The meaning of Brexit is yet to become clear. But if Brexit implies leaving the customs union of the European Union, Thomas Sampson looks at what it might mean for the UK to pursue its own trade policy for the first time since joining the European Community in 1973.
An independent trade policy presents both challenges and opportunities. The most important challenge would be to reach a new trade agreement with the European Union. The UK has yet to decide what relationship with the EU it wants following Brexit. But whatever it chooses, the government’s ability to achieve its goals will depend on the success of its negotiating strategy.
What strategy should the UK adopt to secure its objectives in future trade negotiations? A successful strategy must be grounded in a clear understanding of why countries negotiate trade agreements and how negotiations are conducted.
When a country sets trade policy unilaterally, it does not account for how its choices affect the rest of the world. But because countries are interdependent, the effects of trade policy do not stop at national borders. In the language of economics, trade policy generates international ‘externalities’. And frequently these externalities lead to ‘beggar-my-neighbour’ effects, which make other countries worse off by lowering their terms of trade or reducing inward investment.
By negotiating trade agreements, countries can internalise the externalities resulting from international interdependencies, avoid damaging trade wars and improve welfare. Importantly, this is true regardless of whether governments’ policy goals are motivated by the desire to maximise economic output, the wish to protect particular groups of workers and firms, or the pursuit of other social objectives. Whenever policies have international spillovers that governments fail to internalise, there is scope for international agreements to make all countries better off.
To reap the gains from international coordination, trade agreements require governments to give up unilateral control over some policies in exchange for other countries doing the same. For example, members of the World Trade Organisation (WTO) give up the right to use import quotas and production subsidies and agree limits on the tariffs that each country can charge on imports from other members.
Understanding the purpose of trade agreements has immediate implications for how trade negotiations are conducted. Trade negotiations are not about countries identifying a common objective and working together to achieve it. They are not a cooperative endeavour.
Instead, trade negotiations are a bargain between countries with competing objectives. Each country must give up something it values in order to obtain concessions from other countries. The realisation that negotiations are a bargaining process between countries with conflicting goals suggests four principles the UK should adopt to guide its trade negotiation strategy:
1. You get what you give
To reap the benefits of trade agreements, the UK must be willing to give its trading partners something they value. In general, the more countries are willing to concede and the more policy control they give up, the bigger are the potential gains from reaching an agreement.
An important question that the UK faces is what it is willing to give the EU in return for the EU allowing UK services firms to participate in the Single Market. Unless the UK makes a sufficiently attractive offer, the EU will take the opportunity Brexit presents to impose new barriers on UK services exports.
The fact that free trade agreements are based on mutual concessions also makes unilateral tariff liberalisation a less attractive policy because it would involve the UK giving away a potentially important bargaining chip.
2. Where negotiations start from matters
The outcome of any bargaining game depends on where negotiations start from. Trade agreements are no exception. The policies each country will adopt if no agreement is reached provide a reference point – or ‘threat point’ – for the negotiations. Countries make concessions starting from this reference point.
It is unclear whether the reference point for UK-EU negotiations would be the status quo where the UK is a member of the Single Market or trade under WTO rules. Starting from the status quo, the UK would have to negotiate the right to impose restrictions on immigration from the EU. Starting from WTO rules, the UK would not need to negotiate immigration restrictions, but would need to negotiate access to the Single Market.
Before any trade negotiations between the UK and the EU take place, there will have to be an agreement on what the reference point is. The UK government should seek a reference point that helps it to achieve its post-Brexit objectives.
3. Bargain from a position of power
Bargaining power affects the outcome of trade negotiations. Countries that have little bargaining power are less likely to achieve their objectives. Unfortunately, the UK is starting from a weaker position than the EU. Because UK-EU trade accounts for a much larger share of the UK’s economy than the EU’s economy, the UK needs a deal more than the EU does.
The weakness of the UK’s position is exacerbated by the two-year time limit on exit negotiations under Article 50. As the two-year limit approaches, the UK will become increasingly desperate to obtain an agreement. There are two steps that the UK should take to improve its bargaining position. First, delay triggering Article 50 until the government has decided its post-Brexit objectives and EU leaders are ready to start negotiations. Theresa May’s commitment to invoke Article 50 in early 2017 before the French and German elections weakens the UK’s position because the EU will not be able to participate in meaningful negotiations until after these elections.
Second, the UK’s immediate objective after invoking Article 50 should be to neutralise the two-year time limit by agreeing a transition arrangement to govern UK-EU trade relations during the period between when the UK leaves the EU and when a longer-term agreement is concluded. Returning to the principle that you only get what you give, the UK needs to decide what it is willing to offer the EU in return for a transition agreement.
4. Invest in negotiating capacity
Trade agreements involve many simultaneous policy changes making it difficult to analyse their economic consequences. Smart negotiators use this uncertainty to their advantage by ensuring they are better informed than their opponents about who stands to gain and who stands to lose from any policy proposal.
