A Brexit trade deal that takes back control

30 Dec

Brexit is indeed a film, a developing tale over time, not a photo – a state of affairs that will be the same in year ten as it was on day one.  So a question that arises about the trade deal which the UK and EU have agreed is whether that story is set to be what the 52 per cent voted for and the 48 per cent can live with.

Once in that referendum, a second time during the Conservative leadership election, and a third time in last year’s general election, Boris Johnson grasped that Brexit would happen in name only if Britain did not take back control – thus satisfying neither constituency.  The film would show no real change and the crowd would want its money back.

Or, as the Conservative Manifesto put it, echoing the Vote Leave slogan: “the future relationship will be one that allows us to take back control of our laws”.  It is not yet a week since the 1246-page agreement, plus five supporting documents, was published.  And MPs will have less than a day to consider the Bill that proposes to put the treaty arising from the agreement into domestic law.

So we are cautious about delivering a final verdict.  But it does seem that Boris Johnson, David Frost, Michael Gove, Oliver Lewis and the Government’s team truly have ensured that this deal indeed takes back control, because “the meanings of the provisions are autonomous under international law and do not reference EU law or jurisprudence of the European Court of Justice”.

“Nor does the Agreement provide a role for the ECJ (except for EU programmes which the UK chooses to opt into) and the EU approach of provisions having direct effect is excluded”.  Such is the verdict of the European Research Group’s Legal Advisory Committee.  This is the heart of the matter and also the heart of Brexit.

This site believes that our nation’s prosperity is not determined by tariff and non-tariff barriers elsewhere, but by the quality of our workforce, the condition of our schools, the competitiveness of our tax system, the quality of business, the state of our infrastructure and, above all, by a culture whose features include strong families, the rule of law, a sense of fairness and a flourishing civil society.

The economic case for Brexit has always been that it potentially allows for “levelling up” – that’s to say, an rebalanced economy based less on the greater South-East, finance, high immigration, an over-valued currency, and parts of the rest of country in near-permanent recession.  Leaving the EU excludes none of the factors that we list above, and which are indispensable to such a programme.

Nonetheless, this Agreement really does seem to recognise the primacy of politics above economics, both for the UK and the EU.  For the UK, that means escaping the ECJ, because without doing so we cannot take back control; for the EU, it means preserving the integrity of its Internal Market, which is part of its wider political framework.

As our columnist Stephen Booth put it on this site yesterday, there is a price to pay for both parties.  For the EU, it is losing one of its biggest contributors, and an important part of its whole.  For the UK, it is less easy access to the markets of EU member states.  The reason why we believed that a deal was on balance likely is that it seemed that this trade-off could be acceptable to both parties.

If a Soft Brexit is EEA membership, and a Hard Brexit is No Deal, this Agreement leans towards the latter end of the scale, whereas Theresa May’s Chequers plan was nearer the former.  As irony would have it, it was May, not Johnson, who in this case wanted to have her cake and eat it – in other words, both to leave the EU and stay close to the Internal Market.

But for all the new non-tariff barriers, there will be no tariff ones – at least, if the two parties can’t settle any future differences through the arbitration mechanisms.  That suits the UK well and the EU better, given its trade surplus in manufactures.  Remainer diehards will go on to say that we are an economic loser under this deal; leaver ones that we are not always political gainers – pointing to the fishing element.

However, those who declare Britain an economic loser are not necessarily right in the long-term, or always in the short.  For example, while the downside of not having a services deal as part of the Agreement will be more complicated access, the upside is not outsourcing regulation of those services to the EU – which that former Remainer, Mark Carney, warned against earlier this year.

Those who say that the fishing settlement will disappoint much of the fishing industry have a point.  Nonetheless, the adjustment period ends after five and a half years, and Britain is now an independent coastal state.  If voters really want a better deal on fish traded off for a worse one on, say, cars, they can always vote for parties who commit themselves to such a programme.

The deal covers co-operation as well as trade but, rather than probe all its strengths and weaknesses, we want instead to make a point not so much about this Agreement as the one that preceded it – the Prime Minister’s “oven-ready deal”: the Withdrawal Agreement.  The political problems with the Brexit settlement overall lie not as far as we can see with this trade deal but its predecessor.

For it was the Withdrawal Agreement which continued the journey which the Anglo-Irish Agreement began – that’s to say, putting a greater distance between Northern Ireland and the rest of the United Kingdom.  In a nutshell, Johnson’s version was better for Great Britain than May’s, but worse for Northern Ireland, and so problematic for the Union as a whole.

So while this Trade Agreement takes back control, the Withdrawal Agreement did not entirely do so, and there is the threat of leakage from ECJ jurisdiction in Northern Ireland to the rest of the United Kingdom.  But that is done and dusted, for better or worse.  The Withdrawal Agreement was the foundation of the Conservative Manifesto.  An election was won on it.  Tory MPs including the ERG voted for it.

The arrangements for Parliamentary scrutiny are so inadequate – the Commons will have only this morning to consider the Bill – that we can’t encourage anyone to vote for it: there may be gremlins in the text of the Treaty that have evaded even Bill Cash and his colleagues.  But the big picture really does appear to be one of a deal that does what it claims.

A slice of that 48 per cent will fight on for a cause that has lost.  But more of it has moved on.  And most of the 52 will be content, if not profoundly satisfied.  Part Two of Brexit is done and the film is rolling.  The odds seemed to be against Boris Johnson getting a Withdrawal Agreement settled, but he got one.  They were against him gaining a general election.  He did it, and won huge.

Once again, he has pulled it off.  Whatever you think of this new Agreement, that’s a personal coup.  He has managed the politics of the EU issue where Theresa May, David Cameron, John Major and even Margaret Thatcher failed.  Churchill walked with destiny.  Today, the Prime Minister, in his serio-comic way, is winking at it.

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.