In the race to be the next UK Prime Minister there is a strong narrative that the country’s future economic relationship with the EU can be simply solved. The EU backtracks on including the Irish backstop in the Withdrawal Agreement and this deal in turn lays the ground for a Free Trade Agreement consisting of zero tariffs, few non-tariff barriers for goods, and for the UK freedom to strike global trade deals. If the EU don’t backtrack, we leave with no deal but soon negotiate an FTA.
We know that the first part of the plan, a renegotiation of the Withdrawal Agreement, has been rejected by the EU. Given the vehemence with which they have insisted upon the inclusion of a backstop it is very difficult to imagine any backtracking ahead of October 31. This attitude is not affected by the recent publication of proposals for alternative arrangements, about which the EU has already expressed strong reservations. This has been much discussed in the UK.
A potential future UK-EU Free Trade Agreement of the sort favoured by Brexiteers has been little considered, and indeed it is widely assumed in the UK that if the Ireland border issue is solved, a Canada-style deal is the answer. The UK will thereby continue to enjoy the benefits of preferential free trade with the EU, particularly in goods, but equally be free also to make our own trade deals, including with the US.
The fundamental problem with this vision is that such a beneficial FTA to the UK is unlikely to be available to us without stringent conditions. It is yet another example of us attempting to cherry pick, to get most of the trade benefits of EU membership without the bits we don’t like. Like the previous examples, such as the Chequers plans for a shared rulebook, this is not going to be mutually acceptable. As it has shown many times before, the EU is only going to agree to free trade with a neighbouring country on the basis of a level of continuing integration with the EU.
To start to explain why, take the humble Melton Mowbray Pork Pie. Under the EU’s Geographical Indications policy this has to be produced within the environs of the town, and that restriction is protected throughout the EU. One of the EU’s most fundamental trade policies is to extend the protection enjoyed by hundreds of such regional products, including feta and manchego cheese, and parma ham, globally through FTAs. An EU FTA will require full protection of GIs, just as the Withdrawal Agreement does. This is simply non-negotiable. It means the UK accepts that part of the EU regulatory system. It also removes one key US ask for a UK FTA.
Next, the British Standard, let us say BS10217, welded steel tubes for pressure purposes. Under the European standardisation system, that’s also known as EN10217, for there cannot be different European and national voluntary standards in the EU, or other European countries to have signed up to the system. The EU is likely to want continuing UK adherence, particularly once again to thwart the US aim of having their voluntary standards recognised in the UK. If the UK do indeed agree, and current policy is to do so as UK manufacturers appreciate being part of the European system, another key US FTA ask will be removed.
The issue of different EU and US food regulations, exemplified by the now infamous chlorinated chicken, provides another example. It is well known that the US and EU are in a competition over global regulatory influence, and the EU is winning. It is very difficult to see in this circumstance the EU giving preferential access to the UK while allowing us to go into the US regulatory sphere for food and drink. The UK is going to have to make a choice between prioritising EU and US trade deals.
Strict EU conditionality on a UK FTA will not just be about a competing US FTA. Since the EU-Korea deal of 2011 EU FTAs have generally included a degree of alignment with EU regulations, to improve the EU’s regulatory reach, and lower the cost of EU firms exporting. Thus the UK would be expected to sign up to Single Market regulations, particularly in goods, over which we’d have no say except in some cases where these are actually set in international bodies.
We have to recall that the EU consider that preferential access to their market, including elimination of most or all tariffs, is so valuable (total GDP c$15tn) that they can set the conditions. Equally fundamentally, the EU realises that their social market model imposes costs, and therefore wishes to ensure that those getting privileged access should not do so by undercutting the market whether in terms of product quality or labour and environmental regulations.
Thus EU FTAs also include commitments that partners should not weaken their labour or environmental laws for trade advantage. Up until now these have not been enforceable, which is to say trade privileges withdrawn if breached. Expect this to be the subject of lively discussion in the EU for a UK agreement, and quite possibly for the EU to change tack. Or, from a UK point of view, for the EU to be able to threaten the UK with the loss of tariff free access every time we change our environment or labour laws. The EU are certainly not going to encourage any deregulation / Singapore-on-Thames dreams.
There is so much more that is covered in an FTA, from privileged access to provide services and access public procurement markets, through to rules on intellectual property, state aid and competition. The point is that the EU is the larger market and has the most to offer in sheer size terms. The UK can offer privileged access to working visas, which is ironic given the referendum campaign, and cooperation on financial services, but are lacking in real trade negotiating chips particularly if we choose a general low tariff policy.
We are back to the problem, since 2016, of the UK wanting a deal keeping what we have and losing what we don’t, and the EU not being able to accept that, for the reasons above, and for its own survival. Perhaps the EU will not make all of the above demands of the UK, but just as likely they may have more stringent asks. The European Parliament appears likely to be more protectionist than its predecessor, and the Commission will face challenges in negotiating new agreements and ensuring those already negotiated, such as with Mercosur, actually pass.
As such, simply saying we will have a UK-EU FTA cannot be the answer to the question that has not been resolved since referendum, of the nature of our future EU relationship. It is further can-kicking, and the question must be asked of those advocating an FTA, what are you prepared to concede in an FTA?
In my discussions with hardline no-deal Brexiteers on social media, when the prospect is raised of the EU having such demands, the response is that the UK couldn’t sign up. Behind the FTA talk for leadership candidates, the arms race of Brexit dialogue demands trade agreement isolation from Europe. For the EU demands in key areas, to make a UK-US FTA difficult, prevent the UK heavily deregulating, and ensure what they would see as a level playing field for EU companies, cannot in this UK political climate be acceptable.
Whether or not this is the right approach for both parties, it is likely that no UK-EU deal in October will mean no deals, save minor ones where they suit the EU, for the foreseeable future. Trade isolation from the other countries in our continent isn’t yet the position of the UK leadership candidates, but only because they don’t seem to understand what an FTA would entail. Their vision suggests they still believe the UK holds all the cards, and there is a perfect deal available.
In truth there is no perfect UK-EU deal, the EU will demand concessions in return for preferential access, and our failure to be honest about this fact is leading us uncomfortably close to a long term rupture. A change in UK politics, to change this situation, may happen at some point, given a continued preference among at least half the UK population, a majority of Conservative MPs in private, and most serious business groups for close ties with the EU. But in the short term given a public debate where the EU is blamed for being unfair, it is not certain enough MPs will stop such a rupture.
The UK doesn’t, to conclude, have the choice of a loose Free Trade Agreement with the EU. We can choose different degrees of integration. Or isolation. What we still cannot have is the perfect relationship that only we would design and everyone else agree. We still await our political debate catching up with this reality.