Having not participated in trade negotiations for the past 40 years, the UK currently has very little negotiating capacity. To become a smart negotiator, the UK needs to invest heavily in four areas of expertise: trade lawyers to conduct negotiations; diplomats to provide information on the objectives and strategies of its negotiating partners; business intelligence to understand how firms will be affected by different policies; and trade economists to quantify the welfare effects of proposed trade agreements.
Since the UK joined the EU in 1973, trade policy has played a minor role in UK politics. Now it’s back. Much has and will continue to be written about what the objectives of post-Brexit UK trade policy should be. But whether the UK is able to achieve the objectives it eventually chooses, will depend on the success of its negotiating strategy. By adopting these four principles the government can ensure it makes the best of a bad hand.
Please read our comments policy before commenting.
Note: This article is a summary of the CEP Analysis ‘Four Principles for the UK’s Brexit Trade Negotiations’ which is available to download here. The Centre for Economic Performance (CEP) is a politically independent Research Centre at the London School of Economics and Political Science. The article appeared at our sister site, British Politics and Policy at LSE. It gives the views of the author, and not the position of EUROPP – European Politics and Policy, nor of the London School of Economics. Featured image credit: World Trade Organization (CC-BY-SA-2.0)
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Thomas Sampson – LSE
Thomas Sampson joined the Centre for Economic Performance at the LSE in 2011. He is an Assistant Professor in the Department of Economics at LSE. Thomas works on international trade, growth and development. His research analyzes how different types of firms and workers are affected by globalisation.
The Author’s four sub-headings are fair – however many conclusions are highly unlikely – because of some mistaken assumptions.
1. You get what you give
Trade liberalisation is not a “less attractive policy”.
Aiming for the status quo for cross-border EU trade is easier for all concerned.
The UK’s position can be: “if the EU wants to impose tariffs, then the UK Government is going to receive more money than vice-versa – but we don’t want to do that”
All the UK wants is to get out of the Single Market (as defined by the EU) with all its extra rules affecting purely domestic businesses – and “Free movement” interpreted as “right to settle”.
2. Where negotiations start from matters
“It is unclear whether the reference point for UK-EU negotiations would be the status quo where the UK is a member of the Single Market or trade under WTO rules. “
Why is it unclear?
Messages from the Referendum were:
A. Take back control
a) of law-making in general
b) off immigration in particular
B. Carry on co-operating with EU countries – esp. trade.
C. Make new trading arrangements with the RoW.
So with far more Rules about trade, the UK should be aiming to start from the status quo.
The exceptions are:
– “free movement” a.k.a. “right to settle” and
– the EU’s competence to make laws through QMV.
So the aim is to separate these non-trade elements from the EU’s “Single Market”.
This is not a difficult concept – although EU integrationists may try to frustrate.
3. Bargain from a position of power
“Unfortunately, the UK is starting from a weaker position than the EU. Because UK-EU trade accounts for a much larger share of the UK’s economy than the EU’s economy,…”
Oh dear ! This is one of those nonsense arguments that Remainers used to make – and betray either a lack of understanding, unthinking acceptance – or a deliberate desire to mislead.
German exports about £5 billion per month to the UK with about £3 billion going the other way. France exports about £3 billion to the UK with about £2 billion the other way.
The same direction of balance applies to the other largest partners.
So ALL major countries are in a slightly weaker position than the UK.
Only a handful of very small countries have the advantage – e.g Malta.
Somehow I think the Maltese will deal fairly with us !
“As the two-year limit approaches, the UK will become increasingly desperate to obtain an agreement. “
Why ?
The UK has the advantage in trade, in security intelligence and many other areas of mutual interest.
Most national governments recognise this – even if EU officials refuse to.
4. Invest in negotiating capacity
There might be something in this…..
There are plenty of knowledgable people around. Some have been advising the Bruges Group for 25 years – and would probably help out for tea and sandwiches !
Unfortunately the Government procures very badly and expensively.
“Aiming for the status quo for cross-border EU trade is easier for all concerned… All the UK wants is to get out of the Single Market (as defined by the EU) with all its extra rules affecting purely domestic businesses – and “Free movement” interpreted as “right to settle”.
This is incoherent. You’ve said we should keep the status quo for cross-border trade then advocated leaving the single market. Leaving the single market is not keeping the status quo for cross-border trade. If we aren’t implementing single market regulations (and implement our own regulations instead) then we’ll be creating barriers between our market place and the single market. That’s the whole point in the regulations in the first place – to have a European regulation that allows businesses to trade freely under one set of rules instead of consulting 28 different sets of rules.
You’ve then gone on to helpfully explain to us all that EU laws made through QMV are “non-trade laws” without seeming to realise that single market rules are about facilitating trade. Honestly, where is anyone even supposed to begin addressing this kind of argument? You don’t seem to have bothered acquainting yourself with what the single market is and what EU laws are for before deciding we need to eradicate both – and yet your comment is still littered with countless barbs about other people misunderstanding the subject.
