Stephen Booth: As the Brexit deadline nears, the UK is strong on fishing rights – but Frost indicates movement on state aid.

15 Oct

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.

Roderick Crawford: Almost halfway through July, there is still no sign that a trade deal with the EU is possible – never mind probable.

13 Jul

Roderick Crawford works on conflict resolution in countries such as Yemen, South Sudan and Iraq, and on Brexit-related matters. He is a former editor of Parliamentary Brief.

We are approaching the moment of truth in the negotiations on the future relationship. In February, in the command paper on its approach to these negotiations, the Government set out the high-level meeting in June as the point when it hoped the broad outlines of a deal would be clear.

Covid-19 intervened. But at that meeting last month, the Prime Minister said he saw no reason why ‘a deal’ could not be done in July, giving businesses certainty about the post-transition regime. Accelerated talks were begun to break the deadlock.

Almost halfway through July, there is still no sign that a deal is possible – never mind probable. At the end of the restricted talks earlier this month, and again after the London discussions ended last Thursday, Michel Barnier reported that ‘serious divergences remain’.

David Frost’s assessment at the end of the third round of talks in mid-May was that ‘we made very little progress towards agreement on the most significant outstanding issues between us’; at the close of the fourth round in early June he reported that ‘progress remained limited’; in July, hhe stated that the talks ‘underlined the significant differences that still remain between us on a number of important issues’ — he made no statement at all at the end of last week’s discussions.

To see how great these differences are you only need to look at the draft agreements published in March by both parties. These set out very different visions of the future relationship; the EU set out a draft for a New Partnership with the United Kingdom; the UK set out a draft text for a Comprehensive Free Trade Agreement with supplementary agreements on other matters — justice, fishing, etc, but strictly no institutional framework for foreign policy and defence.

The partnership as set out by the EU is not one between equals: its conditional values, its governance structure, the role for EU rules and the Court of Justice, as well as the assumptions and tone it takes across the draft document represents an attempt to hold the UK within an institutional framework set by Brussels, for Brussels. The EU is, perhaps, blind to some of this.

The UK just will not accept such a partnership – one that it does not want cannot be forced on the UK. Yet this remains a point of significant difference between the parties. The EU has scope in the Political Declaration to opt for alternative institutional arrangements along lines the UK could accept at little cost to itself.

So on to the comprehensive free trade agreement that is the core of the future relationship. The two parties are at odds on the level playing field, and their red lines clash head on. The EU insists there can be no agreement on a free trade agreement without robust guarantees on a level playing field – the language of the political declaration; it has been clear about this since the European Council guidelines on these current negotiations were set out in March 2018.

The UK insists that the UK must have control over its own laws – that was the point of Brexit – and that it cannot be required to remain aligned with EU law; such a requirement, after all, is not usual in free trade agreements.

The question is: can these apparently irreconcilable positions be reconciled? They might be. Could limited but core ‘common high standards’ – the wording in the political declaration – be agreed, that provide sufficient robustness to the level playing field for the EU but which do not significantly restrict the UK’s freedom to diverge from standards originally set out in EU regulations?

These core ‘common standards’ could be extracted from and entirely de-coupled from EU law – and thus ensure there is no role for the Court of Justice – and be included in an annex of the FTA; they should only include standards that significantly affect competition, a small subset of the regulations applying in any area of the level playing field.

Robust guarantees do not need to be comprehensive. They can provide the pillars of the level playing field structure with the rest filled in by commitments along other lines. These could be similar to those suggested by the UK, including on taxation as it relates to competition, or by other arrangements like equivalence or mutual recognition. This would be a mixed economy, bridging the gap between UK and EU positions with both parties making compromises.

As to enforcement, an agreed set of core standards could be backed up with a dispute mechanism operating within the agreement – again, no role for the Court of Justice; this could be complemented by unilateral rights to action to guard against substantial undermining of standards by one party.

If the next round of negotiations included a focus on identifying such a set of core standards, to provide sufficient robustness for the EU while not limiting UK political freedom in any meaningful way, a satisfactory solution might present itself to both parties.

A fishing agreement would still need to be put in place. Perhaps flexibility over annual quotas would help – do we really want to negotiate annually? We are not Norway – fish is not that important to us economically nor does it affect anywhere near so many of our communities. A better deal for UK fishermen, a better deal for the marine environment and an improved basis for the policy there should be, but regard for neighbouring fishing communities too.

We are clearly a long way from bridging the differences between the two parties at present; without concessions from both sides, there won’t be an agreement. For many, WTO terms are good enough for trade and the compromises required for a deal are politically unacceptable.

However, the Government has said we can get a deal. If we can agree the mutual compromises on the level playing field to secure a workable comprehensive free trade agreement, re-set the spirit of the agreement as one between sovereign equals (which is what is required for it to work), and agree an architecture for the FTA and supplementary agreements along lines preferred by the UK, then we would have a deal truly worth making. Time is, however, running out.