In the APPG for Best Brexit’s third session, Shanker Singham, Director of Economic Policy and Prosperity Studies at the Legatum Institute, and Roderick Abbott, a Senior Adviser on trade policy at ECIPE (European Centre For International Political Economy) gave evidence about the future of international trade as we leave the European Union.
Roderick Abbott said that he had spent 40 years on trade policy and negotiation. He said that the most important thing going forward for the trade agenda was the future of the trade relationship with the EU, then negotiations with third countries, then trade remedies like anti-dumping measures, which the UK will have to decide whether or not it wants to keep. The timetable is important – trade discussion with the EU could happen in parallel to the post-Article 50 triggering period, and doing so is a matter of political will, the formality will not hold anyone back if they want to avoid trade disruption.
Roderick said said that judging from the Prime Minister’s speech in January, we will be leaving the Single Market and the Customs Union, and that he thought that the likely outcome of what the UK wants is a free trade agreement that is ambitious and comprehensive as it can be, which in theory is not difficult because the UK has been in free trade with the EU for years. But he added that the problem is services, and that service exports are as important if not more important than goods. He said that he could not see how you could have an agreement that allows for free movement of services without an EEA agreement, and that it is going to be a political decision. He said that the UK will making a continuity argument, that the UK and the EU have been free trading for 40 years, and nothing will change overnight post-Brexit. He said that the EU, however, will argue that eventually things will diverge, as soon as a big repeal bill has passed, and that will change things.
Shanker Singham said that there is the unilateral aspect of what the UK can do. He said the UK could think about a reduction of agricultural tariffs, similar to how Australia adjusts for its own market. He said that in terms of the bilateral things that the UK can do, our relationship with the EU is very important. The terms of Article 50 provide the framework for a future relationship, and that both sides will want a good relationship. He said that some developing countries are very anxious for us to rearrange our relationships with them, and some are concerned about preference erosion, now that a wider range of developing countries will have access to our market — the Caribbean in particular. He said that 80% of our economy is services, and barriers to services are in domestic regulation — and that this is why it is important for us not to be in the EEA, so we can put domestic regulation on the table in negotiations. He said that we need to bring together like-minded countries who want free trade, in the model of the Trans-Pacific Partnership, and that there is appetite from TPP members to do something like this now the USA has withdrawn from TPP, and it cannot be ratified without a large economy.
Shanker added that we have to recognise as we exit the EU that the one thing we cannot control is European cooperation in this process. Although economic reality would seem to dictate cooperation, we have to have a hedge, not only against non-cooperation but to use it to assure that there is cooperation.
John Penrose MP asked that as services matter to the UK economy enormously, what do we stand to lose if a free trade agreement with the EU doesn’t address services, compared to what we could potentially gain by the upsides of the slow conquering of trade barriers?
Roderick Abbott said that it is very important to look for access to the Single Market, because of the services angle. He said that he felt that the EU will put their own concerns in regards to the future of free movement or further integration of the EU 27, rather than make an unprecedented special concession to the UK.
Shanker Singham said that it will depend for us what the EU services schedule is like, and that this gives us the opportunity to try and fill in some holes that the EU services schedule has; some other agreements have tried to plug those holes, TPP was best, CETA also good. He said that the issue for services is not just tariffs, you need market access and market contestability. He said that it is in European interests to have a series of interim measures, which can then also be used as a blueprint for the ultimate trade agreement.
Baroness Hayter of Kentish Town asked about the ECJ– within the EU you have the Commission which will check disputes, how do you check disputes under WTO?
Roderick Abbott said that the WTO is an intergovernmental agency, and that ultimately the ECJ produces rulings which are applicable and countries have to conform, when the WTO tells a country to comply it is a recommendation and it is left to the country to do so, thus the country retains complete sovereignty.
Baroness Hayter of Kentish Town asked if there is no enforcement mechanism?
Shanker Singham said that all the WTO will do is tell you that you violated the rules, but the other party has the right to suspend concessions it has given you – to impose sanctions, essentially. Roderick Abbott said that countries can be very cynical about this process, knowing that their measures will have disappeared by the time action is taken, and can change their rules so countries have to file multiple times.
Shanker Singham said that sometimes this can be damaging, as in the Chinese/Scottish whisky case, where China changed their law, forcing the UK to file again.
Antoinette Sandbach MP asked about the role of EFTA and dispute mechanisms.
Roderick Abbott said that the difference between EFTA and EEA is subtle: EFTA has a court which oversees agreements made between EEA states and EU states, and some people think they follow ECJ rulings so closely they are essentially the same, while others don’t. Shanker Singham said that there used to be an EFTA overseeing authority and now there is a full EFTA court, and that Switzerland is a special case as it has agreements with EEA, which are resolved through multiple dispute mechanisms.
Roderick Abbott said that the Swiss model isn’t applicable for the UK-EU relationship, especially on immigration, and that we need something like the Canadian model. Shanker Singham said that he agreed, and that this is likely to be the most comprehensive free trade agreement you could have.
Emma Reynolds MP said that most free trade agreements take longer than two years, and that we will diverge from the EU as soon as we repeal something and they take on new regulations – given that, how likely is that we can agree something in two years? Roderick Abbott said that he thought nothing other than a very basic agreement could be finalised in two years. Shanker Singham said that the speed of a negotiation depends on political will and defence baggage – i.e. what you are willing to negotiate on. If you have less ‘defensive baggage’, as he put it, as the UK does, you can do it faster. Roderick Abbott said that CETA took seven years, although the nuts and bolts were probably two and a half years.
Roderick Abbott said that he doesn’t think the UK could reapply to join the EEA, and that we must remember that no non-EU country just negotiates under the WTO tariff. Shanker Singham said Roderick was talking about mutual recognition agreements, but some countries don’t have them.