Friday, 10 November 2017

Between Scylla and Charybdis

Author James Gilray

Jane Lambert

Yesterday, in my October Brexit Briefing I mentioned Charles Grant's predictions on how Brexit will unfold. One of his predictions was that there will be no bespoke trade agreement between the EU and the UK. The deal that the British government would like would be one "that provides better market access than the Canada model (a free trade agreement with only limited provisions on services) but much less than the Norway model" but that is unlikely to happen. Grant offered two reasons for that.  The first is that our government will avoid making detailed proposals for a future economic partnership because a detailed plan would be hard to get through a divided cabinet. The second is that the EU will require the British government to choose between full access to the single market on the Norwegian model, limited access on the Canadian model or no special terms at all.

On the very day that Grant's predictions were published, Michel Barnier addressed "The Obligation to Grow - Europe after Brexit" conference in Rome (see the Commission's press release Speech by Michel Barnier at the "Obbligati a crescere – l'Europa dopo Brexit" conference, Rome 9 Nov 2017), In his speech Monsieur Barnier said:
"to lay a proper basis for our future relationship, we must all understand and explain objectively what it means to leave the European Union, the single market and the customs union. These choices have consequences.
  • It is not possible to be half in and half out of the single market.
  • It is not possible to end the free movement of persons, while retaining the free movement of goods, services or capital by means of a generalised system of equivalences.
  • It is not possible to leave the single market and continue to set the rules.
  • It is not possible to leave the customs union but expect to enjoy frictionless trade with the EU."
In other words, it is not possible to have your cake and eat it.

Grant notes that "the UK is counting on the unity of the 27 fracturing. It hopes those most dependent on UK trade will see that it is in their interests to give the British a better deal than the Canadians, that is to say one with more provisions on services." Or put another way, the Germans still want to sell us their cars and the Italians their prosecco.

That may happen though there are no signs of splintering yet. Not even among the smaller states that are most dependent on British trade such as Ireland. If anything, the Irish position on the border is hardening and a resignation at least among Irish business interests that the choice on offer is a hard border or the incorporation of Northern Ireland into the single market and customs union (see IBEC's Brexit Tracker for October 2017).

Important that the British market may be for Irish and Continental exporters its importance is not paramount. What is paramount is keeping the single market intact because it is, as Monsieur Barnier put it, "our main economic asset".

Earlier in the week, Wilbur Ross, the US Trade Secretary, addressed the CBI Conference on the terms of a trade deal with the USA (see Sarah Gordon Wilbur Ross outlines US terms for post-Brexit trade deal 6 Nov 2017 Financial Times). In his speech he warned Britain to avoid signing up to “hindrances” to trade in its Brexit negotiations and that a deal with the US will require lower tariffs and compromises in areas such as food regulation.

That speech did not go unnoticed on the Continent. Monsieur Barnier referred to it specifically in the context of the possible future relationship negotiations that he may be called upon to conduct and whether it was yet another undermining factor:
"And when I hear the US Commerce Secretary Wilbur Ross, in London, call on the British to move away from Europe in order to move closer towards others – towards less environmental, health and food regulation, and no doubt financial, tax and social regulation too – I have my doubts."
It seems that we can have a preferential trade deal with Trump's America on Mr Ross's terms or a preferential one with our EU partners but not both. A growing fear for British businesses must be that we may well end up with neither.

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