Unlikely to be better than those we have through EU membership

David Roberts writes that being in the EU does not as the Brexiters seem to believe somehow prevent us trading with the rest of the world. Indeed, the EU's extensive network of free trade agreements makes it easier for us to do so. Brexit Britain will struggle to maintain those preferential agreements. He shows that there is no easy route to obtaining good preferential trading agreements with the two major economies where the EU does not have one: China and the USA.

Brexit optimists believe that leaving the EU will in some way assist the UK to develop its exports to other parts of the world so as to more than replace the exports it will lose to the EU, which will fall either because of a “no deal” Brexit  or because the form of any trade agreement that is eventually reached between the UK and the EU is less close than the one it has as a full EU member.

But being a member of the EU in no way “shackles” the UK to trading only with the EU.  On the contrary, by leaving the EU the UK will lose the preferential access it currently has to the markets of a large number of third countries through the EU’s extensive and growing network of Free Trade Agreements. This covers the great majority of its neighbours in Europe and the Mediterranean, sub Saharan Africa, the major Asian markets of Japan and Korea, the central American and Andean countries and Chile in Latin America and Mexico and Canada and North America.  Added to this, the Commission has now reached agreement in principle with the Mercosur group of Latin American countries, which includes Brazil and Argentina.   And negotiations are at an advanced stage with Indonesia, Australia and New Zealand. 

The UK will, of course, try to persuade the countries with whom the EU has trade agreements to sign continuation agreements, so that it will continue to enjoy the access it currently enjoys in these markets but it Is already clear that this will be an uphill task.  This makes it all the more important for the UK to obtain agreements with major countries with whom the EU does not have trade agreements. This in essence means China and the US.

The EU does not have a trade agreement in goods with China, nor is it currently seeking one, but there are active negotiations on an EU/China agreement on investment, which appear to be progressing well.  The major obstacle to an agreement on trade in goods is that China has not progressed towards becoming a market economy in the way that was envisaged when it was admitted to the WTO.  This concern applies just as much to the UK as to the EU.  Also, it isn’t possible to entirely disassociate trade talks from political and security concerns over issues like human rights in China, the “one nation, two systems” principle for Hong Kong and Chinese ambitions in the South China sea.  So, although the UK will certainly continue to try to improve its trading position in the Chinese market full trade agreement in the foreseeable future looks improbable.

As regards the US, Mr Bolton has said that the US would be ready to make a series of sectoral agreements with the UK so that the easiest sector, industrial goods, could be negotiated and applied quickly, leaving more complex subjects like agricultural trade (including, presumably, food safety rules) and financial services for later negotiation. There are questions about this that we will wish to ponder.  First, can the US Administration deliver?  Trade Agreements are negotiated by the administration but require the approval before they can come into force and the republicans do not have a majority in the House of Representatives?  Second, would this approach be compatible with the rules of the WTO, Article XXIV of which requires Trade Agreements to cover “substantially all trade”.   Article XXIV 5 (b) of the WTO does permit interim trade agreements or Customs Unions but Article XXIV 5(c) requires such agreements to include a plan or schedule to become a Free trade Agreement or Customs union within a reach length of time. The current US Administration hasn’t shown much sign of worrying about WTO rules in its actions on steel and aluminium and its trade war with China but the UK has hitherto been a strong defender of the rules based system of international trade which the WTO represents. Third, what strings may be attached to the deal, either at the time it is negotiated or in the future?  The threat the US made to impose 25% tariffs on Mexico, one of its partners in the NAFTA agreement, in order to put pressure on it to meet US demands on the movement of people can be seen as a warning in this regard.

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