Welcome back. Do you work in an industry that has been affected by the UK’s departure from the EU single market and customs union? If so, how is the change hurting — or even benefiting — you and your business? Please keep your feedback coming to brexitbrief@ft.com.
Oyez! Oyez! Four months after Brexit became a functional reality the European parliament has finally voted to ratify the trade and co-operation agreement secured between the two sides in December.
History will be the judge of that, but the vote in Brussels now opens the door (closed by Michael Gove back in February) to the TCA becoming fully operational, with its network of 20 committees that sit beneath the ministerial-level partnership council.
The immediate question is what this might mean for smoothing out some of the well-reported difficulties with EU trade that British SMEs in particular have experienced since January 1, leading to big hits in export volumes (see below & past editions of Brexit Briefing).
One difficulty in making predictions about how the management of the deal will unfold is that the EU hasn’t done this kind of basic FTA deal with a neighbour like the UK, which plays a significant role in EU capital markets and trades intensively across high-speed borders. Or did.
Understandably, business groups including the CBI and the British Chambers of Commerce want the UK government to “normalise” trade as quickly as possible, but the cold reality is that trade was “un-normalised” by the decision to put UK trade on Canada-style terms, and no amount of specialised committees will change that.
Pessimists, such as co-founder of the UK Trade Forum and a former UK trade negotiator David Henig, point to precedent. They argue that, with other EU FTAs like South Korea or Canada, these technical management committees have made precious little difference to anything.
And as Anton Spisak, another former UK official now at the Tony Blair Institute, also cautions these specialised committees — covering a broad range of issues from transport to technical barriers to trade (TBTs) — are not designed to improve or expand the deal, merely to manage its enforcement.
That fact should damp industry expectations, which, whatever the public pronouncements, are privately pretty low when it comes to winning new easements. Lord David Frost and other UK ministers have been clear that the UK will not be diverted from its sovereignty-first approach to the relationship, which puts pretty hard limits on progress.
And as a result, on significant areas for many UK exporters such as SPS (plant and animal product) rules, chemicals, medicines, rules of origin, labour mobility and professional services, the TCA is very limited.
Accordingly, a lot of moves that industry would welcome in further aligning with the EU — whether linking to the EU’s Emissions Trading System, for example, or deepening regulatory co-operation in chemicals, or signing a deeper veterinary agreement — are looking difficult on a point of principle.
And this, of course, cuts both ways. The European Commission and EU member states have ultimately taken a principled and political rather than a pragmatic approach to administering Brexit, despite some naive initial predictions to the contrary from Brexiters.
Very early in the process the EU settled on the mantra that the “size and proximity” of the UK meant that it could never be treated as just another trade partner, and have since been explicit that they will now use the asymmetry in the EU’s size versus the UK, and its resultant regulatory pulling power, to suck business inside the single market.
So whether on electric vehicle battery supply chains, chemicals, medical devices, mussel farming or financial services the default EU position is largely to point to the terms of the deal the UK signed, seek to enforce these minutely and then quietly squeeze until the UK accepts the gravitational necessity (in trade terms) of deeper alignment. That itself might underestimate the will of the Johnson government. Time will tell.
It doesn’t actually have to be this way, but given that neither side shows much desire to take a pragmatic approach it is difficult to see the cross-Channel political mood music changing any time soon.
And as commentators such as Spisak point out, politics ultimately will be the guiding and limiting factor in the utility of the TCA’s multifarious committees. Their power depends on the political licence given to the bureaucrats by their politicians. Without that licence, they’re just talking shops.
Still, even if the big stuff isn’t going to change any time soon — the UK is not going to do a Swiss-style SPS agreement or retreat on its decision to leave the EU REACH chemicals database — the bureaucratic contacts may yet help on the small stuff.
Anna Jerzewska, a trade consultant who is engaged on a daily basis advising businesses trying to trade with the EU, makes this point. She says that perhaps the answer to resolving some issues might not lie in lofty ambitions to deepen the deal, but a focus on the small stuff that can actually help get goods to market.
As she tells me, it’s not just a question of how often the customs committee meets but the conversations that take place at an administrative level — customs administration to customs administration, peak-capped official to peak-capped official.
It is here that some of those wrinkles can be smoothed out. As she puts it: “The questions around the colour of the pen that needs to be used to fill in the forms, the confusion around what an origin statement needs to look like (the fact that it differs between the UK and the EU), etc.”
By such baby steps some exporters may find help in keeping the show on the road, even if the more fundamental barriers to trade remain.
Brexit in numbers
There is no doubt that all of the above is inflicting pain on exporters, not all of which can be dismissed as ‘teething problems’.
And for a lot of those industries — like food and drink, where exports tanked in January and February as these ONS figures collated by the Food and Drink Federation show — exporting to the rest of the world (which is the government’s go-to solution when confronted with these numbers) is not going to make up the EU losses any time soon.
This week, a cross-party committee of MPs on the environment, food and rural affairs committee released a compelling report detailing the headwinds faced by these industries. They urged the government to reach a “veterinary partnership agreement” with the EU — even though George Eustice, the agriculture secretary, had pretty firmly laid out to the committee (summarised on p28-29 of the final report) the political limitations around that happening.
Instead, rather than a grand fix, the government can look to do more micro fixes on areas such as groupage and tariff codes, of the kind being demanded by the English sparkling wine industry, which also this week complained it was struggling with Brexit barriers.
For the moment, none of this seems to be biting politically, which begs a question of its own. If no one is really paying attention on the doorsteps, and if there is no obvious upside to divergence on veterinary standards (in the absence of a US-UK FTA, which no one expects soon), then why not quietly have done with it, and do that veterinary deal?
In the week that Arlene Foster, the Democratic Unionist party leader, was forced from office in significant part because of the effects of the Brexit deal on Northern Ireland, it’s also worth noting it would ease a lot of the thorniest issues with the Northern Ireland protocol too.
And, finally, three Brexit stories you may have missed this week
Cboe Global Markets is set to launch a new derivatives exchange in Amsterdam in September, adding options trading to its push into the EU market now that the UK has left the bloc. The Chicago-based group plans to offer trading in futures and options on six European equities indices, including contracts tracking blue-chip stocks in the UK, Germany, France and Switzerland.
The “red wall” of northern Labour seats was shattered by Brexit. Now Hartlepool, a seat created in 1974 that has never elected a non-Labour MP, is tipped to vote for the Conservatives in next week’s by-election. Jim Pickard and Sebastian Payne report on the contest for the seat once held by New Labour svengali Peter Mandelson.
Brussels is close to finalising new legislative powers that would enable it to crack down on market-distorting subsidies from foreign governments, as the EU seeks to defend itself from perceived unfair competition from capitals. The proposed rules, a summary of which was seen by the Financial Times, represent a significant hardening in the bloc’s approach to state-backed competition from overseas.
Source: Economy - ft.com
