Stephen Booth: Why the row about the Northern Ireland Protocol suggests that the EU’s position isn’t quite as strong as it likes to think

17 Sep

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

It is often said that Brexit is low on the list of the EU’s priorities. That national capitals have not been fully engaged in a process which they have delegated to Michel Barnier and the European Commission. The introduction of the Government’s Internal Market Bill has certainly got the EU’s attention.

The events of the last two weeks have upped the ante, but the two sides continue to talk and a deal between the UK and the EU is still possible, if the political appetite is there.

As I noted in my previous column, the negotiations over a new UK-EU free trade agreement have been locked in a stalemate over fishing and state aid for weeks, and a compromise can only be unlocked by high-level political intervention.

At the same time, a parallel, and up to now seemingly boring, process has been underway to implement the Withdrawal Agreement and the Northern Ireland Protocol. It has long been clear that the UK and the EU have significant disagreements to resolve in the Joint Committee, the forum established under the Withdrawal Agreement empowered to iron out the practical details of the Protocol’s implementation.

In its May 2020 Command Paper on the subject, the UK identified its practical concerns. For example, under the Protocol, Northern Ireland is subject to the Union’s Customs Code, which requires exit summary declarations for goods leaving the area to which the rules apply.

However, the UK’s view is that export or exit summary declarations should not be required for NI to GB trade (since Article 6 of the Protocol states that nothing in the Protocol should prevent NI businesses from having “unfettered access” to the rest of the UK).

Removing this requirement should not be particularly controversial, since Northern Ireland will remain in the UK’s customs territory (as stipulated in Article 4 of the Protocol) and therefore any risk of complaints about the arrangements in terms of international obligations should rest with the UK, rather than the EU.

Another, more significant issue is the status of goods travelling from GB to NI deemed to be “at risk” of entering the EU (and therefore subject to EU tariffs). The Joint Committee is tasked with defining which goods are “at risk” and therefore broadening the scope of goods that would not be subject to tariffs. However, the default is that goods are “at risk”, unless the Joint Committee agrees otherwise.

The powers taken in the Internal Market Bill are advertised as an “insurance policy” to be used in the event of failure to address the UK’s concerns about the Protocol (which include the state aid provisions as well as exit summary declarations) via agreement within the Joint Committee and/or via a free trade agreement. There are reports that the Government plans to use the forthcoming Finance Bill to give itself similar powers with regard to tariffs.

Leaving aside the legalities and the domestic politics for a moment, why might the UK have decided to initiate a row with Brussels now and pre-empt the Joint Committee process? Of course, we cannot divine the precise motivation. Perhaps no deal is now seen as an inevitable, or at least probable, outcome by some in Government? But the logic of the negotiations offers another plausible rationale.

Implementation of the Northern Ireland Protocol and the wider free trade negotiations are theoretically on distinct tracks. While the Withdrawal Agreement committed both parties to seek to negotiate a free trade agreement in good faith, the Protocol comes into effect at the end of the transition period irrespective of any UK-EU trade agreement.

However, it is clear from the way the negotiations have been structured (at the strong insistence of Brussels) that the trade negotiation and the practical functioning of the Protocol are linked, and this gives the EU leverage over the trade negotiations. Since EU negotiators are not obliged to reach compromises in the Joint Committee on the issues causing the UK concern, they are able to hold the process up in order to apply pressure to the UK in the wider trade negotiation. Just because the EU is within its rights to do so, does not mean it should.

What the Government is doing, for better or worse, is to suggest to the EU that its leverage is not quite as strong as it would like to think. Ultimately, under the Protocol it is UK officials and agencies who will be tasked with enforcing EU rules. Realistically speaking, how plausible is it that the UK would do so zealously in a scenario where not only have the UK and the EU failed to reach a trade agreement, but the EU is also insisting on its maximalist interpretation of the Protocol?

The UK might have made this point more subtly if it had made clear that any measures it takes in the future would be strictly consistent with Article 16 of the Protocol, which allows either party to take unilaterally “appropriate safeguards” if the application of the Protocol leads to “serious economic, societal or environmental difficulties”, and its pre-existing commitments under the Good Friday Agreement.

