Brexit

Comment: Why the UK should take its time before talking trade with the EU

 

The UK could end up being grateful to the EU for refusing to talk about their future trade deal just now. This gives Britain some time to start thinking about a real economic and trade policy strategy. By Iana Dreyer

 

The United Kingdom and the European Union are now beginning the process of negotiating the country’s withdrawal from the EU. The triggering of Article 50 by the UK this week has set the clock ticking. In two years, Britain will be out.

 

Why rush into a trade deal?

 

Britain’s move on 29 March 2017 immediately brought to the limelight a fundamental difference between the two sides over the scope of the two-year talks ahead. The UK wants to start talking immediately about the general future relationship and secure a trade agreement by 2019. The EU wants to get the ‘divorce bill’ settled first, before talking about a general framework for future trading relationships.

 

The way the UK approaches the whole process is not realistic. If it wants to make the best out of its life outside the EU, and perhaps even do better than the EU, the UK government will have to accept that it will need to take time to make some strategic decisions about the country’s future first, and not rush it on deciding on a final deal so soon.

 

There are no signs yet that the government is doing that kind of serious thinking work. It is all about internal politicking with triumphant Brexiteers, fending off the Scots, refusing to engage with the anger and alienation of half the country’s population that did not vote for leaving the EU, and avoiding any serious debate in the Parliament on the future of the country.

 

In these negotiations with Brussels, the government already got its very first step wrong. The official letter by Theresa May has tied talks on security issues to outcomes on trade and vice versa. One wonders if the UK is serious about wanting to put at risk its own security arrangements should the EU not play along the way it wants on trade? Is this a serious trade-off London wants to engage in?

 

The UK government is also wrong to want talks about the final trade deal now. It’s better to start with focusing on a proper economic strategy at home, on which it can then build its coming trade policy, including vis-à-vis the EU.

 

There are signs that the government is starting to realise the scale of the task ahead and has started to lower expectations in recent media and parliamentary appearances about what can be possibly achieved in the coming two years of Article 50 talks.

 

While the government has publicly said it is ready to walk out of the talks without a deal, it should be made crystal clear that this can only be the ‘nuclear option’. Crashing out of the EU would be not only damaging for people, for business, but also for political stability in Britain and in Europe. It’s in fact a terrifying prospect.

 

But the British government has not gone far enough in getting real about the situation and the coming negotiations. This involves fighing a bit battle that will be internal to the government and the ruling Tory party.

 

Less powerful, but why not smarter

 

It will be a shock to UK politicians to start feeling what it really means to be alone as a mid-sized power in a world where the big guys are the US, the EU 27, Beijing, Delhi and Moscow. This means that the UK will have much more limited bargaining leverage in negotiating trade agreements than the current government seems to be admitting. This process of loss of power will make many angry.

 

Losing power often unleashes an angry scapegoating of others. In the UK the scapgoats will most certainly be foreigners and the EU. Anything that goes wrong in the coming months in Britian will unleash the rabid hounds of country’s salacious gutter press and upset the ‘hard Brexiteers’ that have held sway in the government in the last months. If Ms May is a stateswoman and not only a party operator, she will ensure these demons are silenced.

 

Trade policy is increasingly about who sets rules, standards and regulations covering vast expanses of territories, hence markets. The three major broad regulatory spheres are the EU and its neighbourhood, the US and its neighbours and partners, soon China and its wider neighbourhood.

 

Britain in all this will be a rule-taker. It will not make these rules. By being outside the EU it renounced being at the table of those who set those rules.

 

What the UK loses in power, it will have to compensate with smartness and agility.

 

And to be able to be smart and agile, Britain needs to make a hard headed assessment of where it stands in the global economy, and in global power relations. It will also start drawing plans that are grounded in economic and political reality.

 

Realism does not mean lacking ambition, to the contrary. If it can’t set rules, Britain will at least have the freedom to choose selectively its coming regulatory alignments. The two major systems it will piggy back on will be the US and the EU’s. For each and every major sector it will need to look into the advantages and disadvantages of being aligned with the EU or not. This includes industrial and sanitary standards, and the regulatory regimes that favour the expansion of its most competitive economic sectors from high tech industries to Britain’s booming and dashing business services provides, digital and creative industries.

 

There are no clear cut answers, though geography and proximity matter hugely in trade.

 

Though the EU’s SPS standards are onerous, for instance, Britain might still be better off continuing to abide by EU norms, given where most of its agribusiness exports go to, and given the reputational advantage EU standards tend to have on global markets. On finance, data, and other areas, the choices could end up being different, after a thorough assessment of the global market trends and potential future flows of business in each and every sector.

 

That kind of discussion needs to start immediately. Only by getting real can it start working seriously on the Brexiteer’s dream of a more prosperous Britain out of the EU. That dream will not be fulfilled instantly. Like any meaningful and successful human endeavour, this will need time, hard work, strategic thinking, and trial and error.

 

Allie Renison, the head of international trade policy at the Institute of Directors put it very well this week during an exchange with MPs in Westminster: “At this point we are at a period where the UK government really needs to work with industry to develop and overall trade strategy… making sure that we understand what our priorities are, our offensive interests by sector, but also our priorities.”

 

We are not yet there.

 

Two years is short to make such strategic decisions. But the two years ahead give the UK some breathing space to get down to work on this. There would be nothing more damaging to the UK itself than entering the inevitably ugly bazaar type trade deal bargaining with the EU just now.

 

Iana Dreyer is the founder and editor of borderlex.eu

 

 

 

 

Views expressed in this column are personal.

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