How the UK will trade with us and the world

The formal position of the British government is that when the UK leaves the EU some time in 2019, it will have negotiated a Free Trade Agreement (FTA) with the Union. Nobody else seems to think this will be possible: the formal position of the EU is that it doesn’t negotiate trade deals with members, so Britain has to leave first, paying all its bills at the door, before trade talks can even begin. On the other hand, nobody expects Britain to just pay up without some deal on trade, so we may all watch this space.

Without a trade deal, Britain would have to fall back on World Trade Organisation (WTO)rules and tariffs. Interestingly, however, on the day the UK leaves the EU it won’t actually be a member of the WTO, according to “Global Britain – A Free Trading Future?“, a concise report from the Brunswick Group.

The UK is only in the WTO now as part of the EU, and its tariff levels for goods and services are currently agreed and listed as part of the EU’s schedules. It intends to replicate current tariff schedules as far as possible,  but they will need to be agreed by all of the other 163 Member States as part of the WTO’s consensus decision-making process.

The UK is pulling out of the European Court of Justice which regulates disputes among EU members. In applying for membership of the  WTO it will have to accept a new dispute resolution system which will by its nature also impinge on British sovereignty.

Whenever it gets into discussions with the EU on a FTA it will have the great advantage that both sides will be starting with zero tariffs on goods. However, that is not where the difficulties will lie, because there is a massive imbalance in EU-UK trade.

EU exports to the UK are dominated by goods-  €44 billion in motor vehicles constitutes the largest group – which would easily be covered by the FTA. UK exports to the EU, on the other hand, are dominated by services: €45 billion in financial and other business services, for example. Services are much more complicated than goods. While all those German cars are coming into Britain largely on the basis of the EU’s internal customs union, British banks are trading across Europe on the basis of the single market which has a common regulatory framework. The UK has said CETA – the  ‘Comprehensive Economic and Trade Agreement’ which the EU recently concluded with Canada – would be its model for an FTA. The first point is that CETA took nine years to put together and it almost fell apart at the last minute on objections from a Belgian provincial assembly. The second is that doesn’t even cover financial services.

Even if Britain were to agree a quick FTA with the EU, it would still have to be ratified by the parliaments of the 27 member states and a number of other bodies including that Belgian provincial assembly again. And of course there would have to be a mechanism to adjudicate on disputes. The good news is that such a mechanism already exists in respect of other such agreements with the EU. The bad news is that it is called the European Court of Justice.

Leaving the EU also means leaving more than 60 trade agreements with third countries. Top civil servants in Whitehall will have their work cut out for years to come. However, well-founded reports have reached BBB which suggest that the top civil servants are doing all in their power to stay well away from Brexit negotiations which they see as a form of career suicide, remembering what happened to Sir Ivan Rogers.