John Bruton: Brexit trade talks put Britain at crossroads

John Bruton: Brexit trade talks put Britain at crossroads

The UK’s departure from the EU will be less fractious if its policies stay close to EU policy, but if it prioritises deals with, say, the US, disputes will be inevitable, writes John Bruton.

The UK government will shortly begin the negotiation of a free trade agreement with the European Union.

The deal that Taoiseach Leo Varadkar made with the British prime minister, Boris Johnson, on the location of border controls will be vital in keeping the UK close to the EU.

Before the negotiations start, the EU will have worked out a detailed negotiating mandate, drawing on the many previous international trade agreements into which it has entered.

Once finalised, the EU mandate will become public, making any departure from its terms difficult.

This is especially important if, as is likely, the final agreement has to beapproved by the national parliaments of each of the 27 member states.

If it goes beyond a bare bones trade agreement covering goods and includes services as well, ratification by all national parliaments will likely be required.

On the UK side, it is assumed that similar work is now underway. But the UK’s task is bigger than the EU’s.

The UK will also need to negotiatereplacement agreements with all the other countries that are now fellow EU members. Their current agreements will lapse once the UK leaves the EU.

In addition, the UK will also be hoping to negotiate an agreement with the US.

The demands of other countries, with which the UK will be negotiating trade agreements later, will not necessarily be compatible with what the EU will want in its agreement with the UK.

Chlorinated chicken from the US is a case in point.

The UK will probably have to conclude its deal with the EU first, because of the very tight timelines that the UK has imposed on itself in the withdrawal agreement.

The UK may have to make concessions to the EU at the expense of other potential future trade partners.

Alternatively, the UK may gamble on getting a better deal from the US or someone else, and thus sacrifice markets in the EU, in favour of a yet-to-be-agreed deal with the US or with someone else. In this, agriculture will be a key battleground, with Irish interests at stake.

It will be high-stakes poker played against a tight deadline. Until the negotiations are underway, it will not be clear where all the difficult choices may be.

The agreement that the EU has with Canada could be a model. This provides for free trade in most goods, but notservices.

It has detailed chapters, accompanied by principles and dispute settlement mechanisms, on issues as diverse as technical barriers to trade, dumping, subsidies, public contracts, state enterprises, competition policy, intellectual property, environmental standards, telecoms, water quality, fisheries, and agriculture.

As an EU member, the UK has settled understandings, on all these matters, with its 27 EU partners. At the end of this month, that will change.

Outside the EU, the UK will have the freedom, unilaterally, to depart from its present EU-based standards, and to make its own rules. Mr Johnson has said this is the “whole point” of Brexit.

The EU has no way of knowing what changes this, or a future, UK government might make in social, environmental, or product rules.

Political assurances from the present UK government will be of little value. The EU side will demand legally binding assurances that will tie the UK down, no matter who is in power in Westminster.

All sorts of hypothetical situations will have to be anticipated. Appropriate penalties will have to be agreed inprinciple. Both sides will need to make new rules from time to time, as new challenges emerge.

As an EU member, the UK has had a democratic say in new EU rules. Outside the EU, the UK will have to rely on diplomacy, rather than democracy, to protect its interests.

If the EU/Canada agreement is a guide, a multiplicity of permanent committees of EU and UK officials will have to be set up, on a permanent basis, to iron out disputes, if standards diverge. Arbitrators and judges will be needed.

‘Taking back control’ will not turn out to be as clean or as simple as Brexiteers expected.

A huge challenge will be ensuring that there is a level playing field between UK and EU firms, doing business in one another’s markets. If either side changes its labour, social, or environmental standards in a way that reduces costs for its firms, there are liable to be complaints that the playing field is no longer level. The playing field will not be level if the value of sterling is keptartificially low, or if the UK allows the importation of cheap inputs that the EU had banned.

Level playing field issues such as these arise in every trade negotiation, especially between close neighbours. For instance, the US recently insisted on changes to Mexican labour rules to protect US carmakers from Mexican competition. It has complained about Chinese currency policy.

Permanent adjudication mechanisms will need to be established to decide if the playing field has, in fact, been skewed unfairly.

Issues that are now ironed out informally in the EU Council of Ministers, or inside the Commission, may, in future, become the subject of high-profile disputes.

This will mean more uncertainty for business and may inhibit investment. Many of these disputes may involve Ireland.

The best hope of reducing disputes is if UK policy stays close to EU policy. The more UK rules diverge from EU rules, the more severe will be the controls that the UK will have to impose, not only within the UK, but across the Irish Sea, on goods entering the North that might eventually enter the EU Single Market through Ireland.

The UK will want to avoid this. The UK government will have a strong political incentive to minimise the scale of these barriers within the UK.

So, thanks to Mr Varadkar’s deal with Mr Johnson in the Wirral last October, the UK will have a strong incentive to adopt standards close to, or the same as, those of the EU.

That will be the only way to avoid trade barriers within the UK.

If so, Leo Varadkar will have earned an important place in European history.

John Bruton was taoiseach from 1994 to 1997 and led Fine Gael from 1990 to 2001.

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