08 February 2018

The Economist: After Brexit, which trade deals should negotiators prioritise?

Britain already has around 40 free-trade agreements through its membership of the EU. None will survive Brexit automatically. Deal preservation lacks the glamour of deal creation, but it is a more urgent task.

Together, these deals cover countries that receive around 16% of Britain’s exports and send 6% of its imports. The British government wants to keep all of them, and insists that doing so is no more than a technical exercise. But rolling over deals that together took more than 75 years to negotiate will not be easy. As the clock ticks, the government may be forced to prioritise.

Size matters, and after the EU, Britain’s top five export partners with which it has trade deals are Switzerland, Japan, Canada, Singapore and South Korea (see chart). Agreements with economic tiddlers like Algeria, Georgia or Tunisia might be of political importance, but their lapsing would only squeeze a few British exporters.

Large trade flows could be the result of a deep, trade-boosting deal. Alternatively, they could arise from a shallow deal with a big country that would trade a lot with Britain even without it. Michael Gasiorek and Peter Holmes of the UK Trade Policy Observatory at Sussex University have calculated that only four of Norway’s top 100 goods imported from Britain would face tariffs in the absence of a deal, compared with 67 of Turkey’s. On that crude measure, the latter would seem more important.

However, researchers have constructed a broader measure of depth, as part of the Design of Trade Agreements project attached to the World Trade Institute, based in Bern. They tot up a maximum of seven key features of a trade deal, including whether it contains tariff cuts; services liberalisation; investment rules; recognition of standards; liberalisation of public procurement; rules on competition; and intellectual-property rights. Based on that metric, deeper deals with Canada, South Korea and Vietnam would be worse to lose than shallower ones such as that with Turkey, whose deal with the EU excludes services.

If British businesses are not exactly banging down the door to preserve these deals, says Allie Renison of the Institute of Directors, a business lobby group, it is partly because they think that the British government should prioritise its deal with the EU. Some sectors are concerned about particular deals beyond that. Carmakers, for example, rely on sending car parts to and from Turkey under the customs union, and saw their exports to South Korea more than triple in value in the five years after the deal was applied in 2011. Chemicals exporters, which account for a little under 10% of exports to the EU’s partners, are keen to keep Britain’s arrangements with Switzerland and South Korea.

No process will be as straightforward as simply replacing references to the EU with ones to Britain. The arrangements Britain wants to translate refer to European law and European content requirements. Negotiating partners will justifiably grumble if they find themselves having to adhere to two sets of standards, or if their car parts get hit with new tariffs because finished cars no longer contain enough content from the deal’s co-signatories.

Britain’s trade negotiators may choose to prioritise deals that are easier to agree. All will be difficult without knowing what Britain’s final relationship with the EU will be. Depending on what that is, the trickiest set to inherit may be the ones with the EU’s closest trading partners, like Switzerland and Norway. Their arrangements are “living deals”, which secure access to many areas of the EU’s market by sticking tightly to its rules. Keeping close trade ties with them will mean sticking close to the EU too.

For now, the British government seems confident that it will not have to choose. On January 24th Greg Hands, the international-trade minister, reassured the trade select committee that of the 70 nations with which the government had held discussions, none had any interest in erecting new trade barriers. But between now and March 2019, plenty could go wrong.

Full article on The Economist

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