Much has been said about Britain’s possible – or impossible – trade relationships with the EU and the rest of the world after Brexit. But what relationships will the EU want with Britain going forward?
EU business keen to talk
Business groups and associations in the EU have taken several months to figure out what Brexit would mean for them. They have only recently started formulating precise wishes. The uncertainty surrounding the future relationship is also not helping them come up with concrete demands.
There are signs businesses are getting worried about the turn of the Article 50 EU withdrawal talks. Business Europe, for instance, the big business lobby in Brussels, has called for early talks on the future trading relationship between the EU and Britain. Here, business is not in line with political leadership.
There is an overarching theme in the public statements of papers released by business and lobby groups in sectors from cars to banking and agriculture to services: nobody is happy to see Britain go; all would prefer Britain to remain in the single market.
Yet all say that the integrity of the EU27 single is their paramount concern, and that principles such as the Four Freedoms should not be undermined. The EU27 market is bigger than the British market, and every single sector prefers to preserve this market, even it means losing the UK. There is a broad shared concern about Britain applying different technical and environmental standards once it leaves the EU. This for two reasons: the fear of potential competitors emerging, and the fear of losing access to the British market.
In the UK’s planned withdrawal process from the customs union and the single market, the pain of separation will be higher in EU sectors that are protected by relatively high(er) tariffs and regulatory barriers to trade in goods and services. Among those sectors are autos (with EU tariffs at 10 -15percent), textiles (high tariff peaks in some areas varying from 12 to above 20 percent), various agricultural sectors (meat in particular, fisheries), and various services sectors.
Some of these sectors have been successful at resisting trade liberalisation in the past and are organised in effective lobbies. The agricultural sector, for instance, tends to weigh disproportionately on the political process surrounding trade negotiations in the EU. Will this be the case in Brexit? Will they insist on keeping Britain in their system? It is very hard to say at the moment.
EU approach to trade negotiations
With third countries, the EU is:
- Quite liberal in terms of tariffs on industrial goods. Ready to go duty free in free trade negotiations;
- Pretty offensive when it comes to opening up selected services markets abroad, especially where public procurement markets are involved (infrastructure, transport, telecommunications, environment);
- relatively protectionist in agricultural trade issues (tariffs, quotas), but less protectionist than Japan, Norway or Switzerland;
- rather intrusive on technical standards. For example, in its trade agreements with Canada, Vietnam and Japan, the EU has ensured that its partner comply with the EU’s preferred technical standards in sectors like automobiles, electronics, or renewable energy products;
- increasingly expansionist in some regulatory areas such as pharmaceutical patents or so-called ‘Geographical Indications’ for food and drink products.
Types of EU free trade agreement
The first are agreements in its direct neighbourhood where it literally exports its regulations: in an almost blanket way, as in the EEA arrangement with Norway, Iceland and Liechtenstein; or only in selected areas, as with its Deep and Comprehensive Free Trade Agreement with Ukraine, or its various agreements with Switzerland. Turkey is part of the EU’s customs union except in agriculture, and Turkey applies EU technical industrial standards.
The second type are ‘classic’ free trade agreements where the EU seeks regulatory cooperative arrangements and refers to international technical standards or international conventions in chapters dedicated to issues like the environment or intellectual property. Examples are CETA with Canada or the 2011 EU Korea free trade agreement.
There is little room to negotiate an agreement that deviates significantly from these models. This is due to the EU’s constitution (e.g. the Four Freedoms) the ’bureaucratic’ way the Commission works, and also political constraints: member states need to build consensus before change can take place.
Given the UK’s current alignment with EU law many believe it will be easy to negotiate a free trade agreement with the EU following a ‘hard Brexit’ involving exit from the customs union and the single market. The Withdrawal Bill currently under preparation aims to replicate EU law to the letter. In such a context, zero tariffs and mutual recognition of standards across the board should be an easy deal, some believe.
Although the Withdrawal Bill replicates EU law, the UK will most likely not have new or upgraded supervisory bodies ready to ensure compliance with EU standards. This means the EU will not be in a position to simply let any new British product enter the EU27. It will take time before the EU recognises the institution that will replace, say, the European Food Safety Agency, EFSA.
