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Analysis

Davis wrong to boast transition secures third-country deals

by Nick Kent | 26.03.2018

David Davis boasted last week that the transition deal we’ve done with the EU means businesses “now have certainty” about what will happen immediately after Brexit. But in one crucial area, trade with non-EU countries, the Brexit secretary’s assertion was misleading.  

The UK and the EU would like those countries that have a free trade agreement with the EU (like Chile, Canada and Korea) to continue to treat the UK as if it were an EU member during the 21-month transition that lasts until end 2020. But they don’t have to and, if they don’t, that could be very costly for British business.

The EU has free trade agreements with over 60 countries around the world. When the UK leaves the EU it will automatically cease to be party to those treaties. This means it will no longer be entitled to things like reduced or zero tariffs on UK exports to those countries.

This is important to the UK as we have a trade surplus with several of these countries, including Canada and South Korea. So jobs and wealth in the UK are at risk in the immediate aftermath of Brexit if we lose those trade privileges. In total, 12% of our trade is with these 60-plus countries.

Chart showing UK trade destinations

During the transition, we will continue to be bound by the trade agreements the EU has reached with other countries, including giving them favourable access to our market. But those countries do not have to give us favourable access to their markets in return.

Davis said that the UK and EU had agreed that “those international agreements which arise from our European Union membership continue to apply as now” during the transition. But this isn’t quite so. What has actually been agreed is that the EU “will notify the other parties to these agreements that during the transition period, the United Kingdom is to be treated as a Member State for the purposes of these agreements.” (See footnote to Article 124)

This is helpful but it isn’t binding on those third countries. South Korea and Chile have already been arguing behind the scenes that the UK should make concessions to keep privileged access to their markets.

Since the transition deal was announced last Monday these third countries have kept their counsel. No doubt many will respect the EU’s wishes and carry on giving the UK favourable terms – either because they don’t want to fall out with the EU or because they hope to negotiate a free trade agreement with the UK after Brexit. But Davis’ suggestion that the benefits of all these agreements is in the bag during the transition is wrong.

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Edited by Hugo Dixon