Equally, it should also be noted that the UK is not declining to implement other important aspects of the Protocol. Indeed, as Michael Gove noted in closing Monday’s debate and Brandon Lewis repeated in committee evidence yesterday morning, the UK is erecting border-inspection posts for sanitary and phytosanitary (SPS) checks on goods entering Northern Ireland, which in an ideal world it would not have to and despite the opposition of the DUP.

Ultimately, what this row demonstrates is that a negotiated settlement on the Protocol and the wider trade issues should be preferable for both sides compared to an acrimonious breakdown in the UK-EU relationship. Indeed, the UK legislation introduced this week would be redundant if compromises can be reached.

A Protocol that is politically sustainable is in the EU’s interests. Equally, a UK-EU trade agreement would not remove all of the irritations thrown up by the Protocol but it could certainly help to smooth over some of the important issues. If there are no tariffs between the UK and the EU, there is less risk to the EU of goods entering the Single Market at a lower tariff. If the EU and UK reach agreements on SPS, like the EU has with New Zealand, then paperwork could be simplified. Equally, establishing a UK domestic subsidy regime, recognised by the EU in a free trade agreement, would help prevent the “reach back” of the state aid provisions in the Protocol that are also of concern to the UK.

Only time will tell if this episode is the beginning of the path to a deal or the point when things turned sour.

Stephen Booth: With four months left to get a Brexit deal, state aid is the major stumbling block for the UK and EU.

3 Sep

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

At this delicate stage, predictions of whether the Brexit negotiations will conclude with a trade agreement or not are bound to be no more than guesswork. With only four months until the end of the Brexit transition period, the chances of a UK-EU trade deal being ready for January 1, 2021 are in fifty-fifty territory.

The EU’s “parallelism” policy – blocking progress in one area as long as there isn’t progress elsewhere – means that Michel Barnier is refusing to discuss British proposals on fishing until the UK moves on other issues, including the most difficult of them all: the EU’s desire to establish a “level playing field” for state aid. It could be argued that Brussels’ insistence on solving the difficult issues first prevents rather than permits progress.

Ultimately, fishing is not likely to be the deal-breaker. The eight EU member states with significant fishing fleets will completely lose access to UK waters if there is no deal at all, so cutting a deal is clearly better than the default, even if it falls well short of the desire for “relative stability” for existing EU quotas.

At the start of the summer there were reasons for optimism about a deal. The EU had signalled a willingness to water down its most ambitious demands on fishing and state aid and the UK had acknowledged the EU’s concerns about the overall structure of the agreement.

However, the mood appears to have turned and the last negotiating round yielded very little, according to the readouts from both sides. This week Jean-Yves Le Drian, the French Foreign Minister, cited the “intransigent and frankly unrealistic attitude” of the UK for the lack of progress. Barnier yesterday gave a speech outlining the continued areas of disagreement. Equally, recent media reports suggest the UK is preparing the ground to walk away from the talks if the stalemate continues much longer.

State aid is the major stumbling block. The impasse would appear to be a bigger problem in theory than in practice. UK orthodoxy has seen past governments refrain from major interventions in the economy. According to the European Commission’s “State aid Scoreboard”, the UK spent state aid equivalent to 0.34 per cent of GDP in 2018, compared to an EU average of 0.76 per cent. Meanwhile, France spent 0.79 per cent, slightly above the EU average, and Germany spent a much larger per cent.

The perception in Brussels is that this UK Government is different. David McAllister, the German MEP who chairs the European Parliament’s Brexit committee and who is close to Angela Merkel, has said the “UK’s interest in subsidising sectors”, such as steel and cars, would have “direct consequences for EU industries and jobs if these goods have ‘duty-free, quota-free’ access to the single market”.

This precise fear of the UK turning to a historically continental strategy of promoting “national champions” may be wide of the mark. Nevertheless, it is clear that some members of this Government view industrial policy and strategic investment as important levers at its disposal.

In this area, the devil will be in the detail. In the post-Covid world, it is difficult to predict what will be required of the state and nimbleness may be critical. Therefore, it is understandable that the UK would not want to find itself bound permanently by treaty into the EU state-aid regime, much of which is “temporarily” suspended in any case due to the pressures of the crisis on national and regional governments.

