Future UK trade deals and the question of sovereignty

How sovereign can a ‘Global Britain’ signing trade deals across the world really be? 

Brexit supporters argue that leaving the European Union will give Britain two big advantages. One is that it will be able to take full control over its laws and regulations and better match them to the interests of the British people. The other is to free the country to strike trade deals with partners around the world, not just those that the EU chooses to negotiate with.

However, those two objectives – national legislative and regulatory autonomy and the pursuit of “Global Britain” – are incompatible, if not indeed in direct conflict with each other. Britain can have one or the other, but not both. Neither the Brexiteers nor the government appears yet to recognise that they will need to choose between them, or at least make some difficult compromises.

One reason is that modern trade agreements no longer deal just with border barriers, such as tariffs and quotas. They intrude increasingly into often politically sensitive areas of domestic policy by embodying a mass of rules and regulations with which signatories are obliged to comply.

That necessarily requires concessions on national sovereignty, as should have become blindingly clear from Britain’s flailing efforts to extricate itself from the EU. Instead of making the “clean break” that some Brexiteers dream of, it is having to navigate an immensely complex political and economic minefield, strewn with regulatory booby traps and hidden explosive devices.

Hard choices

The withdrawal talks have brutally exposed the choice facing Britain. It can opt for national regulatory sovereignty by removing itself from EU rules and jurisdiction. However, that will come at a cost: forgoing the benefits of free access to the single market and seeing an array of regulatory hurdles erected against British exporters and investors. Its efforts to persuade the EU to allow it to retain those benefits selectively have been roundly rejected.

Britain is unlikely to find life much easier in negotiations with non-EU countries. The 11-member Comprehensive and Progressive Agreement Trans Pacific Partnership (CPTPP), which the government is eager to join, is a regulation-heavy accord that commits participants to respect rules governing not only trade but areas such as intellectual property and environmental and labour standards.

As an advanced democracy with a robust legal system, Britain may have little difficulty complying with many of those rules. But it is likely to face a much bigger problem in agricultural trade, where CPTPP members such as Australia and New Zealand, which are big agri-food exporters, have indicated they will insist that Britain open its market much wider to their products.

That could present the UK with another tough choice. Geoff Raby, a former Australian ambassador to the WTO and a seasoned trade negotiator, argues that it would be difficult for Britain to join CPTPP unless it scrapped all EU agricultural rules. That, however, would not only go against current government policy; it would severely limit British farmers’ access to the EU market, which buys 70 per cent of their exports.

The US, another of the government’s priorities for a trade deal, presents a still bigger challenge. It has made clear that its price will include free access to the UK markets for chlorinated chicken, hormone-treated beef and genetically modified crops, imports of which are banned or severely restricted by the EU. Again, efforts to expand trade with one set of partners risks reducing it with others.

Britain’s cabinet is divided about which way to jump. While Liam Fox, international trade secretary, seems ready to acquiesce in US demands, Michael Gove, who is in charge of agricultural policy, opposes imports of products such as chlorinated chicken that do not meet EU standards. The two ministers’ differences are just the tip of a much deeper iceberg.

In truth, the government has still not decided what it really wants out of trade deals, nor has it conducted any deep analysis on their economic impact. In the EU and most other advanced economies, objectives – and “red lines” around so-called defensive interests – are set after consulting closely with business and carefully constructing coalitions in support of policy. Yet in Britain participants in government consultations complain that have so far been inadequate and that officials do not seem to listen to what they have to say.

Regulatory contest

Also lacking are serious efforts to sound out public and political opinion. Not only is that inconsistent with claims that Brexit will produce regulations and policies better suited to Britain’s priorities; it risks storing up serious political problems ahead.

Over the past 20 years, numerous trade negotiations have come to grief as a result of popular protests, often abetted and amplified by energetic activist groups. Food standards and possible US pressure to raise pharmaceuticals prices are just two of many potential flashpoints that risk igniting an angry public reaction and possibly accusations that the government is selling out Britain’s interests to foreign governments against its citizens’ wishes.

If trade deals are to be done, such reactions need to be anticipated and defused. A senior CCTPP negotiator says he and other government officials spent months addressing meetings across his country in order to sell the agreement to a sceptical public. It was, he recalls, the most exhausting ordeal he had ever experienced. Britain’s government, however, appears to have no plans so far for any comparable exercises.

Against this background, Brexiteers’ dreams of turning Britain into a force in global rule-making look optimistic. More likely, it will end up being a rule-taker, the junior partner in negotiations with bigger powers, in a world where the rules are made by the economic heavyweights: the US, the EU and, increasingly China.

The EU has been particularly effective at exporting its own rules, in areas ranging from data privacy to chemicals and geographical indications for food and drink. In part, its success has been due to insisting on writing such provisions into its trade agreements; but in other cases, businesses elsewhere have simply found it simpler and easier to embrace de facto regulations and standards. The UK may thus find that commercial self-interest obliges it to continue complying with Brussels’ writ after Brexit.

Not to do so would risk either consigning itself to regulatory isolation or being torn between conflicting rules imposed on it at the behest of more powerful trade partners. In a recent report, the Institute for Economic Affairs, a pro-Brexit think tank, spoke of the UK becoming an international “regulatory battleground”, where different systems of rules jousted for supremacy. The authors appeared to welcome that prospect. But the outcome could also be a bruising contest, in which the UK ended up as a bystander or as one of the casualties.

Guy de Jonquières is a co-founder of the UK trade Forum. He is senior fellow at the European Centre for International Political Economy and an associate at LSE IDEAS. He was previously Financial Times World Trade Editor and Asia Commentator.

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