ANDREW FARRAN. Further unintended consequences for Boris’s Brexit.

Feb 19, 2020

Coming to terms with the repercussions of Brexit has not been made easier for the UK by Boris Johnson’s self-imposed constraint that the business must be settled by 31st December with no extensions.

At the same time Boris wants to make substantive headway with pathway agreements with the US and Australia to make up for lost trade openings to Europe. Progress with the former will be determined by the shape of its exit from the EU.

What is looming is a major challenge to the global trading system, its rules and accepted practices as never before as parties contrive to create structures that will disguise their too clever by half dealings. Much of this will result from distortions and misuse of so-called ‘Free Trade Agreements’ – a term that barely existed when the original General Agreement on Trade and Tariffs was negotiated in 1947 which in a minor way allowed exceptions to the absolute rule against preferential and discriminatory trade.

A host of strictly conforming bilateral trade agreements were negotiated over the following years until much later it became more fashionable to form trading groups, usually on a regional basis. The European Common Market in the 1950s was encouraged in this regard in the belief that it would promote cooperation rather than conflict in European affairs, in contrast to the pre-WW2 experience.

Increasingly the exception to the rule against preferences and discrimination in trade became the rule itself as new and varied regional and multilateral ‘Free Trade Agreements’ (FTAs) emerged – in Asia, Latin America, Eastern Europe, Africa and elsewhere. Some admitted partners with no regional or geographical proximation whatsoever. The formal requirement of these FTAs remained, that they should cover ‘substantially all of the trade’ among their members – a condition seldom met.

The global trading system became even more corrupted following the emergence of bi-lateral discriminatory preferential trade, services and investment agreements, as exampled by Australia’s FTAs with the US, Japan, Republic of Korea, Thailand, Singapore, and Chile – and more to come. These are essentially self-regulated and only perfunctorily monitored by the formal arbiter – the World Trade Organisation (WTO). Critics (including the Australian Productivity Commission) argue they are not as trade creative or positive as made out by their proponents and that global trade would be better off with a restructured GATT that fostered and regulated open-ended inclusive plurilaterism from which on reciprocal terms no willing party would be excluded. As matters stand the WTO’s role in arbitrating disputes when notional FTA’s inevitably collide with each other is being frustrated by the current US Administration which has shut down the system by refusing to approve future dispute-settling panels.

This is pretty much the situation now as Britain gets ready to deal with the EU, starting next month. It will be complicated to say the least as discussions move towards the US in particular and Australia later. With the likes of Boris and Trump at their respective helms there will be little respect for trade rules seemingly from a by-gone era – essential as they remain if vicious trade wars are to be prevented in future. Nonetheless the UK Foreign Minister, Dominic Raab, has stated that Britain would be seeking to secure a comprehensive high quality FTA with the EU as a key part of its future relationship. On the other hand the Chancellor at the time (Sajid Javid) ruled out on-going regulatory alignments which would be essential for frictionless borders whether in an FTA or not. It has to be acknowledged that the EU has issued a detailed public paper on its Council’s decision authorising participation in these,negotiations which cover a very wide field including transport, fisheries, financial services and security. The UK paper in comparison is somewhat scant, confined essentially to broad principles.

In the light of Britain’s recent Parliamentary experience with trade issues, and having gained a comfortable majority in the current Parliament, Boris remains in banging on mode (‘getting Brexit done’) and has taken command of the negotiations by concentrating the British team in 19 Downing Street. But knowing that in itself might not be sufficient to get the job done (by whatever means), and recalling Tony Blair’s lament that on entering Downing Street he believed he had the levers of power in his hands “only to find they were not connected” Boris’ Downing Street is being driven across the board, as before, by his chief adviser, the Rasputin-like Dominic Cummings.

The truth of this became apparent over the resignation of Chancellor, Sajid Javid, just as the new Cabinet was being formed, on being told by Boris at the end of an otherwise unremarkable confirmatory meeting that he would have to sack his own advisers to stay in the job and accept Dominic’s advisory team. It appears that Boris had not thought through the implications of this crafty plot of Dominic’s (or so it is believed), and was astounded when Sajid Javid replied ‘no go’. The Prime Minister tried hard to dissuade the Chancellor but to no avail, confirming that Boris has little time for detail. Javid has since queried Boris’ Budget intentions with the new Chancellor and concerns are growing over the affordability and environmental viability of the projected northern High Speed Rail project (HS2).

So with Downing Street to all intents and purposes in Dominic’s control, and the UK’s designated negotiators in-house, all is ready for the familiar bluff and bombast to be unleashed on the EU. It is understood that the UK will be seeking in the negotiations as many of the benefits of a single market as possible, without its obligations – namely zero tariffs and zero quotas on trade, regulatory alignment, continued favourable access for its fisheries (building on existing reciprocal access conditions , quota shares, and traditional activities), and ‘equivalence’ of regulatory standards and access for its financial services.

However to accept these commitments would make a major deal with the US, the ultimate objective, very difficult. The EU has already said that frictionless trade would be dependent on the UK maintaining alignment with European product standards, curbing subsidies, on work place rights and the environment (that is, the avoidance of divergence to gain competitive advantage) – to be supervised by the European Court of Justice. Much of this are non-starters, especially the ECJ for the UK. It is thought that failure in these virtually irresolvable matters must result in a hard Brexit, including inspections at the border – with likely adverse consequences for both Northern Ireland and Ireland itself, and concerns too for Scotland.

With the United States a principal difficulty will be what the UK can offer that doesn’t impinge adversely on its on-going commitments to the EU, and whether these will involve adherence to standards unacceptable to the US or intrude upon concessions the UK may have been required to make to the EU. Prior to that the UK and the EU may in turn have to adjust their existing commitments and concessions with a host of third parties in the trading community by regularising its status in the case of the UK and their respective trading schedules in the WTO. Similarly when it comes to Australia, with which the UK is currently only on plain vanilla WTO trading terms, it is itself seeking an FTA with the EU in addition to its existing FTA with the US and the others. For all, agriculture will raise, as ever, tricky issues over product standards and quotas. US chlorinated chicken is a well known case in point. Not to mention possible assaults on the NHS, and what about Huawei?

A lot of sorting out to be done. If existing legal constraints prove too much we may witness some shameless opportunism as one commitment after another to third states are trampled over and the global trading system reaches an impasse.

China may be able to say that they got into the WTO on the best available terms before it was too late. Now they have only to deal with Trump and pick up pieces elsewhere.

For the UK, if it cannot settle its future trade and business relations with the EU this year, then without time extensions it may be at least 7 years before they do. That is how long as it has taken the EU to conclude its recent FTA with Canada and Canada was further away.

Either way the pressure on Boris to show that Brexit, inter alia, was done and shown to have been done that way for the best of possible reasons may just be too much.

Andrew Farran, former diplomat, law academic and trade policy adviser – long on the Brexit trail.

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