Little headway appears likely until the UK sets out its blueprint for domestic state subsidy control, which is expected to be later this month. At a minimum, the UK will need to comply with WTO rules, but these fall far short of the requirements of the current EU regime.

WTO rules only apply to goods, while the EU rules apply to both goods and services. The EU rules are prescriptive in what and what is not permitted, whereas, in practice, WTO rules set a high threshold because complainant countries must demonstrate that disputed aid is harmful in its effect.

The EU appears to have walked back from its initial position – clearly unacceptable to the Government – that the UK should continue to be bound by EU state aid rules into the future, with the European Court of Justice (ECJ) having the final say in respect of enforcement. In contrast, the EU’s agreement with Canada simply uses the WTO model as a basis and expands it to services, but there are limited options for enforcement.

A possible compromise would be for the UK to implement domestic legislation, adopting some aspects of the status quo, enforced by an independent UK authority and subject to review by Parliament and the UK courts (not the ECJ). Subject to dispute settlement, set out in the UK-EU trade agreement, the EU (and the UK) would retain the right to adopt countermeasures, such as tariffs, against any state aid deemed to be trade-distorting.

Whether this would be acceptable to the EU remains to be seen. The essential objective from the UK’s perspective is to depart from the EU’s desire to micromanage the UK’s subsidy policy by treaty. However, the UK would need to accept the principle that the EU could deal with the consequences of UK subsidies with countermeasures such as retaliatory tariffs.

A bust up in September or October does not necessarily preclude a deal at the last minute. Weighed against these important, yet technocratic considerations, is the prospect of no agreement at all.

A trade agreement, with no tariffs on UK-EU trade and regulatory cooperation, would better enable the UK to implement the Northern Ireland Protocol in the light-touch way the Government has outlined.

Any disruption attributed to a no deal exit, however transient, would give Keir Starmer ammunition in his continued attack on Government competence. Against this, the Government is in a much stronger position than it was in the autumn of 2019 when renegotiating the Withdrawal Agreement.

Failure would have economic and geopolitical consequences for the EU too. The UK may only be Germany’s seventh largest trade partner, but it ranks second in contributing to Germany’s trade surplus.

It is notable that Tom Tugendhat MP has on this site recently called for the UK to break with EU policy on Iran to adopt an approach closer to the United States. In the event of a breakdown in the trade relationship, Brussels should not be surprised to encounter a more muscularly independent UK in other fields.

We are now approaching the end game. The technical negotiations have probably achieved as much as they can at this stage. It will soon be up to the politicians on both sides of the table to make the big call about whether to make the deal or not.

Stephen Booth: Why Stilton matters to the Japanese trade deal – and how talks can bring the UK closer to the CPTPP.

20 Aug

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

Global trade is the result of billions of individual decisions taken by businesses and consumers, but trade negotiations and agreements are inherently political. They not only require politicians and policymakers to haggle, in painstaking detail, over tariffs, quotas, rules and regulations; trade deals are also tools of foreign policy and in an increasingly unsettled, competitive and multi-polar world they can signify alliances between nations or groups of nations. Outside the EU, the UK’s trade agreements must therefore simultaneously address narrow economic and wider geopolitical interests.

Last week, we learnt that the UK-Japan trade talks had hit a roadblock over UK demands for greater market access for exports of Stilton cheese. The talks still seem likely to conclude successfully but the episode illustrates how seemingly small issues can play a disproportionate role in trade negotiations.

This would be a significant agreement for the UK. Japan is the third largest economy in the world and an increasingly important strategic ally for the UK post-Brexit. A UK-Japan trade deal is also an important step towards the UK’s accession to the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Total UK exports to Japan are already worth around £14 billion, just over half of which are in services, so increasing the market for UK blue cheese exports, which is currently worth around £100,000 in Japan, might appear a strange issue to potentially derail the talks. However, the UK’s demands on Stilton have not simply come out of the blue.