Mark,
What is incoherent about keeping the status quo for cross-border trade – and leaving the Single Market?
I said:
“the aim is to separate these non-trade elements from the EU’s “Single Market””
Pre-ceded by:
“with far more Rules about trade, the UK should be aiming to start from the status quo”
And anticipated a Remainer-esque misunderstanding (or is it misrepresentation) with:
“This is not a difficult concept – although EU integrationists may try to frustrate.”
With my post being over-long, I deleted a passage about Mutual Recognition Agreements. Perhaps I should have kept it !
The point is …
Many countries have Trade Agreements. They cover tariffs, product standards and import/customs processing.
No doubt they vary in their “liberalisation”.
But how many include:
– Rules affecting purely internal business ?
– Unfettered right of foreigners to settle ?
Put another way:
Can you imagine the Americans accepting:
– their laws made in Ottawa ?
– Unfettered right of Mexicans to settle ?
So how is it “incoherent” to seek / aim for:
– keeping Trade with the EU (tarif free, product standards and port processing) ?
– rejecting non-trade laws and rights to settle ?
Whether the Govt achieves that is another matter.
“The point is …
Many countries have Trade Agreements. They cover tariffs, product standards and import/customs processing.
No doubt they vary in their “liberalisation”.
But how many include:
– Rules affecting purely internal business ?
– Unfettered right of foreigners to settle ?”
there is no purely internal business if the products/services concerned can be exported.
the very purpose of common law is to provide a level-playing field wherever one decide to do business
as for migration, it’s called RECIPROCITY. as much as you want to waste you time arguing about the beauty of your atrophied navel, it’s precisely because british citizens are able to travel, settle and work in any other EU countries, that citizens of said other countries EQUALLY have the rights to travel, settle and work in the UK
however, unlike that brexiteer myth you peddle, there isn’t unfettered migration in Europe.
government have a panoply of tools to decide to citizens entering (if they are classified as criminals or are incapable to financially support themselves) or even deport them back home (after they have been convicted of a crime)
that the UK government is unwilling or incompetent at applying current regulations to regulate EU migration is one of its fault. in addition, only half of the migration towards the UK is made of EU citizens.
it shows what a bunch of hypocritical liars Brexiteers and right-wing politicians are, when they refuse to act on rest-of-the world migration which they could stop immediately fi they truly wanted
Europeans are just a convenient scapegoats for numbnuts to howl at the moon.
“there is no purely internal business if the products/services concerned can be exported.”
You really don’t “get it” !
There are 22,000 EU laws. Too many affect the 88% of purely domestic business – the local corner shop.
Facilitating cross-border trade (standards, procesing etc) is fine for the larger companies – but making the local corner shop comply adds unnecessary and unfair costs.
What “Brexiteer myth” have I “peddled”?
No Leavers (or campaigners) that I heard opposed EU “movement” (and stopping a handful of criminals is a red herring).
It was the right to SETTLE for 500,000,000 people..
Even with the actual number being less than 0.4%,the UK cannot provide enough housing (without impairing quality of life), school places, health or transportation.
Is the cost of providing all this factored in when asserting the “benefits” of migration?
Of course Reciprocity should be the aim – and it that means that UK citizens overseas have to “qualify” then so-be-it.
The UK has already indicated that EU citizens currently in the UK will be allowed to stay – subject to reciprocity.
Anyone migrating to Canada or Australia has to provide a “deposit” up front to cover Health and Education (?$30,000 perhaps?) – even Britons !
As for your stereotyping abuse (surely that isn’t PC?) with ….
“hypocritical liars Brexiteers and right-wing politicians are, when they refuse to act on rest-of-the world migration”
…..you appear to be supporting a “racist” migration policy !
Why is it that Remainers continue with myths about Leavers being “racists” and “xenophobes” – when Leavers (including Nigel Farage) repeatedly said we should have a migration policy that is non-discriminatory ?
“Even with the actual number being less than 0.4%,the UK cannot provide enough housing (without impairing quality of life), school places, health or transportation.
Is the cost of providing all this factored in when asserting the “benefits” of migration?”
Of course the UK can provide enough housing and adequate public services. EU migrants are net contributors to the economy overall. What you’re criticising is the management of immigration by the UK government. You’re also going down the classic route of claiming we should fix problems with public services by having fewer people, which is backwards nonsense at the best of times. Outside of outlandish scenarios, there’s no tipping point at which a government ceases to be able to provide adequate public services when the population reaches a certain level. What we’re talking about is mismanaged investment and if you don’t address that problem it will exist whether the population is 60 million or 6 million. Bad management is bad management.
But of course you aren’t particularly interested in solving these problems, you’ve started from a desire to get rid of immigrants for ideological reasons and worked backwards to derive a supposedly practical argument for doing so. Nobody would start with a problem like housing costs and end with the solution that we need to limit the numbers of skilled workers in our economy who are net contributors to the public finances (rather than building more houses).
