The implications of Brexit for the UK’s trade arrangements, a subject on which Leave and Remain campaigners have sharply disagreed, were addressed in the first two seminars of a series on Brexit hosted by the Constitution Unit and the UCL European Institute. Drawing on the comments of the seminar speakers, Oliver Patel discusses the impact that post-Brexit trade negotiations would have on Whitehall and the EU. Whitehall, in particular, would face a number of practical difficulties. Though not insurmountable, these mean that the process of negotiating new trade deals would be far from straightforward.
All of a sudden, everyone is talking about trade deals. The EU referendum Leave campaign argue that outside the EU the UK will prosper as it will be able to negotiate favourable trade deals with growing economies like India and Australia. Remain campaigners argue that this will not be easy and that being in the EU gives us more clout. Their cause was boosted by Barack Obama’s claim that the UK would have to join the back of queue if it wanted its own trade deal with the US.
Our first Brexit seminar and associated briefing paper assessed the impact of Brexit on Whitehall and Westminster. The panel agreed that the process of withdrawing from the EU would cause major headaches for Whitehall. This is primarily because of the various international negotiations which the UK would subsequently have to engage in, such as a withdrawal agreement with the EU and new free trade agreements with non-EU countries.
Sir Simon Fraser, former Permanent Under-Secretary at the Foreign and Commonwealth Office (FCO), noted that the UK government currently employs very few (if any) trade negotiators, as the function has long been outsourced to Brussels. He concluded that the practical challenge of negotiating multiple international agreements in the event of Brexit – whilst also managing the ongoing business of government – would be huge. However, he does not view the challenge as insurmountable, so long as Whitehall increases capacity and expertise in key areas and co-ordinates the process effectively.
This blog gives some context to the argument that Brexit would present Whitehall with a major practical challenge by honing in on some of the practicalities of trade negotiations. It also explains why the process of negotiating a withdrawal agreement would be a bigger issue for Whitehall than for the EU.
The agreement with the EU
The withdrawal agreement with the EU is the most important agreement which UK officials will have to negotiate in the event of Brexit. As critics of the EU like to point out, negotiating EU trade agreements can be a long and painstaking process. For example, the EU’s negotiations with Canada began in May 2009 and the deal, although concluded, has not been ratified yet. Similarly, the EU–South Korea free trade deal took about four years to conclude and there is seemingly no end in sight to the TTIP negotiations. All this is unsurprising, as the evidence shows that the more countries are involved, the longer trade agreements take to negotiate.
The UK’s deal with the EU will inevitably be more comprehensive than any previous EU external agreement. The two-year negotiation period which Article 50 allows for will probably have to be extended, which suggests that the UK will have to play ball, as extending the period requires unanimous consent from the European Council. In practice, it is likely that Whitehall officials from the FCO, the Cabinet Office, the UK Representation to the EU (UKRep) and the Department of Business, Innovation and Skills (BIS) are going to be involved in complex negotiations with the EU for a number of years. As the need for expertise and resources becomes apparent, cuts to the FCO and BIS may well have to be re-evaluated.
It is worth briefly mentioning what stance both sides are likely to take in the negotiations and what post-Brexit EU–UK relations might look like, although this has been covered in much more detail elsewhere. Sir Simon Fraser argues that there will be a trade-off between market access and sovereignty. The more access the UK wants to the EU market, the more sovereignty it will have to concede. Norway is a member of the EEA and has full access to the single market, but it has to abide by EU regulations, pay into the EU budget and accept free movement of people. At the other end of the spectrum, the UK could simply trade with the EU under WTO rules, without a trade agreement. In this scenario the UK would be free to make its own laws and regulations (and control immigration how it wished), but UK businesses would not have preferential access to the single market and tariffs would be imposed. Economists – and the WTO itself – warn that this would be costly for the UK, not least because it would deny service providers rights of access to the European single market.
The likeliest option is a UK–EU free trade agreement, positioned somewhere in the middle of the two scenarios outlined above. Both the UK and the EU would, for economic reasons, want to negotiate a favourable trade agreement as quickly as possible. However, studies show that negotiating a free trade agreement covering services is much more difficult than one covering just goods. Our panelist Professor Kenneth Armstrong agreed, noting that market access for services would require incredibly intensive negotiations, which is why most free trade agreements do not cover services. This could be an issue, as the services industry makes up nearly 80 per cent of the UK economy.
