Stephen Booth is Head of the Britain in the World Project at Policy Exchange.
It is probably not a coincidence that the Government published its negotiating objectives for a US trade agreement on the same day that David Frost arrived in Brussels to open talks with Michel Barnier on the future UK-EU relationship. The “great multidimensional game of chess”, as the Prime Minister describes it, has begun. Aside from the EU and the US, the UK has indicated it would like to open negotiations with other top priority markets – Japan, Australia and New Zealand – in the coming months. There is utility in demonstrating to the EU that the UK has many irons in the fire.
The talks with the EU are of the greatest immediate economic significance but will be the most politically fraught and could yet break down. It remains our biggest partner and, where possible, the objective is to minimise new barriers and disruption to existing trade flows, without requiring the UK to remain subject to the EU’s current and future regulatory regime. The UK’s negotiations with non-EU targets (the UK currently benefits from an EU deal with Japan) will be about opening fresh opportunities for UK exporters, consumers and boosting the competitiveness of the economy over the long-term.
Another important factor is that the EU negotiation is the only one with a firm deadline on 31st December. The Trump administration is also keen to make progress with the UK this year but the conclusion of the talks may have to wait until after the 2020 elections, since US election season is very nearly upon us, which will likely complicate Congressional approval. Other partners may also wait and see how the UK’s talks with the EU progress over the next nine months before finalising terms.
Despite these complications, it is essential that the UK pursues a meaningful parallel process for non-EU trade talks. A successful Brexit requires the UK to diversify and deepen its economic and political relationships with partners outside Europe.
There is surely much to learn from Canada’s experience. Its contemporary foreign and trade policy is shaped by a close relationship with its continental neighbour, offset by increasing efforts to diversify to new markets. Over the past decade, Canada has renegotiated its deal with the US, concluded the EU-Canada Comprehensive Economic and Trade Agreement (CETA) and joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Notably, the UK starts from a position that is much more globally diversified that Canada’s. In 2019, Canada exported 75 per cent of its goods to the US, while the UK exports 47 per cent of its goods to the EU.
Importantly, engaging with others now enables the UK to get a sense of how to triangulate the demands of various trade partners and develop a well-rounded strategy. The scoping exercise for a US deal has already helpfully revealed important reference points that can inform the UK’s approach to, and set parameters for, the EU talks.
It is no secret where the flashpoints in the UK-EU talks will be. Historical fishing rights are part of the current negotiations. The Northern Ireland Protocol is not. It has ostensibly been determined within last year’s Withdrawal Agreement but so much detail is yet to be decided that it could yet poison this year’s trade talks. However, so-called level playing field provisions regarding competition, state aid, environmental and labour standards are common to all modern trade deals to some degree. The question is over the scope of these provisions and how they are enforced.
The UK accepts the principle of including level-playing field provisions, which maintain existing standards, in a UK-EU agreement but correctly argues that in previous EU trade deals of similar scope these obligations have not involved ongoing alignment or been subject to dispute settlement. Brussels’ position is that the UK’s size and proximity to the EU market requires greater safeguards. It insists that the UK should continually align with EU law in the field of state aid and that EU standards should provide the “reference point” in any dispute over future divergence in the other level-playing field areas.
On the face of it the UK and EU positions are poles apart. However, the UK’s approach to the same issue in the context of a US deal illustrates room for compromise. The US regularly includes dispute resolution provisions for environmental and labour standards in its FTAs and is demanding the same of the UK. The significant difference is that the US does not seek alignment to its rules, but instead international standards are the reference point. Disputes are centred on whether either side is seeking to undermine standards as a means of distorting trade between the parties. The suspicion is that the EU’s motives are not merely confined to bilateral trade distortions but curbing the UK’s competitiveness in general.
In contrast to its mandate for the EU, in its US mandate, the UK accepts the need to “apply appropriate mechanisms for the implementation, monitoring and dispute resolution of environmental and labour provisions”. The UK is therefore not opposed to dispute settlement in these areas in principle, given the request is reasonable. This is a useful message to send to EU negotiators.
The challenges for the UK-US talks will be elsewhere. The UK insists the NHS is “not on the table” but we know the US administration is strongly of the view that the UK and others should pay higher prices for US drugs in the future. The US believes the NHS’s ability to use centralised procurement to negotiate with drug companies to secure price reductions amounts to “free-riding” on US innovation. Of course, it will be up to the UK to decide how to engage with any US requests on drug pricing.
Agriculture and food products are other contentious issues. However, here too, US demands could be instructive in developing a new UK approach to regulatory issues that would also be applicable to the likes of Australia and New Zealand. It is the EU which is the global outlier with its insistence on the “precautionary principle” – a practice often used to ban products on the basis of theoretical risk, in the face of scientific evidence to the contrary. Others will expect, and insist, on a more science-based and transparent UK approach to assessing whether products are safe to import or not. It is important we debate the issue now before signing up to an approach that will hinder our ability to diversify.
Managing various negotiating tracks at the same time will be a complex task and the UK will need to manage the expectations of partners carefully. Nevertheless, it is vital that we cut our teeth with others and understand the rules of the game beyond the EU.