Britain also needs to decide if it wants to remain in the EU’s key standardisation bodies such as CEN and CENELEC. But that can only happen as part of a wide ranging trade arrangement with the EU. If the UK leaves these bodies in 2019, it is not clear when, if at all, the EU will recognise whatever standardisation body emerges in Britain – even if on paper Britain produces according to EU laws and standards.
If the UK continues to apply EU standards and sees them recognised by the EU, Britain will have little leeway to do a separate deal on standards with other countries in future – for example with the United States.
Brexit Britain has many of these binary choices to make. These will determine the final shape of a deal with the EU, not the nature of UK law.
In a world in which Britain wants to leave the EU’s customs union and the single market, the best option Brussels will be able to offer is a deal resembling that with Ukraine, the only agreement alongside the one with Turkey where no free movement applies. A Ukraine style deal would certainly not be favourable to Britain and would take time to negotiate.
EU business doesn’t want to see Britain go but all know there are difficult binary choices to be made. To date, the EU has shown that it is ready to make them.
Good piece, but it suffers from the same flaw as much analysis by trade analysts who do not deal directly with real trade: regulatory cooperation is not required for trade to occur, regulatory equivalence even less so. Sure, businesses that want to export into the EU need to comply with EU standards. So obviously, exporting will be easier (less administratively burdensome) if domestic standards are equivalent, or if the EU recognizes the competence of the domestic regulatory agency to assess conformity with EU standards. But the current “equivalence” of UK and EU standards is significant not because post-Brexit govt standards will also be “equivalent” (at least for a time), but rather because UK businesses already comply with EU standards.
Mutual recognition is more important to businesses in countries where standards previously diverge because it means they don’t have to have separate production or engage in separate compliance efforts. This improves the capacity to trade in a previously diverged, non-traded relationship. But in the UK-EU, post-Brexit, UK companies that depend to a great extent on exports to the EU should be able to continue to comply in front of EU agencies relatively easily. If UK standards eventually diverge, especially if they are “lowered”, then there will not be huge adaptation costs to business in the same way there are when businesses in a new market need to subject their products to higher standards. In fact, during a transition period when new UK agencies are getting set up, the UK could change its standards (for domestic only products) and then simply deem that a good certified for sale in the EU to be certified for sale in the UK. This “unilateral recognition” would ease the burden on both companies and the agencies until the capacity was more fully built.
As many analyses do (especially those that want to make Brexit seem more complicated than it needs to be), this piece puts all the burden on govt-to-govt mechanisms. Governments don’t trade, business do. Government mechanisms can make it easier or harder for businesses to do so, but the absence of a formal govt agreement does not prevent it from happening.
Dear Sir, Thanks for your comment. The question is not whether trade happens. The question is whether trade is frictionless or not – that makes an enormous difference to actually trading companies in real life. The return of paperwork for UK businesses will be shock to real-life UK traders. The situation will be the more complex the less there is a deal in place on issues like technical standards, and for this institutional arrangements need to be thought about and negotiated – as mentioned in my post. But this will likely be the subject of a dedicated post in future. Best wishes, Iana
Very interesting, but i think it does not clearly enough distinguish standards, regulations and conformity assessment.
I think this is also the nub of RDM’s comments
EU standards are voluntary and set by non-EU bodies such as CEN CENELEC and for cars the UNECE . All European states can be members of those including Serbia and Turkey. The EU sets regulations based on the standards and mandatory conformity assessment rules. Within the EEA there are binding common regulations and mutual recognition of conformity assessment regimes enforced by EU/EEA law. Our problem after Brexit would be to ensure that items going into the EU were not subject to inspections to make sure that the British quality controls respected EU requirements. If the UK were to decide to keep standards and regulations the same as in the EU ,but to “cut red tape” by laxer quality control inspections, we’d be in real trouble.
Dear Peter, thanks very much for your comment. Indeed it is not impossible to be party of all the bodies above as non EU member. The issue for Britain is to seriously start thinking about it and get a deal done on this very matter as early as possible….. Very best, Iana
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