Furthermore, hard politics will get in the way. In our seminar on the impact of Brexit on the EU Simon Hix argued that, to limit any potential contagion effect of Brexit (i.e. the unleashing of Eurosceptic forces across the continent), the EU might not let the UK leave with a quick and easy deal. Also, the UK government is likely to take a hard line on free movement of people and sovereignty more broadly.
So, UK officials will demand high levels of market access (especially for services), are unlikely to accept free movement of people and will be negotiating this in a framework which gives the EU the upper hand. Senior diplomat Jonathan Powell argues that the UK’s negotiating hand is one of the most difficult he has ever seen. All of this points to a messy, complicated and drawn-out divorce, and a big headache for civil servants when they wake up on June 24 if there has been a vote for Brexit.
Free trade deals with non-EU countries
Another implication of Brexit is that, from the moment of withdrawal, the UK would no longer be party to the free trade agreements which the EU has signed with other countries. The EU currently has free trade agreements with 58 countries, with many more (such as TTIP and an agreement with Japan) in the pipeline. Together, these agreements cover about 35 per cent of world trade.
Presumably the UK government would want to negotiate free trade agreements with a range of countries because at the moment of withdrawal the UK would not have preferential access to any markets. Of course, the freedom to negotiate trade deals with countries all over the world is one of the key reasons why people argue for Brexit. However, it is sure to be a massive practical challenge for Whitehall, not least due to the simultaneous EU withdrawal negotiations which are bound to dominate. At our seminar, Sir Simon Fraser candidly remarked that ‘those who say that negotiating these agreements will be simple clearly have no experience of doing such deals’.
28 months is the average length of time it takes to negotiate a free trade agreement. It is true that the UK might be able to strike deals with countries quicker than the EU can. The US and Australia, for example, took about two years to negotiate and finalise their free trade agreement. Switzerland, which has negotiated deals with leading economies such as China, Japan, South Korea and Canada, is sometimes used as an example of how the UK can flourish post-Brexit. However, it is important to note that it has taken Switzerland many years to finalise these deals and that they were not all done simultaneously.
The UK will have to negotiate multiple deals simultaneously in order to prevent a long-term hit to the economy. At the very least, the government will need to hire hundreds (if not thousands) of experienced trade negotiators, consultants and other experts, who will be able to contribute to this process. No one is suggesting that the UK cannot do it alone, but it will not be easy.
Another potential complication could be the prospect of the UK having to renegotiate its terms of membership with the WTO. WTO Director-General Roberto Azevêdo has said that this would be necessary in the event of Brexit, as the UK joined the WTO as part of the EU. This unprecedented negotiation would surely be a priority, as trading outside of the WTO framework could represent a somewhat nightmarish scenario for the UK economy.
How will the EU fare?
Our second Brexit seminar discussed the impact of Brexit on the EU. Sir Stephen Wall, the UK’s former Permanent Representative to the EU, argued that in the immediate aftermath of Brexit the EU will want to show that it is viable, working and stable. He predicts that the EU would not allow the withdrawal process and the Brexit negotiations to disrupt its workings to a great extent. Our panel were in agreement that the EU would do everything in its power to remain stable and that Whitehall would probably be more disrupted.
A key reason for this is that the EU is used to engaging in international negotiations regarding trade and wider cooperation. The Commission has a large team of experienced trade negotiators and, in a sense, such negotiations represent ‘business as usual’. Brexit would mean that the EU would have to negotiate a withdrawal agreement with the UK but, unlike the UK, it would not have to negotiate a host of other agreements. This is not to say that Brexit would not have an impact on the EU – it would have a significant impact – only that the withdrawal process would probably disrupt Whitehall more than the EU.
Brexit would have a significant impact on Whitehall. The international negotiations would present the government with a serious practical challenge. Senior officials would have to engage in negotiations on multiple fronts whilst simultaneously running the country, reviewing all EU law and, potentially, responding to an economic shock, dealing with calls for independence in Scotland and maybe even a leadership contest in the Conservative party! One thing is for sure: in the event of Brexit, the civil service is going to be busy.
Our briefing papers on the constitutional consequences of a Brexit vote, as well as video highlights of each seminar, can be accessed at this link.
About the author
Oliver Patel is a Research Assistant at the Constitution Unit, working on the seminars and briefing papers on the constitutional consequences of a Brexit vote.