Progress | Centre-left Labour politics

Debunking the Brexit trade myth

The UK risks damaging our trade with our closest partner to pursue deals with third countries, only to find that the terms on offer from those countries are unacceptable or largely detrimental, find Jonathan Lis and Francis Grove‑White

The prime minister has changed her tune. In April 2016, in advance of the European Union referendum, she warned: ‘we export more to Ireland than we do to China, almost twice as much to Belgium as we do to India, and nearly three times as much to Sweden as we do to Brazil. It is not realistic to think we could just replace European trade with these new markets’.

She was right. Yet today, she oversees a government that views securing a fully independent trade policy as the ultimate prize. A government that has cast Brexit as a mission to turn Britain into a free-trading, buccaneering ‘global Britain’.

The reality is that Brexit will do little for free trade. Indeed, far from enhancing Britain’s trading reputation, it risks crippling both. Far from building ‘global Britain’, it risks diminishing it.

Some in government know this, but they are losing the argument. The cross-Whitehall Brexit impact analysis, leaked earlier this year, forecast that ‘an ambitious [free trade agreement] agenda, including with Trans-Pacific Partnership countries, Asean, the [Gulf Cooperation Council], China, India, Australia and New Zealand’ would in total add between just 0.1 per cent and 0.4 per cent to gross domestic product. Meanwhile, leaving the single market and negotiating a free trade agreement with the European Union was estimated to cost around five per cent of GDP.

So, if we are to leave the EU, we face a trade-off: we can have an independent trade policy that may in future deliver miniscule improvements in trade with some countries. But to achieve that we must leave the economic structures of the EU and thereby create trading friction with our largest and closest trading partner. Martin Donnelly, the former permanent secretary at the department for international trade, has described this choice as ‘like giving up a three course meal for the promise of a packet of crisps’.





But it could, in fact, be even worse. Despite outlandish claims made by some ministers – David Davis has promised the government will negotiate ‘a free trade area massively larger than the EU … within between 12 and 24 months’ – the reality is that free trade deals usually take many years to negotiate and involve countless trade-offs, mostly on the part of the country that is most in need of an agreement. To rehash Thomas Hobbes, trade negotiations tend to be nasty, brutish and long.

It is a common complaint amongst advocates of hard Brexit that the EU has not secured free trade agreements with the likes of the United States, India or China. But there are good reasons for this, many of which will become apparent if the United Kingdom seeks to initiate talks with these countries post-Brexit. In a forthcoming report, Open Britain has chosen to focus on the six trading partners most commonly cited by the government as lucrative targets for trade deals: the United States, China, India, Australia, New Zealand and the Gulf states. Trade negotiations with each of these countries will invariably mean trade-offs – trade-offs the government has not even begun to explain to the public.

Take the US, where president Donald Trump’s ‘America First’ rhetoric and his clear hostility to many US-negotiated trade deals, suggest his administration is unlikely to alter the US’ well-established trade objectives in any favourable sense.

What we know already is that striking a trade agreement with the United States would likely mean acquiescing to a lengthy list of demands, and securing only limited benefits in return. Areas of concern cited by US negotiators include the regulation of chemicals, pharmaceutical pricing, product testing, food labelling, the definition of whisky, broadcasting, subsidies and data.

The US commerce secretary, Wilbur Ross, has made it clear that agreeing to lower our sanitary and phytosanitary standards to allow greater access for US meat exporters – including products like chlorine-washed chicken and hormone-treated beef – will be a prerequisite for any free trade agreement. Yet it is clear that the British public would find this divergence from our current European standards unpalatable, and would also make an open border on the island of Ireland all but impossible.

Even if a deal could be reached, there would likely be only limited gains for the UK. The US has shown no sign that it will open up its services sector to UK companies. US trade negotiators perceive the UK to be in a weak position, and any trade negotiations between the two countries are likely to see the US seek to exploit that weakness. And the government’s own data suggests that a trade deal with the US would add just 0.2 per cent to GDP in the long-term.

Meanwhile, achieving an FTA with China that significantly increases market access in services – a key priority for the UK – would be extremely difficult. As well as China’s longstanding reluctance to open up its services sector, geographical distance, differences in business culture and regulatory uncertainty will continue to be further impediments.