—–
“Leavers (including Nigel Farage) repeatedly said we should have a migration policy that is non-discriminatory”
Farage, as he usually does, simply said whatever suited his narrative. One minute he was claiming net immigration should be “about 30,000 a year” (direct quote). The next minute he was claiming, for the sake of winning the support of voters who have family history in non-EU countries, that Brexit would make it easier for non-EU citizens to come to the UK. Basic arithmetic will tell you that if net migration from non-EU countries is 188,000 a year, and Farage wants to limit all net migration to 30,000 a year, then it’s not going to be easier for non-EU citizens to come here – it will be far, far harder if he had his wish. At least be honest about what you’re arguing for rather than trying to pretend you somehow have the interests of non-EU citizens at heart. It’s non-discriminatory in the same way shooting a gun into a packed crowd is non-discriminatory. You aren’t helping anyone by imposing arbitrary limits on immigration without a single thought about what it will do to the economy and the people who live here.
“EU migrants are net contributors to the economy overall. “
“ …….skilled workers in our economy who are net contributors to the public finances.”
These myths need to be nailed – and the oft-used qualifiers “skilled” and “public finances” explain the myth.
“net contributors to the public finances” – or in other words “taxes paid versus benefits received”
1) This takes no acount of:
a) the cost of more school places, doctors and nurses
b) the cost and delays from overcrowded transport
c) higher housing costs due to demand from migrants for somewhere to live
2) One shouldn’t ignore the weaselly conditional, “skilled workers” – who may well be “net contributors”.
Let’s take one positively contributing migrant – a Dutch banker. Not too high-flying – say £90,000 a year.
Maybe she pays £24,000 in tax.
So despite occupying a house (and maybe sending her kids to school) she’s definitely a “net contributor”.
How many low paid field workers does it take to pay the same amount of tax ?
10, 20 ?
How many will earn less than £11,000 – the Personal Allowance – so pay no tax?
So even if they are all young, healthy and childless, these 10, 20 (or more) will be living somewhere – pushing up the cost of housing.
And we haven’t even mentioned “Quality of Life” in newly overcrowded places (esp. London)
Anyone that thinks large scale migration is positive clearly doesn’t appreciate its impacts.
“Put another way:
Can you imagine the Americans accepting:
– their laws made in Ottawa ?
– Unfettered right of Mexicans to settle ?”
UK laws are not made in Bruxelles.
UK representatives (prime minister, cabinet minister, MEP and whitehall officers) negotiate with their opposite numbers from each other EU member states which policy area they wish to harmonize.
once a working system has been approved by said representatives, it is then send to all EU member countries national parliament for reviewing, approval, transcription and choice of implementation.
at every stage, UK officials are part of the framing, approval and implementation of the process.
ultimately, those decisions are made laws LOCALLY in each national parliament.
that Westminster is a pathetic, rubber-stamping, partisan political machine, has EVERYTHING to do with the incompetence and unwillingness of MPs to scrutinise legislation, and going against party line if they judge that they constituents interests is under threat.
it’s an indictment of the rotten nature of UK politics and the hyper-centralisation of the UK
as explained above, there is no unfettered EU migration forced upon the UK, excepted as a myth in your diseased brain.
and the fact that the UK is unable/unwilling to stop rest of the world migrants (roughly 50% of migration in the UK), when it is bound by even less regulations to do so, show just how hypocritical that whining is
“UK laws are not made in Bruxelles.”
I did not say that – but OK – I’ll bite……..
What do you mean by “made”?
If you are referring to the 1,500 – 2,000 laws each year that are “made” by the UK Government after an EU Directive, then that amounts to a sophistry that reasonable people would consider deceitful.
Or are you playing a game – because some EU laws are made in Strasbourg ….?
“UK representatives (prime minister, cabinet minister, MEP and whitehall officers) negotiate with their opposite numbers from each other EU member states which policy area they wish to harmonize”
A) You really don’t understand how the EU works in practice
B) You seem to support the EUs’ endless “harmonisation”.
A) Only EU Officials can propose EU laws – so national politicians are playing “catch-up” (or trying to reduce the impact).
Once QMV has been reached – then those countries that disagree have the EU laws imposed any way.
B) Why does so much need to be “harmonised”. What’s wrong with differences (subject to safety)?
(Do you not believe that harmonisation is now a device to protect Big Business from competition and innovation?)
What would H of C scrutiny change?
The legal advice is that UK laws should comply with the EU directives.
As for “your diseased brain”……..
I won’t report you to the Blogmeister as I’d rather let casual readers see how a Remainer behaves.
Suffice to say… ..
If you cannot recognise that 500,000,000 citizens having the RIGHT to SETTLE – and even if 0.1% more do – then the impact on house prices and public services will continue to be a cost (financially and socially) then the rest of us must hope you never attain a position of power…..
