A reality that bites is having Brexit for breakfast
UK ministers and officials appear to totally underestimate the difficulty of forging new trade deals
London — The day after Brexit, “Global Britain” was meant to regain the buccaneering spirit of imperial times past and adopt a new vision for foreign trade. Reality has proven messier.
After its divorce from the EU takes effect on Friday night, Britain will be free to negotiate its own trade pacts for the first time since joining the bloc in 1973, and will take an independent seat at the World Trade Organisation (WTO).
For now, until a transition period expires on December 31, Britain will remain inside the EU’s customs union and single market, which takes nearly half of all British exports including cars, meat and pharmaceuticals, accounting for millions of jobs.
“We are passionate believers in free trade. The UK has been for a long time,” finance minister Sajid Javid said in Davos last week. He vowed that a new deal with the EU itself “absolutely can be done” before the transition period ends, but also warned anxious British business chiefs to prepare for the two sides to diverge in their regulatory regimes.
Prime Minister Boris Johnson insists the deadline will not be extended, and envisions “a Global Britain running a truly global foreign policy”, shorn of its EU shackles and profiting from its world-class financial services, technology and creative industries.
But Irish premier Leo Varadkar laid bare Britain’s dilemma this week, warning it will have to concede a “fish for finance” compromise in the EU talks, allowing foreign boats in UK waters in return for unfettered access for its all-important financial sector.
‘Second after midnight’
That would undermine one of the promises by Brexiteers in Britain's 2016 referendum campaign. And the picture with the rest of the world doesn’t look much more promising.
“Doing multiple trade deals at the same time is like playing three-dimensional chess,” according to Jill Rutter, senior research fellow at The UK in a Changing Europe, a think-tank in London. “There are difficult trade-offs. Ministers seem notably reluctant to acknowledge that,” she told AFP.
Former international trade secretary Liam Fox said in 2017 that Britain could easily copy and paste all 40 of the EU’s external trade deals “the second after midnight” on Brexit day, which was then set for March 2019. Three postponements later, as Brexit Day finally approaches this week, the government concedes that only half that number will be ready, covering a single-digit proportion of Britain’s overall trade.
Britain will look to craft brand-new deals with bigger partners such as the US, China and Japan. If history is any guide, those could take years, though the US administration is talking up prospects for an agreement in 2020.
Fox’s successor, Liz Truss, said in parliament last week that the aim was to forge agreements with countries accounting for 80% of British trade within three years. “This is clearly unrealistic, because it would require signing agreements with more than 12 countries within a time-scale which has rarely been achieved for a single agreement,” the British Trade Policy Observatory at the University of Sussex wrote.
Enacting multiple new deals will be a particularly tall order for a country that, since 1973, has outsourced its trade negotiations to Brussels.
Japan, which in the 1980s chose Britain as its carmaking hub inside the EU, is reportedly keen on a rapid deal to maintain some stability. “Since Britain wants to show results after Brexit, it is likely to speed up trade talks with many countries. There is the possibility that Japan will be the first major country reaching an accord with Britain,” said Mitsuo Fujiyama, senior economist at the Japan Research Institute in Tokyo.
Speaking alongside Javid in Davos, US treasury secretary Steven Mnuchin said Washington was “disappointed” not to be first in line. The two sides are also at odds over Chinese telecoms firm Huawei and Javid’s plan to impose a digital tax on tech companies. The US represents less than 12% of Britain's foreign trade, a distant second to the EU share. China is next with about 5% and Japan has less than 2%.
Other nations, such as Britain’s former colonies Australia, Canada and India, have made it clear they will drive a hard bargain. One hard-fought area will be immigration.
For all the talk of Global Britain, the government faces a politically unpalatable decision between competing regulatory blocs, the EU and US, with China also a looming presence.
“There's always a mismatch between the rhetoric vs the reality,” Rutter said. “You have to choose.”