Law isn’t main block on trade deals before leaving EU

by Jack Schickler | 25.07.2016

Philip Hammond has raised the prospect of Britain starting trade talks with China, one of the world’s largest economies, within the next “couple of years”. His comments, made over the weekend after a meeting with G20 counterparts in Chengdu, echo those from Downing Street, reported in the Financial Times and elsewhere, that British officials are planning to negotiate trade deals “up to the point of signing” in the period before we leave the EU.  

For logistical reasons, it is implausible that we might nail down our terms of trade with the rest of the world before we have done so with Europe. And this is not just or even mainly because doing so might contravene the EU treaties.

Whatever the legal risks, talks with lesser trade partners would probably not get far until our relations with the EU were clear – for the good reason that the commitments made in different trade agreements may interact with or contradict each other. To take a few examples, the type of regulatory cooperation often included in trade deals is a significant way of reducing non-tariff barriers, but we cannot commit to it with one party if we have committed to regulatory harmonisation with another.

Our open agriculture trade with Europe may depend on staying in the bloc’s common agricultural policy – but other potential trade partners might require us to slash the system of farm subsidies.

Assuming we wanted to control overall migrant numbers, we’d have to know how free movement from Europe would work before we could agree to visa demands from the likes of India.

And, if the UK sought to lower import tariffs for countries like China, the EU would probably insist on extra bureaucracy for UK exporters to Europe, known as “rules of origin”, to avoid Britain becoming the backdoor for Chinese goods entering the continent.

In practice, the EU may have few legal routes to keep us from launching informal trade talks with others before we quit. But it could exert pressure in other ways – like by being tough in their own negotiations with us, or encouraging other partners such as the US to do likewise. The political incentive for them to do so is stronger if the UK looks to be setting itself up as some kind of offshore haven, undermining European regulatory or tax provisions.

The terms of our EU deal may not be certain until the end of the process – since, in a phrase beloved by many negotiators, nothing is agreed until everything is agreed. Until that agreement is hammered out, other countries – and other businesses – might put their plans for closer trade and investment ties with the UK on the back burner.

Edited by Hugo Dixon