“So how is it “incoherent” to seek / aim for:
– keeping Trade with the EU (tarif free, product standards and port processing) ?
– rejecting non-trade laws and rights to settle ?”
that’s because you need to have at least two sides for a negotiation.
EU member-states have said that they are willing to offer “status-quo” on Single-Market, but only if as part of the 4 freedoms (goods, services, people and capital).
the UK wants only the access to the market, rejecting the acquis communautaire (leading to unfair competition and social dumping, which goes against the very principle of the Single Market), and imposing movement controls.
now, if your offer doesn’t even begin to measure in a way or another to an equivalent value of what is sought by the other side, then there is no agreement.
at best, if you can’t measure up, then the EU offers is then degraded to meet the UK position, that is the custom-union (like Turkey) or worse like the WTO.
as such, that’s why Brexiteers delusional plans are laughed out as a bunch of fruitcakes, loonies and closet-racists.
Jules, the problem is that you don’t seem to understand what the single market is. You seem to be operating from the assumption that single market rules are some kind of unnecessary red tape that has nothing to do with trade and that we can simply scrap all of these rules and keep exactly the same trade access (in your words, “the status quo for cross-border EU trade is easier for all concerned”).
You don’t seem to recognise that the point in the single market is to have shared rules and that these shared rules facilitate trade. If you get rid of the rules you’re getting rid of the benefits. It’s entirely incoherent to suggest we should get rid of the EU legislation governing the single market and still have the “status quo” for cross-border trade within the EU. If you’re getting rid of the rules then it isn’t the status quo.
You can argue for leaving the single market and trading with the EU like another non-EU country. Alternatively you can argue for staying in the single market from outside with a few opt outs (like Norway). What you can’t do is claim we’ll have the exact same trading privileges without applying any of the single market’s rules. Instead of rallying around impossible ideas and limp catchphrases we need to start dealing with the real world.
Thank you for posting this thought provoking article. To remain in the “Single Market” which is more or less by definition maximum access to unrestricted trade with the EU will require continued submission to the European Court of Justice, continued subservience to Brussels-based regulation and continued acceptance of the EU principle of Free Movement of Labour. UK Sovereignty would not be fully restored. The Government may negotiate some low-tariff or tariff-free deals on leaving the EU, but I seriously doubt whether those who voted to leave the EU would consider remaining in the Single Market, and the accompanying requirements as what they voted for. So, for principle 2 above “Where negotiations start from matters”, I believe the reference point for the UK should be WTO rules rather than the status quo. The UK is likely to be able to negotiate some improvements on WTO terms simply because it is in not in the UK’s or the EU’s interests for that not to happen. The UK will then be in a position to control the movement of people across its borders however it chooses.
you really didn’t get the article, didn’t you ? I mean, the fact, that you completely skipped principles 1, 3, and 4 says a lot when you decided only to read principle 2
let’s try a translation : you get only what your opposing partners get of things THEY value.
because you seem obsessed about border controls and immigration, you imagine that starting your future trade relationship negotiation from WTO status is a smart move. Wake-up from your delusions, that’s utter BS
1) for now, the UK is still part of the EU and bound by the rules that the UK freely and sovereignly choose to sign on. until article 50 notification is officially sent, that will remain so and the UK will not be able to negotiate didlly-squat on trade at the WTO or anywhere else in the world.
once article 50 is notified, the UK will still be part of the EU and bound by its rules while it negotiates the terms of its divorce and exit FROM THE EUROPEAN INSTITUTIONS. this will last for 2 years, top (any time extension need unanimity by all 27 remaining members).
at no points will that cover any future trade relationships UNLESS the UK announces that it’ll look for an EEA status (waving the white flag in political speak).
2) after those 2 years have passed and assuming that the UK refused to seek an EEA status, then it’ll negotiate with EVERY members of the WTO its schedules, that is what tariffs the UK will apply on imports of goods and services, for each products and sectors of activity.
until EVERY members of WTO have UNANIMOUSLY accepted the tariffs that the UK intend to use, the UK membership of the WTO will remain in limbo. that is it’ll be a member only in name (as its status prior to 1972 is now obsolete), but with no rights.
until that negotiation is completed EVERY trading nation in the world will be able to apply whatever tariffs and regulations they want on the UK exports of goods and services without any risks of international litigation.
there is absolutely no knowing how long this process will take, because of how fiendishly complicated it is in any circumstances (Russia and china took more than a decade to have their membership accepted), and because of the principle 4, that is the UK government currently has very little to none manpower capacity in international trade negotiation (and it doesn’t just costs tens of millions to recruit those specialists, it also takes years of practice for them to get accustomed to a country’s interests)
3) which means that between the end of article 50 negotiation (2 years from March 2017, admittedly) and the successful completion of negotiation at the WTO with the rest of the world, that is an unknown number of several years, UK plc will be devastated by all sorts of jacked-up tariffs and regulations.
the ones I prefer is to simply let cargoes of british goods sitting on the quay, waiting for custom officers to come inspect them thoroughly, preferably after a VERY long time, all at the expense of the exporting british company …. believe me, not only will that priced out british goods of every markets, they will also be considered unreliable for supply-chain activity and be promptly replaced.
and what could the UK do against this treatment, except whining loudly ?
well, not much, because by that time the UK will be hemorrageing international businesses that came to the UK to cater to the European market. which will also result in a deep and sustained economic recession.
and just as importantly because of principle 3, that is the relative importance of the UK to its trading partners and vice versa.
every countries who import more from the UK than export to it (exhibit A : America) will rejoice at the opportunity to cut you down a few notches for their own benefits.
and every countries that export more to the UK, than the UK export to it (exhibit B : China, exhibit C : EU) will wait and see that your deep on your knees, so that they can extort the best terms of trade for them (including free movements of people and visa liberalisation)
4) and that’s before we start talking about the other side of free movement of people : the ability of UK people to travel, settle and work in Europe freely (provided of course that they respect the local laws and regulations)
so, all in all, your delusions about using WTO status as a valid starting point to negotiate the future relationship between the UK and the EU, lead to only a binary choice : do you want to experience excruciatingly losses or devastatingly losses, economically, socially, politically and in security areas …. just for the sake of the mythical “border control of movement of people” ?
Thanks for your comprehensive reply to my suggestion about having WTO rules as the reference point for the UK to start negotiations with the EU on the terms of leaving. The article mentions a choice between “whether the reference point for UK-EU negotiations would be the status quo where the UK is a member of the Single Market or trade under WTO rules”. From what you have written starting from WTO will be much more difficult than I imagined. You have mentioned “the custom-union (like Turkey)”, and you seem to think this would be preferable to WTO rules as a starting reference point for negotiations. Do you regard this as a viable reference point? David Davis ( the Secretary of State for Exiting the European Union since 13 July 2016) said before the referendum that the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada “would be a perfectly good starting point for our discussions with the Commission”. Do you agree with his analysis? Given that there may be more than the two possible reference points mentioned in the article for the UK to adopt for starting negotiations do you have a particular favourite?
Regarding:
“2) after those 2 years have passed and assuming that the UK refused to seek an EEA status, then it’ll negotiate with EVERY members of the WTO its schedules, that is what tariffs the UK will apply on imports of goods and services, for each products and sectors of activity.
until EVERY members of WTO have UNANIMOUSLY accepted the tariffs that the UK intend to use, the UK membership of the WTO will remain in limbo. that is it’ll be a member only in name (as its status prior to 1972 is now obsolete), but with no rights.
until that negotiation is completed EVERY trading nation in the world will be able to apply whatever tariffs and regulations they want on the UK exports of goods and services without any risks of international litigation.”
This does seem a bit overly pessimistic to me, although you are obviously passionate about the subject under discussion. I always thought that the UK will remain a member of the WTO whether we remain in the EU, or not, and that the WTO seeks to facilitate trade amongst its members with a standard set of tariffs for many items and services when no trade deal is in place.
I do realize that it will most likely be almost two and a half years before the UK leaves the EU and only then will the UK be able to negotiate new trade deals worldwide and implement any possible new border controls. Nevertheless this article and subsequent discussion has been very helpful to my understanding of Brexit trade negotiation problems and possible solutions that lie ahead.
Thanks for your reply.
“David Davis ( the Secretary of State for Exiting the European Union since 13 July 2016) said before the referendum that the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada “would be a perfectly good starting point for our discussions with the Commission”. Do you agree with his analysis? Given that there may be more than the two possible reference points mentioned in the article for the UK to adopt for starting negotiations do you have a particular favourite?”
CETA is an infinitely more restrictive level of trade access to what we already have. It even involves outright tariffs in certain areas (e.g. some agricultural products). It really is astounding to me how ready so many people are to undermine our own economy just to win an argument about Europe. It’s hard to believe anyone who cared about facilitating UK trade would start from the position we’re in and end up with a variant of CETA. It’s an abysmal alternative.
What we actually have is an ideologically driven nationalist movement that has decided to oppose European integration for its own sake. In order to prevent humiliating capitulations in negotiations over issues like the budget or free movement, they want to push us out of the single market altogether. To try and add some veneer of economic credibility to this folly we’ve resolved to engage in a vague and largely impractical effort to secure huge numbers of trade deals with every country in the world apart from those in the EU (and solely because they aren’t in the EU). At no point has anyone even bothered to state what these deals will contain – which isn’t surprising because they’re not supposed to actually improve trade, they’re just window dressing to try and make Brexit appear less damaging than it is. Again, nobody in their right mind would start from a genuine concern for UK trade and end up with this framework.
It’s about time we started calling a spade a spade instead of taking vacuous soundbites by people like David Davis at face value. What we’re witnessing is frankly disgraceful – the humbling of our economy for no other reason than to protect the reputation of a small band of career politicians.
alright, several clarifications
1) I never mentioned “custom-union (like Turkey” anywhere.
however, I did mention EEA status, which is markedly different.
