Brexit means a Canadian trade deal for UK
It is seven weeks since the UK voted to leave the EU. What have we learned since then about the choice we made?
Well not a great deal, other than Theresa May’s gloriously resonant and opaque “Brexit means Brexit” – which is why I have been digging around to get some sense of what the second “Brexit” in that aphorism of this new age represents.
I am reliably told that Brexit, for May (and therefore for us), equals:
Why those three pillars of our new relationship with the EU? “It’s what the people voted for”, a senior government member tells me – with a certainty that suggests it would be pointless to raise doubts.
The point is that those pillars will determine our future relationship with the EU, especially our economic and trading relationship. So they really matter.
And, my goodness, they carry a weighty consequence.
They imply that we cannot possibly be a full member of the European Union’s single market, or of the European Economic Area, like Norway. Nor could we have a Swiss-style status of quasi single-market membership.
Well in those three instances of de facto single-market membership we would not have full discretion over who could live and work here, we would be subject to some EU lawmaking and we would probably have to make some billions of pounds of contributions to the EU’s budget.
At this point, if you are a British exporter you may well be profoundly anxious that the prospect of retaining relatively frictionless and costless access to the EU’s consumers and business customers is looking remote.
That would be painful for all of us, because it would mean that a significant portion of the 40% of our trade that goes to the EU would be at risk of withering away, at the cost of making it even harder for us to repay our big debts.
So is it time to blame Brexit and the Brexiteers for not just the short-term economic slowdown that is upon us, but a longer-lasting brake on our growth (which, as it happens, was built into the Bank of England’s latest forecast)?
Well it depends on the quantum of additional cost we would bear when trading the EU – and the magnitude of that cost can yet be limited.
It is not yet inevitable that our access to the EU will be on the basis of the World Trade Organisation’s tariff structure – which would add, for example, a 10% tax on car trade.
There is an alternative model for our new economic arrangement with the EU – which, I am told, has a 75% chance of being negotiated successfully (that is a wholly spurious probability by the way, and should be interpreted as a statistical version of cabinet ministers crossing their fingers and toes).
This model is being developed by the newly created Department for Exiting the European Union, under David Davis, and it consists of a British reworking of Canada’s EU free-trade deal, with – and this is the trickiest part – a bespoke add-on for our service sector.
The service sector addendum would be, for us, the dog not the tail – since services constitute a full 80% of all our economic output, and we would be rather closer to bust if our banks, lawyers and architects, inter alia, are more constrained in taking money from EU clients. What are the core elements of this trade deal? Well the big thing the Brexit department is doing now is research into what parts of our current access to the EU are most valuable.
Its sensible initial presumption is that what matters most are the non-tariff barriers that can discriminate against non-members of the single market – or rules and regulations about how things are made, what kind of checks they undergo when they cross borders, how services are sold and who is allowed to sell what.
The famous passport for banks wanting to operate across the EU is one example, of vital importance to the City of London.
Now what on earth could go wrong with trying to turn us Canadian in our European connection?
Apart from anything else, Canada’s own deal is not yet in effect – because it is bogged down in wrangling not on the terms of the deal, but on the procedure in the EU for formally approving it.
One huge challenge for Davis and his team therefore is to persuade Brussels and EU government leaders to allow any UK trade deal to be ratified by majority voting of government heads, and not the unanimous approval of EU national and regional parliaments.
If the deal requires that kind of parliamentary ratification, it can be kissed goodbye.
And finally, when on earth will there be a transition from this kind of fairly dry assessment of what we may reasonably be expected to win from our estranged EU partners, to a triggering of so-called Article 50 and the two year process of actually negotiating the departure.
Well the preparations will take months. There is, I reckon, only a modest prospect of the Article 50 two-year countdown being initiated by the end of the year, but a fair probability it’ll start by March.
If that deadline isn’t hit, then we may not give formal notice of departure till the closing days of 2017, because in the spring and summer EU government leaders will be distracted by important national elections, in France and Germany.
Or to put it another way, deciding to divorce from the EU was the relatively quick and easy bit. Actually working out what our new life will be, and then embarking on that life will take us years (and I haven’t even touched on the complexities of future security arrangements, the grandfathering of important EU law into British law, and the need for Liam Fox as international trade secretary to replicate the EU’s trade deals with the likes of South Africa, Singapore, Switzerland and South Korea, among a raft of other challenges).