Growth in cheese exports is a recent UK success story, with the Department for International Trade (DIT) noting that the UK made it into the top ten cheese exporters worldwide in 2018, selling £665 million worth, almost half of which was cheddar. Growth in Asian markets in particular has been strong, with demand in China rising from £67,000 in 2013 to £6.5 million in 2018, so it is not unreasonable for the UK to seek greater opportunities for these products in Japan.

More significantly, the UK-Japan deal will replace the EU-Japan deal, which will cease to apply to the UK when the Brexit transition period ends on January 1, 2021. The goal, largely on the insistence of Japan, has been to seek a new agreement, rather than simply copy and paste the existing EU-Japan deal. Inevitably, however, with time tight, these talks have not departed significantly from the EU-Japan precedent with regard to trade in goods (services and data are likely to be the more innovative aspects of a UK-Japan deal).

“Automotive for agriculture” was a major feature of the EU-Japan negotiations and, in this case, Japan has been targeting an immediate removal of UK car tariffs, whereas the EU-Japan agreement only provides for phased reductions over several years. The UK has understandably countered that it cannot make the concession for nothing in return.

Under the EU-Japan deal, Japanese tariffs on hard cheeses such as cheddar would be phased out by 2033. But for blue cheeses, such as Stilton, there will only be duty-free access on an agreed quota. Reportedly, the UK has also targeted a faster reduction to Japanese tariffs on pork. If the UK is successful in increasing the quota or removing tariffs faster, it will have achieved concessions the EU did not, which would have obvious symbolic significance for Brexiteers.

We don’t yet know the full details of the eventual UK-Japan deal but the likely compromise is that neither side will get as much as they would like on cars or agriculture. Ultimately, this kind of tussle is part of the theatre of end-game trade negotiations, where both sides need to be seen by domestic audiences to be fighting hard over every inch. Indeed, given the importance of getting the agricultural lobby onboard in various UK trade negotiations to come, going into bat for British agriculture now is not a bad PR move for the Government.

Some commentators have questioned whether spending political capital on trade agreements is worth the candle since the estimated macroeconomic gains from them are relatively small. DIT estimates the increase to UK GDP from a Japan deal will be 0.07 per cent over the long run, while a deal with the United States would provide up to a 0.16 per cent boost.

Putting aside a valid debate about how accurately existing models capture all the facets of comprehensive modern trade agreements, these types of numbers are not unique to UK FTAs. The EU-Japan deal (the biggest ever completed by the EU) was estimated to boost EU GDP by 0.14 per cent, a figure regarded by independent researchers as “plausible, though at the high end of the range of past estimates”.

Ultimately, for advanced and open economies, trade agreements are rarely macroeconomically significant. They are opportunities to address microeconomic issues and require trade-offs to be made between them. These decisions can be hugely important for individual sectors, which is why they can be politically controversial.

Beyond any quantifiable economic benefits, closer economic and political cooperation via trade agreements presents an opportunity to build coalitions to help shape the course of regional or global developments. Successful conclusion of the Japan agreement and accession to the CPTPP will boost the economic and political relevance of the UK in the Indo-Pacific region, which is likely to host most of the world’s economic growth in the years ahead.

Similarly, Japan’s enthusiasm to reach a deal with the UK is not only about commerce. Foreign Minister Toshimitsu Motegi’s recent trip to London also provided a chance to discuss bilateral co-operation on security and defence, including the UK’s stronger stance towards China on issues such as Huawei and Hong Kong. A trade deal is another way to strengthen strategic bonds.

It is worth keeping this mind as another round of UK-EU talks – in this case to loosen ties – get underway this week. The Remain campaign had wanted the Brexit debate to be about trade above all else, but it was always primarily about politics. All trade agreements are political, but the level of economic and legal integration in the EU means it is as much, if not more, about politics than trade. Remain lost because it was unable, or unwilling, to make the intrinsic case for political union, or at least that it should be tolerated.

Indeed, the most significant macroeconomic consequences of Brexit – leaving the customs union and the single market – flow from the political desire to “take back control” of trade and regulatory policy. Continued dependence on Brussels in these fields without a vote in the EU’s political institutions was always likely to be untenable for the UK in the long-term.

