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Home Opinion Brexit BREXIT – A Historical Act of Faith - 6. Replacement Trade Agreements and Broader Ramifications

BREXIT – A Historical Act of Faith - 6. Replacement Trade Agreements and Broader Ramifications

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Article Index
BREXIT – A Historical Act of Faith
2. Historic Parallels
3. Brexit - A Political Cult?
4. The Triggering of Article 50 Signals the Beginning of a Difficult Journey
5. A Two-Year Horizon and a Lot of Challenges
6. Replacement Trade Agreements and Broader Ramifications
7. A Less Certain Future for the Isle of Man
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6. Replacement Trade Agreements and Broader Ramifications

If the UK is unwilling to agree to the principles that will quantify the Brexit divorce bill, then EU trade negotiations will not commence. Refusal to pay the final bill could result in the Europeans taking the UK Government to the Court of International Settlements in The Hague. Moreover, it seems that under any new EU trade agreement, the UK will almost certainly have to pay annual ‘Single Market / Customs Zone Access Fees’, on a basis which is similar to the EU’s current arrangements with Norway and Switzerland. Unsurprisingly, the Brexiteers want to hear none of this. The ‘remoaners’, on the other hand, do. Numerous experts, rational and experienced professionals are finally airing their concerns that Brexit will come with massive costs. It’s not just the €60bn divorce settlement, which will be a precondition to a new trade deal, it is also about how long the EU trade deal negotiations will take, what the terms of that deal might be and what happens if a satisfactory deal can’t be negotiated.

The UK has to negotiate with the 27 EU states, as well as the European Commission and the European Council. The Europeans only have to deal with one party - the UK. Currently 44% of UK exports are vended to the EU and 51% of the UK’s imports come from the EU. In comparison, the UK accounts for only about 17% of the EU’s total exports. This means that UK’s economy is more dependent on the EU than vice versa. A further one sixth of the UK’s trade is facilitated by treaties the EU has negotiated with other non-EU countries. These ‘dependencies’ make the UK’s starting negotiating position inherently weak. Furthermore, the two-year clock is now ticking and if the UK is to avoid a ‘no-deal’ outcome, it needs to get a deal or be forced to settle for a deal that it does not want. Therefore, should it take until the mid-2020s to agree a replacement EU trade deal, then, in the interim, the best outcome that the UK can hope for is that all of the remaining 27 EU member states will agree to three-year ‘transition’ extension.

The leading Brexiteer’s apparent unwillingness to face up to the reality that a ‘no-deal’ outcome is a distinct possibility is of concern. This attitude is exemplified by the UK Government’s recent admission that it has not yet assessed the impact of a ‘no deal’ outcome. Although the fallback position of reverting to the WTO rules has been presented as a viable option, there are few details of what this option would entail in practice. Most trade experts believe that it would almost certainly see the imposition of tariffs on imports and exports between the EU and UK, especially on agricultural products (which could be as high as 30%).

A great irony of leaving the EU is that this ‘event’ is supposedly happening to give the UK the freedom it needs to trade with the wider world, but in doing so it will terminate the UK’s current trading relationships with 27 EU countries, and also terminate the trade agreements that it enjoys, through EU membership, with 58 non-EU countries. Each of these other 58 agreements will also have to be renegotiated and each of these negotiations could take years to finalize. Trade experts warn that global trade negotiations are usually protracted, complex processes. The successful conclusion of each negotiation will not only be contingent on the rational self-interest of each country, but also on the parties relative bargaining strength and goodwill. These things should not be taken for granted even with ‘friends’ like Australia and the USA.

The UK has not negotiated its own trade agreements for decades (it has relied on the competence of EU negotiators) and its bargaining power will remain inherently weak as it desperately needs to form numerous trade agreements. In February 2017, the UK had 35 experienced trade negotiators. It is said it will need 700. There is a working assumption that if the bilateral agreements ‘fail’, then the UK will be ‘saved’ by falling into the ‘safety net’ provided by the WTO’s rules. However, trading under WTO rules will not be problem free or an ideal or easy situation, as other countries will seek to take advantage of the UK’s weakened status. These countries may not always act in the UK’s best interests. Until the UK enters into firm bilateral trading agreements with other countries, it will have to trade on WTO terms and have little scope to offer ‘special’ terms to individual WTO members.

The administrative and legal sides of ‘unpicking/ redrafting’ laws and regulations after Brexit are additional issues. Again, these huge projects, which are only reluctantly mentioned by the Brexiteers, will also be challenging and costly.

Tariffs and tangible non-tariffs barriers to free trade, the limitations of being outside the Single Market/ Customs Union, a second referendum on Scottish independence, hard border controls with the Irish Republic, the spectre of a return of the ‘Troubles’ which could culminate in Northern Ireland’s reunification with the Irish Republic, are all possible factors that contribute to the overall risk associated with Brexit.



 

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