CETA, also known as the Comprehensive Economic and Trade Agreement is the latest installment in round of EU-Canada trade agreement (its precursor was killed by canadian lobbyists more than a decade ago).
CETA-like free trade agreement goes above basic WTO tariffs and rules, and go well below Single Market freedom of access …. but for that, you first need to clarify your WTO status.
2) without sounding too arrogant, passionate or self-righteous, I think that it is fair to say that David Davis thinks that he knows a lot about international trade and realtions, but practically couldn’t see one coming at him even if it hit him in the face.
3) am I being pessimistic about the fiendishly difficult part of re-actualising the UK WTO status ? no I don’t think so.
here is what you need to consider :
a) the UK is NOT a member of the WTO itself, a successor organisation to GATT (created in 1948), which was set up in 1995.
it derives its membership from it by 2 sources : from its appartenance to GATT up to 1973 and then as a collective member of the then-EEC, now EU.
this is important . it means that the actual status of the UK is “frozen” as per 1973. it needs to be reactualized. simply, exiting the EU doesn’t make the UK a full member of the WTO
b) free trade agreements is not about singing songs about how we’ll be better together and drinking mead.
it’s about deciding which sectors of your economy you are going to sacrifice as a bargaining chip, in order to gain superior access for other sector of your economy. countries want all the benefits, none of the costs.
therefore, if it comes that someone (say, the UK) present themselves pleading to all agree not to get screwed for too long, their first reaction is, of course, “how can I make it the most profitable for me ?” …. which inevitably leads it to most excruciating for the UK.
c) there are so many ways, through tariffs, regulations, black economy, cartels and simple non-enforcement (the “free-trade” deal is signed, but never enforced in courts when provisions are broken) to actually raise obstacles to trade or put pressure on the opposite negotiating party.
and the UK will be in a huge quandary, time-wise, if you follow a bottom-line WTO as starting point.
I explained already that exiting the EU doesn’t make the UK “free to trade”. it makes OTHER countries FREE to restrict trade with the UK and replace it with homegrown competition or better-placed foreign competitors.
d) worst, most of the UK export advantage is in the service sector (financial, legal, cultural, IT services …), that is pretty much NOT covered by the WTO, and the most regulated and opaque sectors, country by country all over the world. something that CETA and TTIP (for all their faults) was actually trying to improve between Canada, the US and the EU.
4) after you have resolved that hugely destabilizing period of several years (post 2019 at current official anouncement), I wouldn’t be surprised to see UK GDP to fall by at least 10%, if not 20% if european migrants (and the wealth they generate) are also forced out (because of legal repression or economic depression), then comes the supposedly “easy part” of negotiating new free trade agreements that will open a new gilded age for british commerce … or so we are told.
well, thing is, free trade are neither free, nor are they quick and easy to negotiate (much less to implement).
an example, the TPP agreement between several nations of the pacific rim and the US is still not ratified, and even if it is (considering official Trump opposition to it), the reduction in tariffs and regulations is spread over 20-30 years depending on the countries and sectors.
or to put it differently, say, if they agreed that import duties on beef are to be reduced by 20%, actually it’ll be gradually so …. and only in 20 years time will the reduction be fully applied. by which time, so many other things will have happened, as to make that agreement close to useless and the export markets still highly regulated (and closed to competition)
which is to say, that all the economic output and social destabilisation that will be caused for the few years renegotiating the WTO status of the UK, will not be recovered until decades later.
and that’s if one assume that you wanted Brexit because you thought border control and less european immigration is a good thing, is just sheer madness because EVERY emerging countries will ask for visa liberalisation and freedom of movement to the UK as part of their negotiating position (as exemplified by both China and India recently), and the EU doesn’t allow superior access to its market without reciprocal freedom of movement as well.
…. no matter, how ones try to turn the arguments around, Brexiteers are pie-in-the-sky fantaisists if they think they can negotiate better terms of export market access cheaply, or sustain the deeply rotten structures of the british economy without immigration in the 200k+
the more you ask, the more you have to give. and the weaker your negotiating position (because of time constraints or economic recession), the harsher the final terms imposed on you.
that’s just how the world is
Mark
“From what you have written starting from WTO will be much more difficult than I imagined”
Don’t treat Starbuck as any sort of “expert” on the EU, WTO or related matters
He is a Remainer – and like most Remainers continually tell us how complicated everything is, how weak the UK is and how we cannot operate as an independent nation (despite over 200 other countries managing it !)
WTO
I have lost count of the number of interviews with the head of the WTO saying that:
i) the the absolute worse case for the UK would be operating under WTO rules
ii) as a net importer of goods (not services), the UK Government would probably receive a net income from tariffs
iii) so (assuming the UK’s rhetoric about favouring free-trade) he would expect the UK exporters to suffer lower tariffs
In short….
The UK should offer the EU a simple choice:
A) Continue tariff-free trade (UK products are already Standards compliant) – but without Single Market baggage
or
B) WTO Rules (with the UK likely to receive £5-6 billion in tariffs – mostly from German car-makers and French wine & cheese makers)
With those car, wine and cheese makers lobbying for tariff-free continuity – surely it is only EU Officials who would be so stupid as to opt for WTO ???
“He is a Remainer – and like most Remainers continually tell us how complicated everything is, how weak the UK is and how we cannot operate as an independent nation (despite over 200 other countries managing it !)”
Leaving aside whoever Starbuck is/isn’t, this is one of the absolute worst arguments anyone ever comes out with for Brexit. The Scottish nationalists had the exact same argument – “well other countries survive so why can’t we?” It’s utter nonsense. The debate is about getting the best deal for the country, not whether the country will implode into thin air if we leave the single market. If you want to make a serious argument then employ a proper standard. It really is exasperating seeing an army of angry zealots on the internet who only seem to be interested in churning out bits of rhetoric rather than engaging with an issue properly.
You’ve then gone on to present a variant of the classic “they need us more than we need them” argument that focuses entirely on tariffs and regards the single market as “baggage”. You haven’t mentioned technical barriers or regulations once. You haven’t mentioned access rules once. It isn’t the 1950s, please step into the modern world and make a proper argument (or better yet go read a book on basic trade policy and get back to us with your thoughts).
Thanks for your further reply, and also thanks to Mary Broad for hers.
Re: “1) I never mentioned “custom-union (like Turkey” anywhere.”
You didn’t mention Turkey in your reply to me, but in one of your earlier postings you did write inter alia:
“at best, if you can’t measure up, then the EU offers is then degraded to meet the UK position, that is the custom-union (like Turkey) or worse like the WTO.”
ouch
please try to avoid mixing replies from different posters
essentially, in terms of freedom of market access (that is with the less tariffs and regulation controls), it goes from top to worse :
Single Market (where you are actually part of the decision-making)
EEA-status (like Norway) (where you do not have direct influence on the decision-making)
custom-status (like Turkey) (where you do not have freedom of access for your citizens, nor do you have influence on decision -making, but must follow EU trade policies)
“free-trade” agreements (which improve on WTO terms)
WTO terms (variable tariffs and high regulations, no direct influence, subject to discriminations and restrictions, no freedom of movement for your citizens)
and before you say, “ah, but in case of discrimination, there is a WTO arbitration panel, so we’re alright !”
well, 1) it takes years to gather the data to file a complaint
2) it takes several more years for the complaint to be examined
3) when a decision is finally reached, it can be opposed and re-examined, taking a few more years
4) final decision usually takes the form of reciprocal import tariffs, a decade or two later, which is then blurred by whatever political compromise is also reached, not even mentioning the economical caused to you by whatever the discrimination was
exhibit A : after 30 years, US beef imported in Europe is still highly restricted and discriminated despite several decision judging in favor of the US
exhibit B : after 20 years, Caraibbean and African bananas of former colonies still have preferential terms of access to the EU, in spite of several judgements in favor of US multinationals producing bananas in South America (like in Ecuador)
exhibit C : the recurrent practice of China to dump large quantities of manufactured products on the international markets, thus destroying the operational viability of local producers (think steel or solar panels), even though they are always found guilty, tariffs are raised (when they are not opposed by governments like the UK), and yet local manufacturers are put out of business after a year of two, unless they can redirect their activities to highly specialized, niche business
One of the problems with any “second EU referendum” decision is what the question should be. If it were “leave” or “remain in” the EU then people would rightly say we’ve already had that question in 2016 and the decision has not been put into practice. If it were between Theresa May’s deal and remain in the EU then all those people who would like to vote for a “no deal” Brexit would feel disenfranchised. If there were three options “no deal Brexit”, “Mrs May’s deal” or “remain in the EU” then the “leave” vote would be split and remain in the EU would likely get the most votes. Many “leave” voters would regard this as unfair. Given that there are currently four different options (as outlined by EU President Donald Tusk) for the UK to mull over at the moment maybe we could have “a long extension” as a fourth option on the ballot paper.
We could now have four options on the ballot paper:
1. Hard Brexit (leave on WTO terms and negotiate a future UK-EU trade deal from that position)
2. Soft Brexit (leave on Theresa May’s withdrawal agreement terms and negotiate a future UK-EU trade deal from that position)
3. Soft betrayal of the 2016 referendum result (MPs to implement a “long extension agreement” to remain in the EU whilst negotiating
a future UK-EU trade deal from that position, and maybe never to implement the 2016 referendum result if a party is elected with a majority in Westminster with a manifesto pledge to stay in the EU).
4. Hard betrayal of the 2016 referendum result (revoke article 50 and remain in the EU until such a time as a party is elected with a majority in Westminster with a manifesto pledge to leave the EU).