Equally, sovereignty is never absolute. The more integration the UK seeks from trade agreements with the likes of the US and the CPTPP in the future, the more the UK will face difficult political trade-offs over its approaches to various issues from agricultural liberalisation to the regulation of data. Existing trade flows and geographical proximity to the EU will inevitably play some role in how the UK takes these decisions over the long-term.

However, it shouldn’t be a surprise that Brexit means treating the EU much more like any other trade partner. It’s the politics, stupid!

Stephen Booth: The UK’s parallel trade negotiations are of unprecedented ambition

6 Aug

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

Brexit is necessarily reshaping Britain’s trade relationship with the EU. Meanwhile, the UK is simultaneously trying to ensure continuity of, or build upon, existing trade agreements with non-EU countries, such as Japan, and reach entirely new deals with partners including the United States, Australia and New Zealand.

The UK also intends to accede to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which currently includes 11 countries on the Pacific rim including Japan, Australia, New Zealand and Canada.

Predictably, the EU negotiations are set to go down to the wire. Since Boris Johnson became Prime Minister all signs have pointed to a so-called “skinny” free trade agreement (FTA) or none at all. For this Government, Brexit is primarily about establishing sovereign independence, while the EU has sought to underline and assert its role as the dominant regulatory and economic power.

It is no wonder that politics has trumped economics throughout the Brexit process. The EU is a political endeavour pursued by economic means. The €750bn economic recovery plan agreed by EU leaders last month illustrates the extent to which the UK’s preference for confining deeper political and economic integration to the Eurozone faced an uphill struggle had it remained in the bloc. It is impossible to imagine any British government agreeing to such a dramatic expansion of the EU’s financial firepower or the precedent it has set for further moves towards a common EU fiscal policy.

Nevertheless, there are reasons to be cautiously optimistic about a UK-EU deal being reached. The latest negotiating round appeared to mark a breakthrough on governance issues. David Frost’s statement welcomed the EU’s “more pragmatic approach” on the Court of Justice and suggested the UK was ready to consider the EU’s preference for one set of governance arrangements, rather than a suite of separate arrangements.

The remaining sticking points are fishing and state aid. Fishing is not significant in terms of GDP but is politically totemic in the UK and certain EU member states. Therefore, a deal must be left to the last minute. Establishing a “level-playing field” on state aid is proving to be the biggest substantive issue to resolve. The EU is moving away from its request for dynamic alignment and the issue now is what domestic regime the UK will propose.

Negotiations with the US appear to have got off to a good start. However, both sides accept that a deal cannot now be reached until after the US elections in November. Therefore, the most difficult areas, such as agriculture, will not be addressed until later in the year at the earliest.

The most pressing issue Liz Truss, the Trade Secretary, discussed on her trip to Washington earlier this week is the removal of US retaliatory tariffs as part of the ongoing Airbus/Boeing dispute, which sits outside the FTA negotiations. The US has levied tariffs on whisky and further tariffs could be extended to gin and other products if the dispute is not resolved.

The prospect of delay with the US has made UK engagement with the Asia-Pacific countries all the more important and pushed accession to the CPTPP up the agenda. Toshimitsu Motegi, the Japanese Foreign Minister, is in London this week in an attempt to finalise talks on the UK-Japan FTA.

The Japan deal is an important stepping stone towards CPTPP accession, since Japan is the biggest economy within the agreement. The Japan negotiations are working to a condensed timetable because the parties are aiming to ensure a successor to the EU-Japan FTA is in place before the end of the Brexit transition period on January 1, 2021.

The time constraints mean that a UK-Japan deal will be largely modelled on the EU precedent. However, media reports have suggested Japan might be prepared to accelerate tariff cuts for British pork, and Japan is seeking the immediate elimination of car tariffs. The major opportunities for innovation in UK-Japan trade relations is on regulatory cooperation in the services and digital sectors. The FTA can provide the architecture but domestic regulators will need to work together to realise long-term gains.

