Challenge for Irish business negotiating new trading arrangements during Brexit negotiations
In the much heralded speech last week, UK prime minister Theresa May confirmed she would after all be seeking the UK’s full withdrawal from the EU, its single market and customs union.
The uncertainty — and the prospect of trade with the EU becoming subject to tariffs and other trade barriers — was not ameliorated, and confirmed the stark warning from Carolyn Fairbairn, head of the Confederation of British Industry.
Ms Fairbairn said: “The UK needs access to the single market. Leaving the EU and reverting to international trade rules would do serious and lasting damage to the UK economy.”
If access to the single market was lost, Ms Fairbairn added, the costs for businesses in the UK would go up, which in turn could lead to jobs being lost.
Ms May acknowledged uncertainty over the exit process from the EU was a major concern for businesses. Her strong offer that “we will seek to avoid a disruptive cliff-edge” was good rhetoric but was seen to be just that when she later ruled out entering into any of the existing EU free trade agreement packages.
Further brinkmanship was seen in her threat to walk away from the EU if she did not get what she wanted — “no deal is better than a bad deal”, evoking the image Britain would instead head down the road of a West- Singapore low tax regime with soft touch regulations.
The ultimate antithesis of avoiding the cliff-edge was unveiled when she said whatever deal was negotiated with the EU would be put to a vote in both houses of parliament, the Commons and Lords, for ratification. This may be seen by many as an opportunity for a fresh bite at the Brexit vote.
Last week’s undiplomatic threats, however, ring hollow. Everyone will lose if there is no agreement, but nobody will lose as much as Britain. The UK is in no position to bully its way to a cushy deal and EU leaders in no mood to offer one.
Indeed, no one wants a ‘’bad deal’’, least of all Ireland, but “no deal” is the worst deal for everybody.
Hence her willingness to declare that no deal is better than a bad deal — that, in other words, she is prepared to see the UK trade with the EU on World Trade Organisation (WTO) terms if necessary — is kamikaze.
Every credible study that has been conducted has shown that the WTO option would do serious and lasting damage to the UK economy and its trading partners — such as Ireland.
Paschal Lamy, the former director general of the WTO, at the Davos world economic summit last week confirmed this view.
Ruling out membership of the European Economic Area (EEA) which Norway trades under with the EU is understandable, as this involves requirements — such as accepting free movement of people and adopting most EU legislation — that are politically unacceptable to the UK government.
The leading UK-based think tank Open Europe has confirmed as much, warning a Norway-style relationship with the EU is “unlikely to be a viable long-term option” for the UK.
A more palatable solution may be to take the Swiss route and join the European Free Trade Association (EFTA) under which the EU could accelerate the process.
The 120 odd sectoral treaties underpinning the EU arrangement with Switzerland could potentially be cherry picked by the British negotiators, as it offers the ability to negotiate stand-alone trade agreements with non–EU countries.
Open Europe sees merit in this options, stating: “It provides an off-the-shelf model, thereby minimising short-term economic disruption and uncertainty, and could help smoothen some of the regional differences thrown up by the Brexit vote, such as those raised by Scottish first minister Nicola Sturgeon’’.
Leaving the EU’s customs union, but striking a new deal, taking in elements of current single market arrangements in certain areas, is Ms May’s suggestion.
She gave examples such as the export of cars and lorries, or the freedom to provide financial services across national borders —“as it makes no sense to start again from scratch when Britain and the remaining member states have adhered to the same rules for so many years”.
But, European leaders have made clear their opposition to cherry-picking. And are well aware that in an exit to a basic WTO agreement, 60% of the UK loss in goods’ exports would come from four main markets — Germany, the Netherlands, France and Ireland — motor vehicles accounting for the majority of UK exports to Germany.
Also the UK financial sector serves primarily other European countries, with 38% of the UK’s export to the EU. Neither of these facts will have gone unnoticed by EU negotiators.
The way in which the UK leaves the EU and on what terms is critical for jobs and investment in Ireland.
Defaulting to trading by WTO rules would leave 90% of UK goods trade with Ireland subject to new tariffs and customs procedures.
The significant costs involved would affect Irish exporters and importers, as well as those in their supply chains.
The challenge now for Irish business will be negotiating new trading arrangements with their UK customers, while exit negotiations are still on-going.
I can’t see these being concluded until the very end of the two-year period for exit, which means that the UK will depart the European single market without a full agreement on what will replace it.
As the nature of the possible interim and final agreements take shape, UK markets will be a bumpy ride for Irish exporters.
