Thursday, 8 February 2018

Trade deals and fantasies

The reason quoted most frequently for not staying in the European Customs Union – or indeed, any customs union – is that it would prevent the UK negotiating its own trade deals.  And that much is true; what they’re not so good at explaining is why exactly the UK needs or wants to be able to negotiate its own trade deals.  They just present it as an inherently good thing and are rarely challenged for clarification.
The EU already has trade deals with many non-EU countries, and the UK benefits from those.  The plan, insofar as there is one, seems to be that the UK will negotiate with all of those countries to ‘roll over’ those trade deals, so that the UK expends a certain amount of effort to keep exactly the same terms which exist today.  It’s a sensible approach, given the amount of time available and the even greater amount of effort which would be required to do anything different.  It does, though, take us not even the tiniest step forward from today (and if any of those countries were to decline to play ball, there is the possibility of taking a step backwards).  It merely 'rebadges' existing EU deals as independent UK ones.
Then there are the countries with which the EU does not have trade agreements currently.  With some of those, the EU is already in negotiations lasting many years to achieve an agreement.  For it to be worthwhile for the UK to seek to negotiate separate deals with those countries, there has to be a belief that the UK market of 60 million can get a better or faster deal than the EU market of 500 million.  On what basis could that be?
Well, one advantage which the UK’s negotiators would have is that the EU is trying to meet the requirements of 28 states (soon to be 27), all of which potentially have different interests; ensuring that those are all met is time-consuming and complex.  Direct negotiations with only one state could conceivably be quicker and easier (although whether a state in a rush to reach a quick deal would take into account the needs of all its parts rather than just those of the south eastern corner is a danger which we in Wales might like to consider very carefully).  Of course, avoiding one part of a customs union seeking a deal which gives it a relative advantage over another part of the same union is one of the reasons for the EU rule preventing such individual trade deals by its members.  The alternative would be customs and border posts across the EU.
A second route to a quicker deal would be to concede more to the ‘other’ side in any negotiation; indeed, given the much smaller market that we’re talking about here, that might even be essential.  Whether making concessions to Trump’s America for a quick deal would turn out to be a good thing or not is rather a different question, but I can certainly see how an independent UK trade policy might lead to a series of different deals over a (still longer than the Brexiteers are willing to admit) period.  
The underlying question which remains is whether those deals make up for the inevitable loss of trade with our biggest trading partner.  In the fantasy scenario of those leading the UK, this question doesn’t even need to be asked; we’re going to keep ‘frictionless’ trade with the EU alongside the exciting new deals, so it’s not a problem.  It only becomes a problem when they have to face up to the fact that negotiating formal generic trade deals (as opposed to individual sales) and retention of that ‘frictionless’ access are mutually incompatible, for the reasons noted above.  Fox and friends are absolutely right to argue that if the UK wants to do its own separate deals, it has to be outside the customs union; the fantasy is believing that being outside the customs union does not disadvantage trade with the rest of the EU.

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