Advertise On EU-Digest

Anual Advertising Rates

1/27/17

Britain: Ending The UK's Free Trade Fantasies - by Mark Manger

Theresa May’s highly anticipated speech on 17 January showed that slowly but surely, the UK government is realising the constraints of global trade rules. At last, the aims regarding future relations with the EU are becoming clear: Britain will leave the single market, end the free movement of EU citizens to the UK, set its own tariffs, but also seek a comprehensive free trade agreement (FTA) with the EU.

Negotiating a free trade agreement according to Article 24 of the General Agreement on Tariffs and Trade (GATT) and Article 5 of the General Agreement on Trade in Services (GATS) has considerable advantages over the nebulous plans ministers have floated before, not least that it is a coherent strategy. It is also an obvious position that best serves the UK’s interests, and that many observers, including myself, hoped the UK government would assume once one of the best British qualities – being able to keep a cool head under fire – reasserted itself.

In principle, such an agreement could come very close to genuine free trade, especially because in these unprecedented negotiations, the partners start without tariffs on bilateral trade. Any duties resulting from the negotiations must fall between zero and the current EU tariffs on imports from WTO members who do not receive any preferential treatment. The EU cannot legally charge higher tariffs than the latter. And fortunately, the EU’s external tariffs are among the world’s lowest everywhere except in agriculture. Nonetheless, with the UK being much more dependent on the EU’s market than vice versa, the situation remains highly asymmetrical.

The UK’s best alternative to a negotiated agreement is often referred to as the ‘WTO option.’ That is also true for the EU. Research on bargaining suggests that in this case, the UK will offer almost tariff-free access for EU exports, while the EU will grant marginally better access than it currently offers to WTO members. On services, the EU will likely roll back access considerably. In fact, that is the pattern of most free trade agreements the EU has negotiated so far.

The general parameters of an EU-UK free trade agreement can therefore be predicted. Clearly, this policy choice comes with a significant economic cost in terms of market access, but the government appears willing to make such a trade-off. In principle, such an agreement should not even take long to negotiate. That it took months for the government to sort out its position and understand basic principles of global trade rules, however, suggests that it is still not listening to Whitehall enough. Or perhaps, as feared by many, that the government still lacks an understanding of essential trade policy principles. Building up such capacity now is imperative if the UK is to be able to secure a comprehensive trade agreement with the EU in a reasonable time frame.

Read more: Ending The UK's Free Trade Fantasies

No comments: