ANDREW FARRAN. Brexit Britain – “The lonely little country”

May 25, 2020

Will Boris Johnson maintain his stance that there will be no extension to the transitional period for completion of the UK/EU Future Relations agreement even though the time remaining is well short of the time required to settle and formalise the myriad of still seriously outstanding matters?

Whether by design or otherwise Britain appears to be heading towards the Brexit cliff.

The Economist’s renown columnist (Bagehot,15/5) described Britain as “the lonely little country” with potential failure facing it on all sides – failing Brexit negotiations and fading prospects of compensatory trade deals in the near term with the US and others. Australia is talking up its own prospects in this regard but seems unaware that realistically substantive trade deals with the UK are dependent on the outcome of the latter’s outstanding arrangements post-Brexit; and their respective rebalancing, with a host of other third parties, in accordance with WTO law and practice.

There have been formidable difficulties in getting the UK/EU negotiations on the level, not least the Covid-19 pandemic and the fact that negotiators have not been able to meet face to face. Additionally there are reasons for believing that Prime Minister Boris Johnson has been prepared all along to push the negotiations to the limit knowing that he was unlikely to achieve even his minimal objectives, on his own terms, which in the eyes of the EU would be unacceptable anyway. Better for Boris a drama at the cliff top than being pilloried for misjudging his game plan in the first place.

The pandemic may help in one respect as its negative economic consequences may well exceed those of cliff-top Brexit, a fortuitous smoke screen in otherwise unfortuitous circumstances.

Just this last week the third round of discussions at the bureaucratic level concluded without sight of agreement on the key issues – control of UK off-shore fisheries (the EU wants a permanent stake), a ‘level playing field’ for a regime of no-tariffs and no-quotas (no divergencies over subsidies), for the protection of environmental and workers’ standards (no lowering of standards), for services and on-going product standards generally.

Getting back to Boris, who has hardly been seen in this context since his hospitalisation, the question must again be asked: can his ‘red lines’ be believed? First it was that Britain should be clean out of the EU by October 31, 2019, no “ifs and buts”; promises of a frictionless single market plus new trade agreements worldwide; and no trade border with Northern Ireland – all of which have lapsed, been broken or seriously delayed. Penultimately, will Boris maintain his stance that there will be no extension to the transitional period for the Future Relations agreement even though the time remaining is well short of the time required to settle and formalise the myriad of still outstanding matters? Very few commentators or trade negotiators believe that a credible agreement of this nature could be settled and concluded within 6 months.

The EU has sought that all outstanding issues should be tied into a single omnibus agreement with a that’s it tag on it; whereas the UK is looking essentially for a series of short-form agreements which can be filled out as time and circumstances require – and release it also from further contributions to the EU budget and services, and moreover remove itself from the jurisdiction of the European Court of Justice on all matters subsequently. The EU will not have that.

The next step is in mid-June – and in a sense this commentary might best be left until then as few people know what really lies behind the smoke now surrounding the negotiations. Then the negotiators will have to assess the prospect of a workable agreement, and if they believe against the odds that there is such a real prospect they will continue the negotiations with the aim of wrapping them up by September/October, leaving time for the formalities to be completed by 31 December. If they decide that given their divergent approaches as to form, substance and modalities there is no such prospect they will allow events to play out acrimoniously until 31 December.

In that event the UK will hasten to regularise its standing and commitments within the WTO. The UK will have to come to grips with the fact that at the end of the year it will have to apply for standalone membership (i.e. accession) of the WTO, just like Lesotho and Nepal or any other ‘new’ member. Other countries will demand their pound of flesh … “give me back Gibraltar”, etc. Accession will be its best and only option but it will be complicated because for one thing the EU has 9,533 tariff lines of which the UK has been part and every one of them has to be negotiated. Behind every tariff line there is an interest group. How long might that take? Two years, five years?

As Professor Gary Sampson (formerly with the WTO and now at the Melbourne Business School) has noted in previous blogs, there are even further complications, among them being that the EU maintains different categories of tariff rate quotas (TRQs) for both agricultural and non-agricultural products. As at 1 January 2019, there were 712 preferential TRQs in place pursuant to FTAs with 26 trading partners, mainly with respect to agricultural products, and 257 conventional TRQs, including WTO TRQs, and about 120 tariff lines for TRQs providing autonomous access. The EU adopted regulations on the apportionment of WTO TRQs quotas between the EU and the United Kingdom, in anticipation of the latter’s eventual withdrawal from the EU. In this regard, negotiations under Article XXVIII of the GATT 1994 were initiated. The substance is not important, but the message is critical.

Bigger questions include: Can the UK continue to apply anti-dumping duties on China when the investigation was carried out by the EU? Do they have to start the inquiry all over again? China will say yes. So too for all other dispute settlement rulings.

What the UK doesn’t understand is that joining the WTO is a great outcome but they should direct all their negotiating resources preparing for “the accession”. Unfortunately, this requires a high degree of experience and sophistication which coming anew as a stand-alone member of the WTO they don’t have.

In the midst of all this the UK will, as noted, be looking for fresh trade opportunities with the US, Japan and China – and Australia and others. All difficult in the circumstances. But nothing will replace totally the level of trade and general access the UK had previously within the EU, its major market by far. Could Boris Johnson still be in government when the UK’s exit ‘is all done’?

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