Breaking news on Saturday was Australia's complaint about the way the UK and EU are working together on post-Brexit trade. There's a UK seat at the World Trade Organisation but the EU also has a seat and operates for its member states in all trade negotiations under the EU Common Commercial Policy and Customs Union.
In early October we heard about the US leading a group objecting to this joint proposal. And this weekend's news was that Australia has effectively joined this group.
At issue are Tariff Rate Quotas. For example, the EU reserves the right to charge a tariff at an average rate of 19.4% on imports of "animals and products thereof" but will charge a lower rate (0% perhaps) on the first so many tonnes (the quota) of a particular product. The commonest example (just as the standard example of animal welfare and hygiene standards in trade discussions has became "chlorinated chicken") is "sheepmeat" of which 283,715 tonnes can be imported without tariffs to the EU each year, mostly from New Zealand.
If - say - the UK usually takes 20% of that, the simplest way for the UK and EU to split their positions would be to maintain the same rules and the same shares, making it 56,743 tonnes for the UK and 226,972 tonnes for the EU27. And that's the kind of solution the UK and EU have proposed jointly, and that's what other WTO members are now objecting to.
Sticking with this oversimplified example, New Zealand actually has the right to supply so much lamb each year without tariff charges to customers in any EU country it can do the business with, whatever the "normal" pattern might be. Splitting the positions as proposed would limit that freedom. A particularly large and advantageous contract might be less attractive if it's more than 80% of the old quota, and therefore attracts tariff charges on the excess.
The difference might be small, even theoretical, but this is what trade talks can be about (I'm told) - playing for small advantages in one area when a country wants to establish a new position in another or more generally. If you need to agree a new position, and there's time pressure on the negotiations, you're going to encounter a lot of other negotiators looking for favours.
The same questions have to be answered about every other product and type of trade. Then there are other questions, such as the level of farm subsidies. Is the EU content to split these in the same kind of way, thus allowing the UK to continue paying farmers as if still operating under the Common Agricultural Policy? And would the UK want to change that subsidy structure? These questions would have to be negotiated with the EU as well as with every other member of the WTO. And we haven't even mentioned trade in services, which is a bigger part of our economy.
Once "trading under WTO terms" is dealt with (the work of a moment) other areas open up. When withdrawal is complete and the UK can turn to trade negotiations with the EU there are two basic options, deal or no deal, free trade agreement or not.
If there's an FTA one day, will it maintain similar standards and arrangements to the current relationship or not? If the UK wants to diverge from EU standards as Gove and Johnson's recent letter proposes, what tariffs, quotas and non-trade barriers will goods face? If the UK wants to pay farmers for environmental protection rather than the amount of land they have, how will French and Polish farmers (and therefore EU negotiators, then other negotiators) greet that?
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| From Possible transitional arrangementsrelated to agriculture in the light of thefuture EU - UK relationship, prepared for the European Parliament's Committee on Agriculture and Rural Development http://www.europarl.europa.eu/RegData/etudes/STUD/2017/602009/IPOL_STU(2017)602009_EN.pdf |
If there's no agreement, what happens to trade in "sheepmeat" between the UK and customers in the other 27 member states, which is considerable? If the EU27 still have the 226,972 tonnes of quota we allowed them above, but most of it is still allocated to New Zealand, there will be no quota left for UK farmers to compete for. Importing British lamb into the EU will therefore become much more expensive (and the tariff for lamb is higher than the 19.4% average quoted above). British producers and exporters might have something to say about that to UK negotiators.
Going further, some influential people inside parliament and outside would like to "go full free trade" and charge no tariffs at all on imports to this country. A decision like that might face little opposition in the WTO, but strenuous complaints across the UK. Could British farmers (and producers in other sectors) survive, let alone compete, in such a world? What would happen to the British landscape and tourism if farming disappeared or changed radically?
Every decision has implications for other questions, and we've not done much of this for a long time. The least ruinous approach seems to me to be to change as little as possible, let it settle and only then consider any radical ventures.
But then I think we're embarked on a route which can only be damaging.
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The Today programme episode which prompted this entry can be found here (it runs for ten minutes from 1hr 34mins). Barry Gardiner, for Labour, took the whole economy approach - what about UK farmers, landscape, tourism? - as did Neil Parish, Tory chair of the Commons environment committee.Another position was put by Shanker Singham of the Legatum Institute, who "chairs the special trade commission, which is a group of experts who've been brought together to pool knowledge on trade and act as a source of advice through Brexit", the programme told us. Singham was more impatient, suggesting we should give Australia short shrift if it wants a good trade deal with the UK in future. (Legatum has attracted quite a lot of attention for its funding, policies and closeness to government, but I won't look at that here.)
Singham should be reminded that Australia aims to achieve a trade deal with the EU as soon as possible, and that the UK will have to wait even to begin proper talks. Here's how Forbes talked about it in September 2016:
"Steven Ciobo [Australia's trade minister] said an agreement could only be secured once the timeline for Britain’s exit from the EU is finalised. He argued that if Article 50 is not triggered until the first half of 2017, the deal would not be in place for at least another two and a half years."
and what the Independent said a year later:
"The early conclusion of a deal between the EU and Australia and New Zealand would leave the UK playing catch-up in developing its trade ties, despite Theresa May’s claim that Brexit 'was the moment we chose to build a truly Global Britain.'”
I'd suggest two rules:
- The EU is bigger than a lone UK, has more market weight but will often move more slowly; many countries will gravitate to the EU first (not least because so many of them already have arrangements with the EU below the level of a full free trade agreement).
- No country will finalise negotiations on any agreement with the UK until they know what at least the medium-term UK-EU arrangements are - a closely-coupled UK which can still act as a gateway to the EU could achieve a different deal compared with a UK treating the EU as just another country.
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"To be an independent WTO member, the UK would be creating its own rights and obligations out of the EU’s. That’s not as simple as it sounds. One reason is because other countries with different interests would want to ensure the balance is also right for them".The whole subject was addressed nicely just days after last June's referendum vote by Peter Ungphakorn (Freelance Journalist and former Senior Information Officer with the WTO Secretariat).