Another reason why the CPTPP may become increasingly important is that Joe Biden has indicated that he might be prepared to (re-)join the CPTPP if his presidential bid is successful. President Trump pulled out of its previous iteration, the Trans-Pacific Partnership, spearheaded by President Obama. However, this could be a slow process, since Biden’s campaign has also emphasised that his primary focus will be on domestic investment and he has previously suggested he would seek to renegotiate CPTPP if the US were to re-join.

Some have suggested that engaging with the US via the CPTPP rather than bilaterally would defuse some of the thorniest issues, such as agricultural standards on chlorine-washed chicken or hormone-treated beef. However, the reality is that while the optics might be different, the UK will face many of the same substantive trade-offs whoever is president.

The CPTPP rulebook is much closer to the US approach – indeed the World Trade Organisation’s (WTO) approach – to regulating agriculture than we have inherited from the EU. Blanket bans on agricultural imports, not supported by scientific evidence, will not only be viewed as a protectionist move by the US but potentially by other members of the CPTPP.

The question of agricultural liberalisation cannot be ducked for much longer. Equally, as we noted in the recent Policy Exchange paper, The art of the UK-US trade deal, the issue need not be as stark as some of the hyperbole has suggested. The starting points should be to promote consumer choice, while ensuring consumer safety. The UK already has the right, under WTO rules, to prohibit the import of unsafe food. Labelling, either via domestic legislation or voluntary certifications, can be used to inform consumers of food production methods.

The UK’s domestic and international policies must also work in tandem. UK tariff liberalisation can be phased in gradually, giving UK producers time to adjust to new trading conditions. This would reflect the gradual introduction of the UK’s Environmental Land Management scheme, replacing the EU’s Common Agricultural Policy. Meanwhile, it should also be remembered that agricultural liberalisation is an export opportunity for high quality UK products, particularly beef and lamb.

In today’s world, trade agreements do not merely set tariffs or regulate cross-border investment. For medium-sized powers in particular, they are important building blocks for wider political relationships and alliances. However, in order to unlock these relationships, the UK must be willing to live up to its rhetoric on free trade.

Stephen Booth: Joining the CPTPP is how this country can show it’s serious about being “Global Britain”

9 Jul

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

Last week, the Prime Minister announced that in the wake of the pandemic the Government will “double down on levelling up”. It is clear that the domestic political agenda will be driven by this overriding social and economic objective, not to mention electoral imperative, as the country emerges from the Covid-19 crisis.

However, the UK also needs a narrative for its new place in the world, which promotes our interests and frames how we would like to be viewed by others. The question is not so much what Global Britain should “stand for”: the rules-based international system, open markets, defence of human rights and the rule of law. The question is by what means does the UK continue to further its interests and values in the new post-Brexit, post-corona world and how best do we resource ourselves to do so.

Ultimately, medium-sized powers will struggle to achieve their global ambitions on their own: the UK must invest in deepening its networks of alliances and building new relationships to form effective coalitions. And in that regard, next year will be an important one for UK diplomacy.

The UK’s exit from the Brexit transition period on January 1, 2021 will coincide with the UK taking on the annual presidency of the G7 and hosting the delayed UN climate summit, COP26. The UK has placed itself at the forefront of the ambition to build a “greener and more resilient global economy.” Meanwhile, the pandemic has also delayed to next year the World Trade Organisation (WTO) ministerial conference, the organisation’s topmost decision-making body that usually meets every two years.

Trade is the area of UK international engagement most transformed by Brexit, since 2021 marks the point at which full responsibility for trade policy returns to the UK. Brexit also emphasises the need for the UK to recalibrate its relationships with the world’s three major economic and geopolitical hubs – North America, Asia-Pacific, and Europe.

The pandemic has resulted in a steep decline in global trade when protectionism is already on the rise, fuelled by increasing US-China tensions that look set to continue. The current crisis has understandably prompted calls for greater national resilience.

Strategic stockpiling for a limited array of products may be part of the solution. But the UK’s wider interest is served by counting on security and diversity of supply chains. The UK must also seek to influence the terms of trade in services, data and the new technologies, where our comparative advantage increasingly lies. This requires international rules and willing allies to uphold them.

Multilateral efforts at the WTO would be best, but these have faltered in recent years. The Government is therefore embarking on an ambitious strategy of concluding free trade agreements covering 80 per cent of UK trade within the next three years.

