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Analysis
Britain’s complex road to Brexit

Britain’s complex road to Brexit

Hard work and charm to limit uncertainty 

by Charles Grant

Tue 2 Aug 2016

Along with a first set of three deals (which I explained in my commentary on 1 August) on Britain’s new relationship with the European Union, the UK will need another three series of negotiations on wider trade and foreign policy issues.

The fourth accord that Prime Minister Theresa May needs to strike is attaining full World Trade Organisation membership. (Britain is currently a member via the EU.) Full members must deposit ‘schedules’ of tariffs, quotas, subsidies and other concessions on market access with the WTO. The UK will have to negotiate its own schedules, initially with the other 27 members of the EU. The tariff negotiation could be simple, if the British followed what the EU does now. But dividing up quotas, on say New Zealand lamb imports, would be more complicated. And then the new British schedules would need the approval of all 163 WTO members, since the organisation’s decisions require consensus.

If one member (for example, Argentina or Russia) wanted to create difficulties, it could block the British schedules. British officials hope that such difficulties do not arise, but reckon that it will be hard work to sort out WTO membership within the two years of the Article 50 negotiation.

The fifth negotiation concerns deals that must be struck with countries that have free trade agreements with the EU: 53 such countries, including Algeria, Singapore, Israel, Vietnam, South Korea and Mexico. During the referendum campaign, some Leavers claimed that the 1969 Vienna Convention on the law of treaties means that, post-Brexit, the UK will still benefit from these FTAs. But that does not work legally: the day that Britain leaves the EU, the FTAs cease to apply to it. The UK will have to scramble to cut its own bilateral deals with these countries before it exits the EU. Most of the 53 will probably do their best to be helpful. But some may be difficult, perhaps because they have particular industries that face competition from the UK.

This work on bilateral FTAs will keep busy Britain’s embryonic ministry of international trade. At the time of the referendum, the British government employed no more than (by its own count) 12 to 20 trade negotiators. It is now hurrying to recruit many hundreds more, from friendly countries and the private sector.

According to the rhetoric of some Conservative ministers, Britain will soon be striking bilateral trade deals with dozens of states with which the EU has not yet completed FTAs – such as the US, China, India, Australia and New Zealand. But this is highly unlikely, for legal and practical reasons. So long as the UK is part of the EU, it cannot legally complete an FTA with another country. It can talk about talks. But given that its current capacity for trade negotiations is limited, its priority will have to be salvaging the bilateral deals with the 53 countries that it risks losing, as well as forging the big FTA that it needs with the EU.

In any case, countries like the US, New Zealand or China will simply not want to negotiate an FTA with the UK until they know what Britain’s relationship with the EU is likely to be. Which bits of the single market, if any, will the UK be in? Which parts of EU competition law will apply to the UK? Once Britain has left the EU’s customs union, what ‘rules of origin’ will Brussels apply, so that other countries cannot use the UK as a way of circumventing EU restrictions on their exports? Would regulatory harmonisation between the EU and the UK make convergence between the UK and other countries impossible?

Backing up these points, on 25 July Michael Froman, the US trade representative, said, ‘As a practical matter, it is not possible to meaningfully advance separate trade and investment negotiations with the UK until some of the basic issues around the future EU-UK relationship have been worked out.’

The sixth negotiation will cover UK-EU ties in areas like foreign and defence policy, police and judicial co-operation and counter-terrorism. As I have written elsewhere, on these dossiers the UK is in a relatively strong position. It has important diplomatic, intelligence and military assets that can be useful to its partners. The British are likely to ask for mechanisms that allow them to feed their knowledge and expertise into EU deliberations – similar to those which the US already has with the European External Action Service, or Norway with Europol.

At the moment several of the 27 oppose giving the UK formal links to EU foreign policy-making machinery, as opposed to informal channels, though that may change when emotions subside. There would be a mutual self-interest in creating consultation mechanisms – though the UK must accept that it will have much less influence on EU policy-making than it has today.

To reach acceptable outcomes, May’s government needs to earn the goodwill of 27 EU partners and the EU institutions – including the European parliament – which must vote on both the Article 50 divorce settlement and the FTA.

Her ministers will also need to charm many other governments across the world if they want the WTO talks and the FTA negotiations with non-EU countries to run smoothly. I hope the three leading Brexiteer ministers – David Davis, Liam Fox and Boris Johnson – understand the point. If they resort to thumping the table and threatening other governments, they will delay the deals they need – and the period of uncertainty for the British economy will lengthen further.

Charles Grant is director of the Centre for European Reform. This is the second article in a two-part series on Britain’s transitional arrangements. It was first published, in slightly longer form, by the CER on 28 JulyGrant’s first article appeared yesterday.

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