Simply this kind of arrangement would be ruled illegal by the WTO. You are either in the single market or you are properly out of it.


3 Replies to “Brexiteers in Fantasyland: Trade Deals Much Harder Than They Imagine.”

  1. I have been trying to clarify the ‘most favoured nation’ concept. It would seem that Australia or any other country cannot give us a ‘special deal’ that is not offered to other countries. In other words we would have no advantage over any of the other trading partners of a country offering such a deal.
    Could someone confirm or inform me of the error?

    1. I think basically that you are right. Let me start by saying I’m not an expert on WTO rules. These rules are designed to make sure all the countries who have the highest approval level (most-favoured-nation) are able to get equivalent access to each market. The idea is to ensure that little countries do not have any additional barriers that big countries have been able to negotiate past. This means that if Australia, for example, has agreed with New Zealand the rules for lamb importation that agreement shall also apply to any other country in the WTO with that status. The great majority of countries are indeed “most-favoured-nations”. In the U.K.’s case it means that were we to arrange special access for cars and financial services, for example, with EU then every other country that was a most-favoured-nation would automatically have that same access. Therefore the idea that we can negotiate special access to the single market for specific activities is simply not true.

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