China takes almost six years on average to conduct free-trade agreements, and it drives a hard bargain – the China-Switzerland deal, for example, proved highly uneven. Even if the UK were to conclude a deal, the benefit to the British economy would be miniscule in comparison to the costs associated with leaving the single market and the customs union. Cars, the UK’s key export to China, could be sharply affected by disruption to supply chains and rules of origin requirements.

On top of all this, China is commonly seen as a problematic trade partner which engages in unfair and unethical practices. Particular concerns include the widespread dumping of goods, which poses a great risk to the UK steel industry, and intellectual property theft. China’s approach to human rights is a further potential stumbling block to any future agreement.

For its part, India embodies a fundamental disconnect in the post-Brexit ‘free trade’ mindset: that we can open our borders to goods and investment but close them to people. The British refusal to allow more visas for IT professionals already prompted, in part, the collapse of the EU-India trade deal, and the same thing would likely happen in a bilateral negotiation. UK restrictions on international students are also deeply resented. Other problems that arose during the EU’s negotiations with India, such as India’s refusal to reduce tariffs on Scotch whisky, or to open up the financial or professional services markets, could also scupper talks, or at least greatly limit the benefit for the UK.

Moreover, it takes an extremely long time to negotiate trade deals and India has, by its own admission, been cautious with market liberalisation. Even if we did secure a free-trade agreement, the benefits would be minimal. Only one per cent of UK exports go to India, and the government’s own impact assessments indicate that new free-trade agreements with India and others would add far less to the UK economy than even the softest Brexit would take away.

A trade deal with the Gulf states would also pose problems for the government. On a political level, three of the states in the GCC are currently imposing an economic blockade on a fourth, Qatar, which compromises regional stability and makes any negotiations all but impossible. More broadly, human rights and defence would be key stumbling blocks for any deal, particularly when it comes to negotiating with the much-criticised Saudi Arabia government.

On a commercial level, the Gulf states have proven to be difficult partners, and negotiations with the EU and Australia have dragged on for many years without success. Plus, the Gulf states already operate low tariffs on foreign goods, meaning the benefits of any deal would in any case be limited.

Australia is also poster-child for the post-Brexit trade landscape. It is, after all, a large, rich, English-speaking country with close historical and cultural links to the UK, and no comprehensive trade deal currently exists through the EU. But this could be about to change, as the EU has just initiated trade talks with both Australia and New Zealand.

However, for all the talk from ministers about the benefits of a UK‑Australia deal, negotiations would bring a range of problems for the government. Australia will demand visa liberalisation to facilitate more immigration, which could prove controversial and would be hard to square with the government’s continued commitment to the net migration target. Imagine if a UK government freed up movement for Australians and not Indians – there would be both political and community cohesion implications. In agriculture, Australia will demand liberalisation of UK beef, mutton, lamb, and sugar cane imports, which will meet resistance from producers. Demands to permit imports of hormone-treated beef could prove politically impossible.

When it comes to negotiating a trade deal with New Zealand, the key problem for a post-Brexit UK would be not that it would not happen, but that it would not help. New Zealand is a valued partner, but our bilateral trade is tiny as a share of total UK trade. New Zealand is the destination for just 0.2 per cent of our goods exports, making it the UK’s 44th largest goods export market. Combined with the huge geographic distance between the two countries, the economic benefits of a trade deal would be extremely small.

Quotas will be a key realm of disagreement. The UK does not currently want to replicate existing EU quotas in a future bilateral deal, but New Zealand is likely to insist that it does. If the UK backs down, it will surrender key leverage in future negotiations. The most important deal we have to sign is, of course, with the EU. And the harsh reality that the Brexit ideologues have not yet grasped is that most countries will not want to negotiate the details of a free trade agreement with the UK until our relationship with the European market is sorted.

Despite all this evidence to the contrary, Brexiteers continue to maintain that new trade deals will more than compensate for the inordinate costs and complexity of Brexit. Yet, everywhere you look there are only obstacles, impediments and trade-offs.

So, the UK risks damaging our trade with our closest partner to pursue deals with third countries, only to find that the terms on offer from those countries are unacceptable, or largely detrimental. In other words, having given up the three course meal, we may find that the packet of crisps turns out to be empty.

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Jonathan Lis is deputy director of British Influence and the author of the Open Britain report, ‘Trade-Offs: The Harsh Reality of Going-it-Alone as “Global Britain“’. Francis Grove-White is deputy director of Open Britain. They tweet @jonlis1 and @f_grovewhite

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Photo: Pixabay, licensed under CC0 1.0

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