Britain’s exit from the European Union will have a negative effect on EU member states’ opportunities to trade with the UK. This is why damage control will be of paramount importance, say Anna Stellinger and Oscar Wåglund Söderström of Sweden’s National Board of Trade. From a Swedish perspective, the best solution would be for Britain to join the European Economic Area.
In a report commissioned by the Swedish government ahead of the negotiations on a new EU-UK trade relationship, the National Board of Trade analyses key issues that Sweden will need to prioritise to avoid new trade barriers. The UK is an important trading partner for Sweden, and making trade as smooth as possible after Brexit is a definite priority for a trading nation like ours.
As the UK leaves the bloc, international rules laid down by the World Trade Organization will be central, at least in a no-deal situation. However, as WTO rules are far less comprehensive than those that apply to the EU internal market, this will – at least in the long run – give rise to regulatory divergence and increase costs for European businesses. The risk alone of rules and regulations drifting apart is enough to negatively affect trade.
In raw material sectors, such as those trading in iron, steel, paper or mineral oils, the risks posed by Brexit seem to be relatively manageable. Few EU regulations apply, so future divergence in legislation is unlikely to create any significant barriers to trade.
The situation is the opposite when it comes to trade in the motor vehicle sector, which is subject to detailed technical regulations and high tariffs. A solution such as those created for Switzerland, Japan and South Korea may be needed to avoid serious barriers to EU-UK trade.
Negotiators should focus on horizontal issues
Business services is also heavily dependent on EU legislation. To keep services trade as frictionless as possible, the principles laid down in the EU Services Directive, the Professional Qualifications Directive and today’s EU model for movement of data need to remain in force after Brexit. Even more importantly, negotiators should focus on maintaining horizontal rules covering movement of people and data. If companies cannot move people and data, there won’t be much trade.
Many EU member states are diversified economies with interests in most sectors, and business reality is that value chains interlink industries. This is one reason behind our main conclusion: negotiators should focus on to horizontal solutions, such as movement of persons and data, tariff-free access with liberal rules of origin, trade facilitation, openness in public procurement and ways to ensure compliance with agreed rules. These broad issues are necessary preconditions for all EU-UK trade after Brexit.
Another reason to stay firm on the horizontal issues is that regulatory frameworks identified as key for one specific sector are often equally important for others. Problems may arise in a certain sector, but the solution is often found elsewhere.
EU law is a complex system. The UK’s plan to copy the bloc’s current legislation into a withdrawal bill in an attempt to avoid trade barriers is insufficient. A new EU-UK trade relationship must include a strong legal framework, with mechanisms for compliance and uniform interpretation of rules, to reduce future regulatory divergence. Our conclusion is that we need a far-reaching horizontal agreement, binding the UK as close as possible to EU law.
One ‘best solution’ in a range of options
So what options are available? From a Swedish perspective, the best solution would be for Britain to join the European Economic Area. This option is – in most but not all cases – the closest we get to maintaining status quo in EU-UK trade relations, and it would mitigate the negative effects of Brexit.
Depending on the issue, other solutions may be preferred. In some cases, the broad Deep and Comprehensive Free Trade Agreement with Ukraine could serve as a model, while in others, the EU-Turkey customs union would be more adequate. Another solution could be many partial agreements, such as that with Switzerland. All of these accords ‘expand’ EU law, its principles and application to the other party.
A more traditional free trade agreement will not solve all of the potential trade barriers that Brexit might bring, regardless of whether it is advanced and ambitious, such as those with Canada, Japan or South Korea. Such deals generally both lack harmonised rules and the principle of mutual recognition, and are all very far from today’s simple conditions for trade between the EU and the UK.
The National Board of Trade is not proposing any specific, tailor-made model for post-Brexit trade. However, it is clear that apart from the EEA option, no off-the-shelf solution would offer trade opportunities even remotely similar to those available today through full participation in the internal market and the EU customs territory.
This is at least one thing in all this confusion that is certain.
Anna Stellinger (@AnnaStellinger) is director general, of the National Board of Trade Sweden
Oscar Wåglund Söderström (@OWSoderstrom) is deputy director general of the National Board of Trade Sweden
Opinion pieces published on Borderlex are those of their authors only.