Peter F. Allgeier is a former US Ambassador to the World Trade Organisation, and a former Deputy United States Trade Representative.
Britain, of course, is not a desert, but some of its inhabitants have succumbed to seeing a mirage. They envision an oasis on the horizon in which the United Kingdom will continue to have the benefits of free trade in manufactures and agricultural products with the European Union at the same time that it concludes independent free trade agreements with other countries, notably the United States or the countries in the Trans-Pacific Partnership. Well, as the song goes, “Only mad dogs and Englishmen go out in the midday sun” and are susceptible to such mirages.
In assessing the reality of this rosy vision, consider the following:
For any products moving from the UK to the EU, unless the UK external tariff with the rest of the world is identical to the EU’s common external tariff, there will have to be border checks in the EU countries to confirm that all goods coming from the UK meet the EU’s rules of origin. The UK, for example, cannot have a zero tariff on US automobiles and ship those cars across the English Channel tariff-free into France or the Netherlands, where the EU has a ten per cent tariff on US cars.
If the UK provides duty-free treatment for US or Japanese autos, all cars shipped from the UK to the EU would be subject to customs confirmation that they meet the EU’s rules of origin. The Government has sought to mitigate these increased customs clearance costs by the Facilitated Customs Arrangement (FCA) whereby the importer continues to pay the Common External Tariff except where the importer can show that the good has not entered the EU-27, whereupon the importer can claim a rebate. Even in very well-established trade agreements like NAFTA, importers often pay the MFN rate and don’t bother to fill in the forms to claim the reduced, preferential rate. The likelihood that importers will do what is necessary to prove that the good did not enter into the EU-27 is low, and this will negate any tariff concessions that the UK would seek to make in a trade negotiation, to say nothing of whether the EU would trust such a scheme enough to make it viable.
But tariffs are only one aspect of current free trade agreements. The relatively low level of tariffs in most developed countries means that the real meat of free trade negotiations these days involves regulations and standards for products and agricultural goods. Food safety, product labelling, consumer safety, environmental standards, etc, all become subjects for negotiation. But if the UK accepts EU regulations and standards for all traded goods, it has no leeway to negotiate different outcomes in its negotiations with third countries.
For example, it cannot engage in negotiations with the Americans on issues such as genetically modified food products, geographic indications on cheese and meat products, and other regulations applied to meat products. These all were stumbling blocks in the negotiations of the Trans-Atlantic Trade and Investment Partnership (TTIP). Do people really believe that the Americans would begin a serious negotiation with the UK if the UK was completely unable to even negotiate on issues which the US resisted in the context of an EU-wide market negotiation? If the UK is merely a smaller version of the EU, then it is unlikely to be a particularly interesting trade negotiations partner. It is precisely the UK’s ability to diverge from EU regulation that makes it interesting.
If the UK truly were free to negotiate regulatory and standards issues with the US, or the members of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), it is likely that the parties could achieve a greater measure of “regulatory coherence” in which parties accept variations in regulatory approaches but nevertheless achieve essentially the same level of protection of consumers, the environment, or product safety. There are numerous ways to achieve this that are significantly more flexible than the current approaches mandated by Brussels. But the necessity of alignment with the EU’s approach would prevent the UK and its negotiating counterparts from exploring alternatives.
In other words, the current Government proposal places the UK in a straitjacket that prevents it from pursuing an independent regulatory regime in manufactures and agricultural goods, which will prevent it from securing the major concessions on services and other regulatory barriers it faces in complex trade negotiations with the larger parties. And this doesn’t even address the problems of aligning regulation of services, which increasingly are integrated in traded products, e.g., aircraft, heavy machinery, and advanced medical equipment.
Those who argue that the UK can obtain its pre-EU freedom to conduct an independent trade policy while locking in to the EU’s regulatory rule-book are suffering from, and propagating, a serious delusion.