Peter Bye

Where are we going?

Some years ago the late Victoria Wood, a British comedienne, appeared in one of her excellent radio sketches as a sheep, frequently heard running across a field along with another. At the sound of each movement, one bleated ‘where are we going?’ to which the reply was ‘I don’t know’. They could have been describing the UK government’s current Brexit plan – or lack of it.

We are about four months on from the referendum, yet there is no coherent view of the kind of relationship the UK wants with the EU. This may well be because the members of the Cabinet cannot agree[1]. There are those who favour maintaining access to the single market because they fear serious economic damage without a close relationship with the rest of the EU. Others seem more concerned about immigration and a perception of sovereignty, even if that means what has been called a ‘hard Brexit’: the UK would leave the single market and operate under WTO or some other negotiated set of rules.

What would a ‘hard Brexit’ mean? Those favouring it share a persistent strand of wishful thinking. In spite of evidence to the contrary[2], they believe that the EU members and other countries, for example the Commonwealth, will be so keen to form free-trade relationships with the UK that a deal with the EU, and various other bilateral arrangements, will be easy to negotiate. People with expertise in trade negotiation rather think the opposite, although ‘experts’ were a category of people dismissed by some advocating Brexit[3]. By the way, it’s not clear what the alternative to expertise is – ignorance or amateurism, perhaps?

On the time to establish a trade relationship, the World Economic Forum examined 20 bilateral deals established by the USA. It found an average time of 18 months to reach an agreement and three and half years to get to the implementation stage[4]. Christoph Moser and Andrew K Rose found an average of 28 months, based on an analysis of 88 regional trade deals[5]. Both sources report a considerable spread around the average, with some taking a lot longer to reach. The EU-Canada CETA agreement, for instance, started in 2009 and has still not completed.

Even without any expertise in trade negotiation, it’s not hard to see why it’s difficult and time consuming. A huge amount of detail is involved, covering what is included and what is not. Adding services as well as goods makes the subject more complex. And the detail is really important in case of any dispute about violation of the rules. Regular maintenance of the agreement is necessary, as things change. For example, over the past 20 years or so, rapid technology advances have led to an explosion in the number of software products, or products containing software, and have enabled electronic commerce. How are these developments incorporated into trade agreements?

It’s not just the time to negotiate a deal that is significant. The number of negotiations required would put a massive strain on the resources available in the UK. A piece by the Constitution Unit at UCL (University College London), posted before the referendum, discusses this point[6]. Another post at the LSE (London School of Economics), again made before the referendum, estimates the number of deals to be negotiated[7] at over 100. A piece in Management Today contains some interesting observations on how to negotiate a trade deal[8]. The Management Today article, incidentally, notes the resources available: ‘The EU has 600 trade negotiators, Canada has 300, and the UK has approximately 20, according to Sir Simon Fraser, former permanent secretary at the Foreign Office’. The article was written in September 2016 so the number in the UK will have increased as there is a recruitment drive in progress.

In short, there are many negotiations required, each of which is complicated, and a limited number of people available to conduct them. Until the shape of an UK-EU trade agreement becomes clear, other countries will be reluctant to progress with bilateral deals with the UK. And managing a lot of bilateral agreements is difficult. If the EU today had relied on bilateral arrangements between its various members rather than working through a centralised organisation (i.e. the EU) to manage them, the 28 countries would require 378 agreements.

The absence of a plan has been affecting the value of Sterling and annoying other members of the EU, justifiably in my view. Optimistic ideas about agreements with the EU and elsewhere, for example the Commonwealth countries, are, I believe, just that: optimistic. Australia and New Zealand, for instance, now have relationships with Asian countries and would anyway have preferred the UK to stay in the EU. It’s time to take a more realistic approach, beginning with a detailed plan for the proposed EU relationship.

Notes and sources

[1] See for instance https://www.theguardian.com/politics/2016/oct/17/philip-hammonds-brexit-worries-point-to-cabinet-tensions and http://www.telegraph.co.uk/news/2016/10/16/philip-hammond-in-cabinet-row-over-accusations-he-is-trying-to-u/

[2] For example, the German car industry has indicated that it will not put pressure on the German government to get a deal. See The Economist, 15-21 October 2016, p 33. See also the Prime Minister’s offer to Nissan, reported in the FT Weekend, 15th October 2016, front page.

[3] See Michael Gove’s view, https://www.ft.com/content/3be49734-29cb-11e6-83e4-abc22d5d108c .

[4] See https://www.weforum.org/agenda/2016/07/how-long-do-trade-deals-take-after-brexit/

[5] Why Do Trade Negotiations Take So Long? Christoph Moser and Andrew K. Rose. The paper can be found at https://faculty.haas.berkeley.edu/arose/on1111.pdf

[6] See https://constitution-unit.com/2016/05/27/post-brexit-trade-negotiations-would-pose-significant-practical-challenges-for-whitehall/

[7] See http://blogs.lse.ac.uk/brexit/2016/03/04/leaving-the-eu-would-mean-renegotiating-more-than-100-trade-agreements

[8] See http://www.managementtoday.co.uk/negotiate-trade-agreement/any-other-business/article/1406527

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