As we know, negotiations with the European Union are in a critical phase and while the prospect of a deal before the end of the year looks more promising, it is not guaranteed. Talks with the US have begun and any conclusion will now have to wait until after the Presidential election later this year. The UK may be able to make swifter progress with Asia-Pacific economies.

The top priority is securing a successor agreement with Japan, as the existing EU-Japan deal will cease to apply to the UK in January. Japan is keen to move quickly on a bespoke agreement. The UK has also officially opened negotiations with Australia and New Zealand.

All of these agreements, and a Japan deal in particular, would provide trade benefits in their own right but the bigger strategic prize is UK accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The CPTPP is the third largest trade area in the world and has been signed by 11 countries around the Pacific rim, including Japan, Canada, Australia, New Zealand and Singapore.

Last week, Policy Exchange held a webinar with a stellar cast to discuss the UK’s accession to CPTPP. It was surely significant that Liz Truss, Trade Secretary in this “Get Brexit Done” government, and Lord Mandelson, an arch-Remainer, both stressed the strategic value of the UK joining.

Truss made it clear that she sees CPTPP as “part of a broader strategy of the UK becoming a central hub in a network of free trade agreements, a networked Britain if you like rather than a fortress Britain.” Lord Mandelson emphasised that the process may take time but “the UK aligning itself with a Pacific Rim agenda of this kind is a good thing.”

Chan Chun Sing, the current Singaporean Trade Minister, stressed how keen he would be to see the UK join, while Tony Abbott, the former Australian Prime Minister, noted that joining “would be the best possible sign that Britain really does want to be a global country again.”

Joining CPTPP will not be without its challenges. Stephen Harper, the former Canadian Prime Minister, noted that “[j]oining a plurilateral trade agreement is not frankly going to be a matter of a lot of negotiation. The others are largely going to have a take it or leave it approach.” He added, “You can seek tailor-made provisions, but that will add time to what will be a long process”.

Nevertheless, the prize would be hugely strategically significant. Grouping together with like-minded nations would provide the UK with a new platform to promote global trade liberalisation and multilateral reform.

It would enable the UK to join others in addressing China’s global rise from a greater position of collective strength. Indeed, this was an original objective of the project. Although potentially a long process, UK accession might help to convince the US to join the agreement, following President Trump’s decision to pull out of the precursor Trans-Pacific Partnership.

As Harper noted, Britain joining would offer some significant advantages to the existing members. “This would go from being a purely regional pact to now being the beginning of an alternative global order,” he said.

It might be tempting to view “Global Britain” as a distraction or diversion from pressing domestic issues. However, it is a necessary compliment to levelling up. Global Britain does not just mean reaching out to other countries, it means enabling more of the country to benefit from and compete in a globalised world. Moving forward with the CPTPP would demonstrate that the UK is serious about furthering both of these goals.

Stephen Booth: While UK-EU talks gather momentum, Britain should continue to diversify its trading relationships.

25 Jun

Stephen Booth is Head of the Britain in the World Project at Policy Exchange.

There are signs that the UK-EU negotiations on the future relationship may be gathering some momentum.

Last week’s stock take meeting between the Prime Minister and Ursula von der Leyen and Charles Michel, the European Commission and European Council Presidents, respectively, confirmed there will be no UK request to extend the transition period beyond December 31 this year.

Both sides agreed to inject fresh impetus into the negotiating process, with talks set to intensify in July, August and September. This marks the make-or-break period to reach a trade agreement and new arrangements in other areas such as cooperation on policing and security.

In my previous column, I argued that the nature of the impasse – essentially whether the EU is prepared to cut a deal under which the UK would be free to leave Brussels’ regulatory orbit – means that it is incumbent upon the EU to move on the key sticking points.

These are fishing and the demand for ongoing UK alignment with EU law on the “level playing field”, particularly with regard to state aid. Important UK-EU differences remain but there are encouraging signs that this is now happening.

Following her meeting with Boris Johnson, von der Leyen signalled in a speech to the European Parliament that the EU was prepared to compromise without, of course, putting into question “our principles and the integrity of our Union”.

