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All Of UK’s Trade Deal Options Have Key Disadvantages – OpEd

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By Andrew Hammond*

UK Prime Minister Boris Johnson declared on Monday that he sees a “Canada-style” trade relationship with the EU as the best way to realize his ambitions of a post-Brexit “global Britain.” Yet Johnson also threatened Brussels — in what is a dramatic raising of the stakes — that he would alternatively go for an “Australia model,” essentially akin to a no-deal exit, if the EU refuses his first choice.

Johnson’s speech underlined that the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada is increasingly seen by many Brexiteers as the best template for a future EU-UK deal.

CETA, covering about a fifth of the global economy, took the best part of a decade to negotiate and was signed in 2016. It saw some 98 percent of all tariffs on goods traded between Canada and the EU become duty free, and has been billed as “the most ambitious trade agreement Europe has ever concluded.” Most tariffs were removed when the deal provisionally came into force in 2017, with the key remaining step being full ratification, which could take several more years.

Of course, the EU has negotiated a wide range of trade agreements, but for many Brexiteers it is the Canadian model that stands out. Part of the reason for this is that, in their eyes, it would allow the UK to diverge significantly from EU rules. However, glorified as CETA is by these Brexiteers, it would come with significant (at least in the short-run) costs for the UK, given the different starting positions of London (a member of the EU for more than four decades until last Friday) and Ottawa. Whereas CETA represents a net level of integration between the EU and Canadian economies, a similar deal would represent a sharp break (or hard Brexit) between the UK and EU. 

Moreover, CETA does little to enable some key business sectors. Take the example of financial services — a huge part of the UK economy — which sees neither Canadian nor EU firms getting so-called “passporting” rights that would allow them to sell their products in each other’s markets. CETA also does not eliminate border controls; although it does incentivize the use of advanced electronic checking to expedite customs clearance.

While some Brexiteers also suggest that a Canada-style deal would be relatively easy to secure, this belies the challenges involved, especially in the less than 11 months now available. For instance, EU Chief Negotiator Michel Barnier said on Monday that a CETA-type agreement would require “specific and effective guarantees to ensure a level playing field,” so future EU-UK competition “remains open and fair” in areas like competition policy, subsidies, social protection, and environmental standards.

However, Johnson said on Monday that he refuses to adopt EU rules carte blanche in the areas proposed by Barnier, and threatened to pursue an even looser Australian model if Brussels refuses to play ball with his demands. At the moment, trade between Brussels and Canberra is based on a limited partnership agreement agreed in 2008, covering cooperation in a wide range of economic areas and agreements on principles such as mutual recognition of product standards. Negotiations on a fully-fledged trade agreement began in 2018.

UK critics have already hit out at Johnson here, inasmuch as his suggestion of a deal with the EU like Australia’s appears very close to a no-deal Brexit. Indeed, the “Australian deal” language appears to be the prime minister’s new preferred term for a basic, World Trade Organization-style relationship with the EU. Yet, as Liberal Democrat acting co-leader Ed Davey asserted on Monday, this would “deliberately hollow out our trade (and) is nothing short of a scorched earth policy for our economy.”

What this exemplifies is that all of the mooted alternative models to the UK’s future relationship with the EU — from a “no-deal” akin to Australia, to a “hard Brexit” like Canada and “soft Brexit” like Norway — involve key trade-offs. And this is why UK governments have, since the Brexit referendum, found it so hard to find a single preferential model that could secure the consent of other key parties and come close to providing the previous balance of influence and advantages that Britain got from its status inside the union. 

The stark reality is that, while the nature of bilateral agreements with the EU vary, all have key disadvantages, including no full access to services, which accounts for 80 percent of the UK economy. Take the example of Norway, which is at the opposite pole to Canada. Oslo has full access to the EU single market but, in exchange, it is a “rule taker” rather than a “rule maker,” meaning it is required to adhere to EU rules without having a vote on them; it must accept free movement of people; make contributions to EU programs and budgets; and do customs checks on goods crossing into the EU.

Taken overall, Monday’s heated rhetoric between Johnson and Barnier foreshadows a tough negotiation between London and Brussels this year. While a minimal trade deal is still the most likely outcome, there is a growing possibility of a hard, disorderly Brexit on Dec. 31.

  • Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics

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Arab News is Saudi Arabia's first English-language newspaper. It was founded in 1975 by Hisham and Mohammed Ali Hafiz. Today, it is one of 29 publications produced by Saudi Research & Publishing Company (SRPC), a subsidiary of Saudi Research & Marketing Group (SRMG).

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