A Brexit trade deal can be done but new cliff-edges await, warns trade expert

The UK may be just hours away from walking through the EU’s exit door but when it comes to trade, the journey is only just about to start, according to Sam Lowe, one of Westminster’s leading trade experts.

“The thing that’s different now is that we do have quite a clear steer from the British government as to the type of relationship they want,” Lowe, who is a senior research fellow at the Centre for European Reform, told EURACTIV.

“Broadly, they are seeking an agreement that will remove tariffs and quotas on goods, but otherwise will not do very much to reduce regulatory friction to trade – and this agreement won’t do much on trade in services. It’s the standard EU FTA model”.

A member of the UK government’s Strategic Trade Advisory Group, Lowe believes the trade side of the future partnership talks can be resolved this year, though he excepts more brinksmanship when they reach crunch-time in the autumn.

But he expects a compromise to be eventually struck, though “the EU will have to move a little bit and the UK will have to move a lot, that’s largely the story of these negotiations.”

Tight window

With the talks set to start in early March, and the post-Brexit transition period due to run out in December 2020, the window for the trade talks is decidedly narrow and there are going hurdles along the way.

“The ones we are going to come up against early in the year are the preconditions that the EU is putting on agreeing to the future free trade agreements.”

These, said Lowe, will include the UK giving the EU access to its fishing waters, committing not to roll back standards in environment and labour, and following state aid law now and into the future.

“The UK complying in these areas doesn’t get them any more than that. It doesn’t mean lower regulatory barriers. it’s just the price the EU is asking for an FTA,” said Lowe.

“The UK is saying it doesn’t want to do these things and this is where the debate is going to be in the first few months. The EU has not made these requests of other countries – this is something unique to the UK, and there’s an argument to be made that this isn’t fair,” he added.

Lowe said he believed a compromise can be found on environment and labour standards, as well as shared fishing stocks, but admitted to being unsure on whether this would satisfy the UK’s fishing community.

“The big one is state aid because the EU is not just asking the UK to keep to existing rules, but that it continues to follow state aid rules in the future,” he said.

For Lowe, hard negotiating is likely to take place only after July. Until then “there’s going to be a lot of chess-piecing”, he said. He also found it unlikely that Prime Minister Boris Johnson could change his mind and request an extension to the transition period.

“But that creates its own negotiation eco-system. The substantive negotiations and compromises happen in the third quarter of the year, that’s what I would predict,” he said.

Cliff-edge
However, plenty of questions will remain, even if the UK does not request an extension to the transition and agrees a deal with the EU.

“The big question for me is ‘does it come into force on 1 January 2021, because were it to do so, if we are going from high alignment relationship to low alignment relationship overnight, then actually you have a day one cliff-edge issue.”

“You would have visually the same issues at the border as no deal at the border – you would have backed-up trucks and businesses not knowing what to do and without the right paperwork.”

If a deal is reached, a key issue is whether there will then be a further implementation period, “a new phase for this change to happen gradually rather than overnight. We will not know the answer to this until later in the year”.

“For businesses who are watching this process it’s quite a big concern when the best-case scenario for them is a free trade agreement that is still going to throw up all of these problems,” he added.

New trade deals
While the talks on future trade with the EU will dominate 2020, Lowe also expects the UK to make progress on other post-Brexit trade deals with the US, Australia, New Zealand and Japan being its priorities.

Of those four, Lowe argued Japan should be the UK’s main prize “because they’re a large investor in the UK and are very worried about Brexit, so there’s a trust-building issue.” Deals with Australia and New Zealand could also move quite quickly and be ready for ratification before the end of 2020, he said.

But he warned ministers against “running headfirst into a trade deal with the US”, pointing out that the UK has not negotiated any trade deals in more than 40 years and there are going to be “teething problems”.

“The US, as with the EU, tends to get what it wants,” Lowe said, warning that the Trump administration will, in addition to its own trade deal with the UK, also actively try to influence the UK’s discussions with Brussels.

Despite the Johnson government’s eagerness to begin negotiations on its promised post-Brexit trade dividend, Lowe urged caution. “I don’t think the government has thought through what it wants from trade policy,” he said.

Meanwhile, negotiations on all fronts may well be slowed by a rumoured reshuffle and re-organisation of the cabinet, expected in the coming weeks. The Department of International Trade is among those rumoured to have been earmarked to be scrapped or restructured.

Armed with an 80 seat majority, Johnson will face no obstacle in pushing an EU-UK trade deal or other post-Brexit trade accords through Parliament. But while Johnson’s majority has given him a blank canvas and almost unfettered power at home, it is unclear if this translates into stronger bargaining power with the EU.

“The EU is still the larger party,” said Lowe.

“What has changed is the UK government’s ability to deliver on what has been agreed, which was one of the problems before and which the EU side had to take account of. The question now is whether Johnson is happy with it and then you can pretty much assume that it will get signed off.”