In her speech, von der Leyen made no mention of the EU’s initial demand to maintain EU boats’ access to UK waters on the basis of the status quo. “No one questions the UK’s sovereignty on its own waters,” she said. “We ask for predictability and guarantees for our fishermen and women, who have been sailing in those waters for decades.”

Neither did von der Leyen mention the demand for ongoing alignment with EU law on state aid or a role for the Court of Justice (ECJ) in overseeing the level playing field. “It should be a shared interest for the EU and the UK to never slide backwards, and always advance together towards higher standards,” she said.

Notably, she limited her remarks on the role of the ECJ to the part it should play “where it matters” in the area of police and judicial cooperation, rather than in the wider trade deal. If the UK wishes to retain access to EU crime and policing databases, these are underpinned by EU law and there is no escaping that the Court has the role of interpreting how law applies on the EU side.

Though, as the UK has pointed out, the EU has consistently agreed treaties with non-EU countries on policing and judicial matters without requiring the ECJ to settle disputes between the two parties. Equally, the Government has said it will not agree to the extraordinary EU demand for treaty provisions that would oblige the UK to maintain its existing implementation of the European Convention of Human Rights in domestic law.

Meanwhile, there is speculation that a compromise on the level playing field is being explored, under which Britain would assert the right to deviate from the EU rules that it will inherit after the transition period expires. And, in return, the EU would have the ability to apply tariffs on British exports if regulatory divergence amounts to unfair competition.

Neither side has formally adopted the idea yet, but there are reasons to suggest it might have legs. The UK would regain regulatory independence (and the consequences), while the EU would retain the ability to control access to its market in instances where it perceived the UK was lowering standards.

Brussels would need to give up on its desire to export its regulatory model to the UK indefinitely by treaty and the UK would need to compromise on its current position that any commitments on subsides, labour and environmental rights should be exempt from dispute resolution.

It is also an idea hiding in plain sight. The EU’s draft UK trade agreement text already proposes so-called “temporary remedies” and “interim measures” in the event of non-compliance with treaty commitments.

Such a model would not be without difficulties. The UK and EU would still need to agree on the relevant benchmark for identifying a breach of level playing field commitments. The UK could insist that evidence should be required to show that the effects of divergence are harmful to open and fair competition. The EU could continue to insist that the letter of EU law is the benchmark.

Equally, the prospect of the EU using tariffs or market restrictions as a political tool to secure leverage over the UK in other areas of the agreement cannot be discounted. This has been a feature of the EU-Swiss relationship in recent years. However, this needs to be weighed against the prospect of UK-EU trade facing the full panoply of tariffs on day one, if talks break down completely and trade reverts to World Trade Organisation terms.

Critics have noted that rather than providing for managed divergence, such a mechanism would create perpetual conflict. But, ultimately, while it would be nice to avoid it, the likely reality is that the UK and the EU will face disputes in the future, just as they have in the past. This is a feature, rather than a bug, of an independent UK. Some disputes may be easily resolvable through treaty dispute mechanisms, others will require political resolution.

One way for the UK to insure itself in the event of such disputes is to diversify its trading relationships outside of the EU. And negotiations with the UK’s priority non-EU markets, the US, Australia, New Zealand and Japan, are also intensifying over the coming months.

This week, Hiroshi Matsuura, Japan’s chief trade negotiator, called for a UK-Japan deal to be secured in just six weeks to be ready for ratification in the Japanese parliament. The challenge is to replace the existing EU-Japan agreement, which is due to expire at the end of the Brexit transition period, and Japan is insisting on a bespoke UK deal rather than a simple rollover of the existing EU agreement.

This may mean that the deal is less ambitious than the UK would like on agricultural tariffs but Japan and the UK could go further than the EU was prepared to in areas of mutual interest such as services and digital.

Unlike the Japanese deal, the talks with the US, Australia and New Zealand are about fresh deals and the talks are expected to run into next year. UK accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership is next on the agenda. India would be another potential candidate for the future.

With this week marking the fourth anniversary of the EU referendum, the contours of the UK’s international trade policy are beginning to take shape.