Friday, 7 April 2017

How long will a Brexit trade deal take?

The most remarkable Brexit development this week has attracted surprisingly little attention. Interviewed by Faisal Islam of Sky News during her visit to Saudi Arabia, the Prime Minister revealed a key fact about the forthcoming negotiations. Namely, she indicated that there was no prospect of a trade deal with the EU being signed within two years, and that if and when it happened it would be with the UK as a third party (i.e. outside of the EU) rather than as part and parcel of the Article 50 negotiations. This means, in turn, that it will fall under a different process which requires unanimous ratification by EU member states, rather than the qualified majority of the Council (plus simple majority of the European Parliament) needed to agree the exit terms.

In one way, this is, indeed, not newsworthy. Anyone with any real familiarity with the issue already knew that this was how things would be, and it was heavily trailed by the EU during the referendum campaign and since. Article 50 only covers the exit terms (albeit “taking account of” the shape of future arrangements) and it would actually have been quite conceivable that no trade talks would even begin until after these had been settled. In fact, the EU position on this has turned out to be relatively soft, with the Council (and now the Parliament) agreeing to begin talks on future trade once they judge that ‘sufficient progress’ has been made on the exit terms negotiation.

However, what makes Theresa May’s interview remarkable is that hitherto she and the government had at the very least implied that exit and trade talks would be completed within two years, and certainly had asked in the Article 50 letter that they would occur in parallel from the beginning of the Article 50 period. It’s true, as Ian Dunt – one of the few journalists to have picked up on the full significance of the Sky interview – notes, that May had been rather ambiguous in the past. She had talked of ‘reaching an agreement’ within the two years which would then take longer to implement. That could, at a pinch, mean just the outlines of an agreement but, as Dunt points out, implementation could not begin until agreement had been completed. So the strong implication was undoubtedly that pretty much everything would be agreed within the two years. That is now ruled out, as are parallel talks from the outset of the process.

Whatever ambiguity there may have been in the government’s position until now, there is no doubt at all that Brexiters claimed – both before the referendum and since – that a trade deal, and moreover an advantageous trade deal, would be easy to achieve, and in less than two years. For example, last October Boris Johnson claimed that 18 months was “absolutely ample” to get a “great deal”. As recently as 30 March veteran Eurosceptic Peter Lilley said that “there’s no reason why it [a trade deal with the EU] should take more than ten minutes”. Even taken as a figure of speech that is clearly absurd. Similarly, as I have pointed out in another post, many leading Brexiters including Lord Lawson, David Davis and Peter Hargreaves all indicated during the campaign that a quick trade deal was not just possible but virtually guaranteed.

That this is now demonstrably untrue is extremely important. During the referendum campaign voters were repeatedly told that trade could be protected and that to say otherwise was ‘Project Fear’. Most mendaciously of all, the Vote Leave campaign actually promised voters that a new deal would be agreed before the legal process to exit was started. They were misled, as on many other things, and that matters in itself. It also matters because the length of time it will take and the uncertainty about the terms on which it will happen, if at all, directly affect companies’ willingness to invest and their decisions about relocation. In many cases, as is being seen in the financial sector, relocation processes take a long time and must therefore be decided on well before any completion of trade negotiations. With those relocations go jobs and taxes.

So now that May has acknowledged that there will not be a trade deal in two years, how long will it take? People are still being misled. The Daily Mail report of the PM’s comments was that there would be deal 'ready to sign' at the end of two years. But that is very clearly not what she said or implied. The best estimate would still seem to be the two to ten year period which Sir Ivan Rogers was hounded out of office for reporting in January. He has since suggested that a ratified deal by the mid-2020s is likely. It is worth noting that at the same time he predicted that the EU would not allow a sector-by-sector single market deal, and that has now been proved right by the EU Council’s draft guidelines.

Brexiters like Peter Lilley and Lord Lawson often argue that this deal can be much quicker than a normal trade deal because standards and regulations are already harmonized between the UK and the EU and it is this which takes the time in trade negotiations. But that misses the point that, precisely, this will not be a normal trade negotiation. Normally, the intention is to improve the ease of trade. This time, it is to erect barriers. If the Brexiters mean that the UK can in effect stay in the single market in every way except for freedom of movement of people and CJEU jurisdiction then they have misunderstood what the EU means by ‘no cherrypicking’. The points of long dispute will not be about current standards harmonization, they will be about, primarily, future standards harmonization, dispute resolution systems and possibly a preferential immigration system for EU citizens. Of course that could be shortened simply by agreeing to the existing system – which would mean staying in the single market! But that, of course, has been rejected by the government. Moreover, because this deal will need unanimity there will have to be votes in all national and some regional parliaments before ratification. That all takes time and can be unpredictable, as the recent CETA experience has shown.

So for all these reasons the Rogers’ estimate of timescale still looks reasonable. This, then, means – and May, again, seems to have conceded it is so – that there will be a long period during which the UK remains within the single market, under CJEU jurisdiction and with freedom of movement. It will not be a ‘no deal better than a bad deal’ WTO scenario, as talks will still be ongoing. An additional aspect of this is that it will also mean that the UK is still in the customs union and, therefore, that no new trade deals with non-EU countries can be signed in the interim. How long the interim will last is impossible to say. The EU Parliament this week suggested a maximum of three years. I suspect that that could be negotiated to be longer but even if not it still takes us to 2022.

If so, that is well beyond the 2020 General Election and it is by no means inconceivable that an interim period would even go beyond the 2025 General Election; some have suggested a seven-year EEA interim after completion of EU exit in 2019, taking us to 2026. The political consequences of that are very difficult to imagine or predict. One is that since the UK will have left in 2019 it will no longer have any representation within the EU and certainly no MEPs in the European Parliament (a strange and ironic way of ‘taking back control’).  How will Tory Eurosceptics react? Will the Tories even be in power, and if they are will Theresa May still be PM? What will British politics and attitudes to Brexit look like in 2020, let alone 2026?

To get a sense of how much things can change in such a time frame, just suppose that the interim period did go on until 2026, ten years after the referendum. Then consider what was happening in 2006, ten years before the referendum. That was when David Cameron in his first conference speech as Tory leader warned his party to stop “banging on about Europe”. O tempora! O mores!

3 comments:

  1. While I completely agree with your and Ian Dunt's conclusions (The North's take a similar line. May has entirely fallen in line with the EU's guidelines. Her EU strategy is in tatters. Sturgeon has her on the back foot over Scottish independence.) Yet she continues to behave as if she is in control of events. I watched the full interview on You Tube and came away scratching my head. No wonder the MSM is not reacting. It's an object lesson in spin and and deception. As for the BBC, I've entirely given up.

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  2. "In fact, the EU position on this has turned out to be relatively soft, with the Council (and now the Parliament) agreeing to begin talks on future trade once they judge that ‘sufficient progress’ has been made on the exit terms negotiation."

    I'm not sure how soft that position is when it is within the EU's power to define sufficient progress. Can be used to apply pressure as time passes.

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    1. Agree - I just meant that a 'hardline' position might have said complete exit first before any talk of trade. Though in practice that would have been difficult in terms of the 'taking account of' clause. I think the key point is that nothing much will happen on discussing the future until the exit bill is settled - not necessarily a figure, but an agreed method of calculating what that figure will be.

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