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U.K.’s Next Brexit Agony: What Sort of Trade Deal?

Britain’s trade future could be dominated by “customs checks, different regulations, different standards and trade falling off a cliff,” said Anand Menon, a professor of European politics and foreign affairs at King’s College London, adding that economic arrangements would most likely descend into a “nightmare.”

Even some who think a reasonable outcome is possible say a moment of truth is approaching. Britain will have to decide whether to sever many or most ties with the European Union — and face a brutal economic adjustment — or settle for a less advantageous version of what it currently has.

“More and more, you find that the question is what kind of country you want to be,” said Mats Persson, head of international trade at the advisory firm EY.

“Do you want to go down the route of Norway, with high tax and high social protection, and close alignment to European Union rules, or Hong Kong, with free trade and lower regulation?” Mr. Persson said. “That’s the essential choice, and there isn’t a democratic mandate for either.”

Almost 18 months after Britons voted to quit the European Union, that question has not even been discussed by members of Prime Minister Theresa May’s cabinet, who are due to hold their first meeting on the subject soon.

The issue is so divisive within the Conservative government, however, that there are signs they will fudge the issue for a few more weeks by uniting around a request for an outcome that is almost certainly unachievable — a “Canada plus plus plus” deal.

Mrs. May has promised to take Britain out of the European Union’s customs union and single market, and is determined to restrict the right of citizens of countries in the bloc to live and work in Britain, and to reject a continuing role for the European Court of Justice — an institution Brexit enthusiasts loathe. That being the case, she has ruled out the option of copying Norway, which is part of the single market (but not of the customs union), and which respects both free movement and the court.

Under the “Canada plus plus plus” deal proffered by Britain’s chief Brexit negotiator, David Davis, the country would negotiate a free-trade agreement with the European Union, but with a much deeper set of agreements than Canada has.

That implies keeping close ties with the bloc but rejecting two of its pillars — the free movement of workers and the role of the European Court of Justice in adjudicating disputes. In this, experts say, Britain is once again barking up the wrong tree, in that European negotiators would never agree to such a deal because it would, in effect, reward Britain for leaving the bloc.

“The European Union is going to make it ever clearer there is a binary choice between Norway and Canada,” Mr. Menon said, “and that, in the case of Canada, you can forget the ‘plus plus plus.’”

Even agreements on nontrade issues, like data protection rules and security cooperation, might run into trouble because of Britain’s rejection of the European Court of Justice as an adjudicator, Mr. Menon said.

Striking a tariff-free deal for trade in goods should be possible, but as Britain intends to quit the customs union, it would inevitably lead to more paperwork and checks.

The bigger problem is Britain’s economic reliance on services, which account for about 80 percent of the economy. Service exports to the European Union make up more than 36 percent of total British exports, according to the Office for National Statistics.

Free-trade agreements rarely cover services, and Canada’s deal with the European Union, for example, which supplements Canadian membership of the North American Free Trade Agreement, gives very little in this sector.

To achieve anything like the kind of access to European Union markets it currently enjoys, Britain might have to make a yearly financial contribution to the bloc and, as the smaller partner, would have to sign up to its rules. And if it leaves in March 2019 as scheduled, Britain would no longer play a part in setting those decisions.

Mr. Persson, of EY, said Britain could achieve something “short of single market membership but more than South Korea and Canada,” with some services access included. This could be done if both sides recognized the other’s regulatory systems.

Other agreements could cover airlines’ rights to operate, the regulation of pharmaceuticals and chemicals, cross-border broadcasting rules and guidelines for the energy sector and nuclear safety.

It all depends what Britain will give up. “The more Britain is willing to become a rule taker,” Mr. Persson said, “the greater the prospects of grandfathering the measures provided by being part of the single market.”

But tying itself to European rules means that Britain’s freedom to strike deals around the globe would be seriously limited, destroying the hopes of Canapore enthusiasts.

Mr. Menon says the need to keep them on board may lead Britain to a deal that is “not very good.”

Mr. Persson is more optimistic, though he acknowledges that curbs on European workers, and an inevitable reintroduction of some customs controls, would cause the British economy to take a hit.

And difficult choices lie ahead as Britain stares at the global economic map and tries to decide where to place itself.

“In some sectors, you have to choose between the European Union and the rest of the world, for example in chemicals,” Mr. Persson said. “In other sectors it is more nuanced, it’s a sliding scale.”

“Britain has to decide where, on that sliding scale, it wants to land,” he added.

Source: NYT > World

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