Liam Fox is a former Secretary of State for International Trade, and is MP for North Somerset.
I was in Washington at the beginning of this week when the Prime Minister made his speech in Greenwich about trade. There can be few better examples than its reporting of how polarised elements of the British press will twist anything that is said to suit their own preconceived Brexit agenda.
Those who have never accepted Brexit resurrected their predictions of doom and gloom about Britain’s ability to reach a settlement on trade with the EU in 2020 – the same voices who said that the Prime Minister could not reopen the withdrawal agreement or the backstop. Sadly, it seems that there will be those in our country who would rather see Britain fail than see Brexit succeed.
On the other side, there were those who excitedly wrote about a deregulatory Britain able to ditch commitments on employment and environmental issues. Neither seem to have properly read, or at least understood, the speech which was balanced and accurate, both on Britain’s recent record and on global trade more widely.
The trade negotiations with the European Union will be unique in that we begin with complete legal and regulatory identity. This is a result of 47 years of EU membership rather than any necessity for trade. The EU will want to maintain as much of this “harmonisation” as it can.
Yet this flies in the face of global trends towards equivalence rather than the highly legalistic regulatory formula favoured by the European Union. Moreover, it seems that there are many in the EU who still do not understand why we have left the organisation, or our desire to take back control of the levers that affect our national life, political and economic.
Britain rejects, quite rightly, the concept of “dynamic alignment” by which would have to alter its regulations automatically in line with any European changes in order to maintain access to the Single Market. It is totally incompatible with the concept of Brexit.
As the Prime Minister has pointed out, there is no need for a free trade agreement to involve accepting EU rules on competition policy, subsidies, social protection of the environment as the UK will maintain the high standards in these areas – better, in many respects than those of the EU.
The key difference is that Britain believes that this can be done without the compulsion of a treaty. Herein lies the key political difficulty in the negotiations – a fundamental difference of what constitutes a “level playing field”.
For Britain, it is about ensuring that rules cannot be broken to create anti-competitive advantages while, for the EU, it is about rules and regulations that force conformity with a pre-set economic model. This mirrors to a large extent our respective legal traditions.
In any case, as the Prime Minister has also pointed out, the EU has enforced state aid rules against the UK only four times in the last 21 years, compared with 29 enforcement actions against France, 45 against Italy – and 67 against Germany. The advantage of equivalence over harmonisation is that, while it accepts the needs for protection against anti-market behaviour, it does so in a way that allows innovation and efficiency to flourish.
Despite these inevitable political differences, there is much to be positive about in these negotiations. On the issue of tariffs, usually one of the causes of lengthy negotiations, we already have a tariff-free environment, and the political declaration agreed by both sides before Brexit aims to “ensure no tariffs, fees, charges or quantitative restrictions across all sectors” – a sign that both sides do not want to see any new impediments to trade introduced.
On services and investment it calls for ambitious, comprehensive and balanced arrangements respecting each party’s right to regulate. This means that both sides should go beyond the WTO commitments, and be more liberal than recent EU Free Trade Agreements in this area.
On financial services, crucial to the UK economy and to the EU’s ability to access capital, both parties are committed to preserving financial stability, market integrity, investor and consumer protection and fair competition, while respecting regulatory and decision-making autonomy and each side’s ability to take equivalence decisions in their own interest.
Acceptance of the concept of equivalence is crucial as this is the direction in which global discussions around financial services is going. Optimism that an agreement on financial services can be reached even led to a date been included in the political declaration to conclude assessments on equivalence by the end of June 2020.
Even on fisheries, widely regarded as one of the more difficult areas, the Prime Minister has said that we are ready to consider an agreement on fisheries as long as it reflects the fact that the UK will be an independent coastal state at the end of this year 2020, controlling our own waters. This is certainly not the language of the rigid “hard Brexiteer” that the Prime Minister’s Remainer critics would have us believe, and leaves the door open to a sensible and responsible relationship.
In all of this, we must remember the wider economic and trading picture. The UK had an overall trade deficit of £66 billion with the EU in 2018. A surplus of £28 billion on trade in services was outweighed by a deficit of £94 billion on trade in goods.
Some countries have a particular incentive to minimise disruption. Relatively few people seem to grasp that £62 billion of the EU’s trade surplus comes from only six countries – Germany (£22.6 billion), Spain (£13.9 billion), Belgium (£9.9 billion), Poland (£5.6 billion), the Netherlands (£5.0 billion) and Italy (£4.9 billion). France has a smaller surplus of £2.7 billion with the UK while Ireland has a deficit of some £13.5 billion.
On top of this, around 40 per cent of the Republic of Ireland’s freight trade with the rest of the EU comes through British ports. All of these elements, some of them conflicting, will form the backdrop of discussions where it is in our mutual interest to reach agreement as soon as possible. It will be up to Europe’s politicians to show leadership, so that the economic interests of all the citizens of Europe are put ahead of political brinksmanship or Commission ideology. An agreement is by no means certain, but it is certainly possible.