It’s a short footnote buried in page 77 of the draft withdrawal agreement but it could have massive consequences for the country after we leave the EU, providing our trading partners with all the cards.
If the Brexit process keeps on track, 30 March 2019 will be the first day of the transition period. With Britain officially out of the EU, but before any arrangement is agreed with the continent and the rest of the world, we will be officially in limbo: transitioning for an undefined period of time towards an unknown future relationship with Europe.
Fortunately transition means we will keep for a little longer the rules and regulations that we have depended on for the last forty years, from health and safety in the workplace to labour rights, environmental protection and food safety. But page 77’s footnote indicates that nothing can be guaranteed when it comes to international trade, even during the transition.
Currently, we trade with the world on the basis of international treaties that were negotiated on our - and the EU’s other 27 members - behalf. Without these treaties, UK exporters would face much higher barriers to trade and many who depend on foreign markets would simply not survive. Close to 15% of our foreign trade is currently covered by EU trade deals.
During transition, Britain will remain bound by the obligations it entered into as an EU member state, including with respect to third countries. But there is simply no way we can force these third parties to continue granting any rights to Britain.
For EU trade deals to continue to apply to the UK during the transition period, we need all their signatories to continue treating the UK as if it were still an EU member state, something that the footnote aspires to achieve. But this does not rest on any sound legal ground. In fact this could easily be challenged at the WTO as it goes against one of global trade’s commandment: thou shall not discriminate between countries.
The EU is clear that it will nonetheless give the UK a special deal, and continue to treat it differently than any other country in the world. But the EU’s 71 trade partners (plus the 11 countries with which trade deals are about to be signed or ratification) may not feel it is in their interest to do the same. In fact, they have a strong incentive not to do so.
This is because we desperately need to replace the EU trade deals with our own after Brexit. These countries can already ask for more than they would get under normal circumstances, simply because Britain’s back is against the wall. But with the guarantee that they can keep exporting to the UK no matter what during the transition while they can close their markets to UK businesses if they want to, all of these countries are now firmly in the driver’s seat. Clearly, the Brexit transition is a golden opportunity for anyone wishing to snatch a bit of Britain.
Any country could simply name its price in exchange for agreeing to the transition arrangement. This could take the form of greater access to the UK market, or even lowering our standards for food safety and environmental protection. The government will be under extreme pressure to comply, simply because the alternative - falling down the Brexit cliff - would be too much to bear for the economy. As for the idea to replicate the EU trade deals before 29 March 2019, this is so unrealistic that even the Tories have had to give up on this fantasy.
Liam Fox would have you believe that it’s all going to be ok, and that every country in the world will show a great understanding for our predicament. But that’s not what those willing to hear have heard so far. Canada, New Zealand and the US have already stated that they want to be able to sell more beef and lamb in the UK than they currently do. South Africa is asking the UK to relax its food safety standards. South Korea wants to have its exports made with parts manufactured in China to be eligible for free trade with the UK.
One glimmer of hope stems from the fact that this is not just a problem for the UK. The EU27 need to be able to treat the UK as if it were still part of the EU for their own benefit too. This is because of the way trade deals work. They contain detailed rules specifying how a ‘made in the EU’ good can qualify to benefit from a trade deal. Parts made elsewhere may be used but only to a limited extent. Having UK manufacturing out of the EU, and therefore UK-produced parts no longer accounted for as EU-content could have serious consequences for EU businesses. This is notably the case for the car sector, with the industry arguing that not a single EU-made car could be considered as such after Brexit, because of the parts made in Britain they all contain. This would render trade deals such as the one with Korea basically useless for the EU car industry.
So this is something on which we should be working on together with the EU. The best solution for the long run, as I and the Labour Party have been arguing, would be to remain in a full customs union with the EU. But negotiating such an arrangement will take time and we only have a few months left under our current self-imposed deadline. So rather than rush things and settle for limbo-transition without considering all of its consequences, I would argue that it’s far better giving the idea of pushing back the deadline a fair hearing. Extending the article 50 deadline before we leave the EU by a further two years would only require the agreement of the 27. True, this would open up 27 fronts on the Brexit negotiations with all EU member states having the opportunity to ask something in return. But managing these 27 requests sounds a lot easier than managing 71+11. And extension is the only legally secure way to guarantee that we don’t fall off a trade policy cliff on 30 March next year.