Davis Clarifies Brexit Transition Trade Deals
David Davis’ keynote speech to Middlesbrough today, 26 January, might resolve some EU complaints that the UK doesn’t make its intentions known until “five minutes after midnight.” Senior European Union diplomats are expressing frustration, that the UK isn’t asking the EU to help with keeping Britain included in the current free-trade agreements after Brexit. EU officials have said the UK government has been slow to provide clarity on the transitional terms it is seeking.
Davis feels the UK can negotiate its own trade deals that start the minute the clock strikes midnight on Brexit day. “As an independent country, no longer a member of the European Union—the United Kingdom will once again have its own trading policy. For the first time in more than 40 years, we will be able to step out and sign new trade deals with old friends, and new allies, around the globe,” he said. But, since the UK will still have to follow EU trade rules during the transition period, the UK will “replicate the effects of the EU customs union during the implementation period.” This is expected to last for two years and it will make it harder to trade with countries like the US.
The EU will have been made aware of the content of the UK’s Brexit minister’s speech slightly ahead of today, since excerpts of it have been published in advance of his address. Even so, they have a valid point about the UK waiting until the last minute to clarify their position, given that Davis lays out his points publicly on Friday, 26 January. That is at the last minute, since EU ministers meet with their chief negotiator, Michel Barnier on Monday, 29 January. Following the meeting, they will publish Brussels’ transition period terms. These will conclude on 31 December 2020, but might be extended if that is what the UK requests.
London is accused of lethargy by the EU for not sooner stating the UK’s demands for the transition period. There are concerns from Brussels that it will be very complicated to keep Britain’s current relationship intact in the sixty-five trade agreement the EU has agreed with countries around the globe. The UK wants to continue the same rights it has to trade with these countries, but has not yet asked the EU to authorise or assist in “rolling over the agreements.” Each of those deals would then need to be agreed by the countries outside of the EU during the remaining thirteen months before they would begin in force.
One reason the UK has not moved ahead on transition trade clarifications, is that it had to first make sufficient progress on the first phase before it was concluded on 20 December. Only after that would the EU be open to discussing trade agreements during the transition period.
Another reason is that the European Commission stated they would not begin discussion until February, 2018, at the earliest. Also, the prime Minister was warned that she would have to unite her cabinet by then so that they had agreed on a united vision of the UK’s future outside of the EU.
A deeper relationship
Unfortunately, there has been no sign that the cabinet has come to a consensus, since the EU’s statement was made in the first week on December. You would be hard pressed to count up all the times a member of the cabinet has made inflammatory statements that the PM has had to douse with cold water.
Tory infighting over Britain’s post-Brexit terms broke out again this week after Chancellor Philip Hammond, speaking in Davos, suggested the UK and EU would only move “very modestly” apart in in trade terms following Brexit. Hammond described the UK and EU economies as being already “completely interconnected and aligned.” This morning, health secretary Jeremy Hunt tried to play peacemaker, telling the BBC radio: “The issue here is not the extent of divergence but the freedom to diverge.”
Today, in remarks to BBC Radio 4’s Today programme, the Bank of England’s governor, Mark Carney, seemed to bolster Hammond’s statements by saying: “The deeper the relationship with Europe, the deeper the relationship with the rest of the world…the better it’s going to be over time for the UK economy.”
Carney also said that the UK’s GDP is now 1% smaller than the bank had expected it would be before the vote to Brexit. Later, the Office for National Statistics reported the UK’s GDP had shrunk from growth of 1.9% in 2016, to 1.8% in 2017.
Trading with Trump
“Regulation is stealth taxation.” US President Trump said today in his speech at Davos. He also said that unelected bureaucrats impose “crushing anti-business and anti-worker regulation on our citizens with no vote, no legislative debate, and no real accountability.” Trump has been promising the UK that it will be at the front of the queue, when it comes to trade, but experienced negotiators are pointing out the agreements will hardly be straightforward during the transition.
Ambassador Charles Ries, a former US diplomat who helped negotiate the North American Free Trade Deal (NAFTA), and oversaw the US-European Union trade relationship has indicated that the UK might not be free to strike deals with the US during the transition period and also maintain trade deals with the EU. Ries said that: “If the British were free of the EU and able to negotiate a free-trade agreement, Washington would be hard pressed to say no.”
The biggest issue that will prove challenging for the UK will be the “geographical indications” that insist products associated with certain regions of Europe must be produced there. The UK would have to agree not to accept, for instance, Feta cheese made in Vermont in order to fulfil their obligations to the EU. Although a trade deal will be “more complicated than people think,” Ries believes there is a 60-70% chance of a US-UK trade deal within the next two or three years.
He doubts UK exports to the US will include financial services. That would come as a massive economic blow to the UK. In figures published by the City of London Economic Research, in 2016, following the vote to Brexit, their research showed that the US imports around £21.6bn worth of financial and insurance services from the UK. Are Hammond and Carney right about suggesting a soft Brexit, especially during the tricky transition period.