Politics: Beginner’s Guide to Soft Brexit Trade Stuff

Are you getting confused by all the technical talk of soft Brexit, hard Brexit, the single market and open borders?

The pendulum is swinging away from Theresa May’s “hard Brexit” rhetoric of the election campaign, when she parroted time and again that leaving the EU with no new trading deal would be “better than a bad deal”, with key figures such as Chancellor Philip Hammond, Scottish Conservative leader Ruth Davidson and the newly-empowered Democratic Unionist Party all agitating for a softer and less traumatic form of divorce with the EU.

With the future of Brexit now coming down to the nitty-gritty of what sort of trading relationship a the UK should have with the rest of Europe, a brush-up on the issues might help you to understand the coming months of arguments among the politicians.

The Single Market

The EU’s single market allows member countries to trade with each other without the hassles that come with most foreign trade. It eliminates tariffs (taxes imposed on imports), quotas (limits on the quantity of imports) and thousands of less obvious restrictions such as obscure health standards and packaging rules that can make life hard for foreign products.

Access to that single market allows exporters to reach half a billion consumers but the entry price is agreeing to the EU’s rules and the “four freedoms”,  the free movement across borders within the EU of goods, services, capital and people. Non-members such as Liechtenstein, Norway and Iceland get access to that lucrative single market by accepting those freedoms and certain other EU rules, paying hard cash for the privilege and having none of the influence that members wield over EU rules.

The problem for the UK is that both the Conservative and Labour parties have now accepted UKIP’s demand that the free movement of people within the EU must end. Most of Britain’s major businesses, the Liberal Democrats, Greens and SNP are happy to accept current immigration rules as the price of access to the single market but the major parties have decided that it is more important to limit immigration.

Paying for access to the single market would also upset many supporters of a “hard Brexit”, who believe the UK would be better off treading a more solitary path in international trade. It has been estimated that to negotiate a deal similar to Norway’s would cost the UK roughly 94% of what it now pays to be in the EU, with none of the clout that comes with being a member.

Customs Union

The EU is not just a single market, it is also a customs union. That means members agree to apply the same tariffs on imports from countries outside the union and to jointly negotiate shared treaties with those other countries. Goods that have cleared customs into any country in the union can then be shipped anywhere else in the union without new tariffs. Finding a way to stay in the customs union might allow the border between Northern Ireland and the Republic of Ireland to remain largely open to trade, a key demand of the DUP.

Turkey is the only country that has a customs union deal with the EU and it is often held up as an example of the sort of deal the UK might reach.  Turkey’s deal does not involve the free movement of labour but it also does not cover services, finance, government procurement or agriculture.

The UK’s single largest export is financial services, a field in which it has a world-renowned reputation. The UK financial services sector is large enough to have contributed £66 billion in taxes last year, so the introduction of tariffs on that sector could have severe consequences for the wider UK economy.

Another large slice of the UK’s exports to Europe is made up of farm products, and being outside a customs union would be extremely problematic for farmers.  The imposition of new tariffs and quotas would make their products  less competitive, quite apart from the  non-tariff barriers that could flow from leaving the single market. Many British farmers hope, for instance, that leaving the EU’s tight regime of environmental and health rules would allow UK farms to become more productive by using more pesticides and genetically modified organisms. The problem is that while the resulting food products would be acceptable in the UK they could still fall foul of EU rules, meaning they could not be sold in the EU.

Free Trade Agreement

A free trade area is a further step down the ladder from a single market to a customs union and then a free trade area. There are no tariffs or quotas within the free trade area but members do not have to adopt common rules and policies towards non-member countries.

That means the UK, for instance, could be in a free trade area with the EU and also reach separate free trade agreements with the US, Australia and other countries.

The complication is that it would need to operate a strict and complicated “country of origin” regime to constantly check where products were made, so that cheap New Zealand lamb or Chinese manufactures could not be imported to the UK and then sold on to France without tariffs.

 

by John Grogan-Fenn

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