Brexit: Trump and Farage are wrong – Boris Johnson’s Brexit deal will not hinder a UK-US trade agreement

Brexit: Trump and Farage are wrong – Boris Johnson’s Brexit deal will not hinder a UK-US trade agreement

Need to talk more about Brexit? Well here you go…

US President Donald Trump again roiled British politics with his comments in an interview with Brexit Party leader Nigel Farage last week.

In that interview he said two things of note. First, he made it very clear that the US was not after the UK’s NHS in a trade deal. To anyone involved in US trade policy for any length of time, this is obvious. Not once in all my years as a US trade policy advisor or on the advisory committees to the United States Trade Representative did I ever hear that the NHS was a US negotiating objective. It wasn’t and it won’t be. Yes, US pharmaceutical companies do supply drugs to the NHS, and of course they are interested in fair and transparent government procurement – as they are all over the world – but this is also in the interests of UK patients and taxpayers. Where do people think the NHS gets its drugs from?

The second thing was his suggestions that Boris Johnson’s Brexit deal would make a trade deal with the US more difficult. He had made a similar comment regarding Theresa May’s Withdrawal Agreement. He was right about May’s deal – but he is wrong about Boris’s deal.

Since he made these comments directly to Nigel Farage, it is unsurprising that the leader of the Brexit Party has seized on them in order to show that Boris’s deal is just a version of May’s deal, and should be rejected.

So let me analyse these claims: is Boris’s deal a watered down version of May’s deal?

First, under May’s deal the backstop would have put the whole UK in a customs union with the EU and the negotiations would have built on that single customs territory. This would clearly make a US trade negotiation all but impossible. But under Boris’s deal, all of the UK is in a single customs union and there is no customs union with the EU. By ensuring that Great Britain is completely free of the EU customs union on a de jure and de facto basis, Boris has ensured that any trading partner can negotiate with the UK for untrammelled access to the whole Great Britain market. Potential trading partners have made clear to me that the Northern Ireland arrangements in the Boris deal would have no impact on their desire to negotiate with us. In other words, for them access to the UK market is not diminished by the special rules that apply only to Northern Ireland. The first critical tool to do a deal with the US and anyone else has been secured – control over our own tariff schedules.

Second, the May Political Declaration was unclear as to what the end state would be. The Chequers approach was regarded by the EU and others as basically a partial customs union in goods and free trade agreement in services. The rules of goods trade would closely mirror the EU rules of the Single Market. Boris’s Political Declaration is massively different. By seeking trade as frictionless as possible – and not frictionless trade with the EU as May had done – Boris’s deal specifically makes the Free Trade Agreement the end state. That clarity, which trading partners never had before, means that the UK can immediately get on with the job of negotiating trade deals concurrently with the EU – which is what they will need to do in order to get the best deals with everybody. Everyone is used to negotiating with trading partners who are also negotiating trade deals with others at the same time.

Third, because the overall architecture of Boris’s Withdrawal Agreement and the Political Declaration are a Free Trade Agreement in the end state with regulatory divergence from the EU foreseen, we have the second critical tool of an independent trade policy, which is control over our own regulatory system. What we choose to do with that is up to us and will depend on how well we draw down negotiating leverage, most of which is external (deals with the US, CPTPP accession, deals with Japan, Australia and New Zealand). The most important thing at this point is to ensure that we stop bifurcating our trade policy into the EU and the Rest of the World and have a single integrated policy where our negotiators can easily read across from one negotiation to the others. If the government lacks bandwidth for this, the answer is to acquire more, not to settle for a weak negotiating hand.

Fourth, some would argue that the transition period makes it difficult to negotiate with others. This is not true. Trade negotiations take time, and as long as it is clear that the UK will leave on a certain date, most negotiators from other countries will be quite happy to negotiate on this basis. What they will need from the UK is serious negotiations from day one. They need to know that we won’t take the lily-livered approach to things like the duty of sincere cooperation that the previous administration did, collapsing to EU demands before their proposals had even hit the table. So far, Boris has demonstrated that his negotiating style is very different from the past.

Fifth, he has removed the one-sided level playing field obligations (which would have been problematic) and pushed them into chapters of the ultimate Free Trade Agreement where they belong. The US is quite used to negotiating such provisions, and indeed their own negotiating mandate requires that the UK not derogate from its existing labour and environmental standards.

The best way for Donald Trump to test whether a trade deal with the UK is possible is to put a draft deal on the table and let the negotiations proceed from that. The best way for the UK to do trade deals with the US and EU – something that Canada, Mexico, Chile and many countries have done – is put the EU Free Trade Agreement on the table for them now and start negotiating it. We can agree a system of regulatory recognition and deemed equivalence with both the US and EU, as long as our overall regulatory objectives are the same and our regulatory systems objectively achieve those goals.

The difference between the May deal and the Boris deal for our US relationship is, to use Trump’s own word, huge. But, if the Prime Minister has a weak negotiating hand (by not having a workable majority) or if he chooses himself to negotiate as if the EU deal must be done first, then he might make a trade deal with the US difficult. But where the May deal precluded a US deal, Boris’s deal actually opens up the path for it.

Nigel Farage and the Brexit Party campaigned very successfully to get the UK out of the EU. Their place in history is secure. The success of the Brexit Party in the European elections (rightly standing on the platform that the May deal was not Brexit) had a big impact on the eventual forcing of Theresa May from office. The UK under May was headed directly for a partial customs union with the EU and no independent trade and regulatory policy.

But there are two claims being made by the Brexit Party now that are categorically false. First, as demonstrated above, Boris’s deal is nothing like May’s. Second, the notion that there is some miraculous way of avoiding the impact of No Deal with the EU through the oft-quoted and even more often misused GATT Article XXIV. Farage needs to be clear that without the sort of commitments Boris’s deal makes on money, citizens and the Irish border, the EU simply won’t do even the most basic Free Trade Agreement. This means, for example, no agricultural access for UK farm exports to the EU at all (as there will be no agreed quota going into the EU).

That approach leads to a position where we have no Free Trade Agreement with the EU at all, ever. It may be that the immediate implementation of UK trade policy with the US, CPTPP and other agreements, and the complete re-alignment of the UK economy overnight (with the shock effects that would entail), including a complete revision of our regulatory system would ultimately be good for the UK economy. Many free traders/free marketeers would probably want that as an ultimate destination. But just as New Zealand’s transition came with shock and cost, so would this transition.

But there is no easy path to a Free Trade Agreement with the EU unless we have some sort of deal that looks very much like Boris’s deal, imperfect as it is. Brexiteers should be pushing hard to make sure that the mistakes of the May administration – legion as they were – are not repeated. They should push for having a single mind over all our trade policy and not bifurcating the EU piece from the Rest of the World piece. They should be pushing hard so that our domestic settings – our internal regulatory system – is as pro-competitive as possible, thereby facilitating our independent trade policy, and creating wealth for us at home. They should be pushing to make sure that our domestic protectionist interests do not thwart our trade and regulatory policy, which is where the gains of Brexit lie.

As we leave the EU, let us use the freedoms we have to create wealth and lift the poor out of poverty. It is on these things that Brexiteers must not compromise. The pathway to get them has now been established. Tearing up the pathway, while remaining silent on what we need to do ourselves to reap the gains of Brexit is not a real policy choice, it is the surest way of keeping us trapped where we are.

The above is an updated version of an article first published in the Daily Telegraph. 









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