Post-Brexit Trade Rules as Murky as Ever for U.K.
August 17 2017 - 5:20PM
Dow Jones News
By Stephen Fidler
The British government published proposals this week about how
the U.K. might go about developing what it called "the freest and
most frictionless trade possible in goods" with the European Union
after Brexit.
But they leave British exporters confused as ever about the
future of trade across the English Channel, and importers with
hints of heavy red tape to come.
There was one piece of clarity: the U.K. would seek to associate
itself temporarily with the EU's customs union after Brexit. That
implies that for some years the U.K. will be willing, if the EU
agrees, to apply the bloc's common external tariff to non-EU goods
and zero tariffs on EU goods.
The big benefit for Britain would be to avoid EU tariffs on
goods and rules of origin -- which requires exporters to establish
and certify where components in their exports come from.
Apart from that, the future is as cloudy as ever. The paper
didn't purport to represent the U.K.'s negotiating position and in
some cases just floated some untested ideas to achieve a desired
future trade relationship that hasn't yet been defined.
It focused on customs, which relates to trade in goods and
therefore had nothing to say about the significant trade in
services. And it didn't address the issue that is potentially an
even bigger future source of border friction than customs: the
U.K.'s withdrawal from the single market, the bloc's zone of common
regulation.
Michel Barnier, the EU's chief Brexit negotiator, has already
acknowledged that the customs union is no panacea. "I have heard
some people in the U.K. argue that one can leave the single market
and build a customs union to achieve 'frictionless trade' -- that
is not possible."
Sticking with the customs union would constrain the U.K. from
implementing other trade agreements, though the British hope not
its ability to negotiate and even sign them.
There are other drawbacks, as demonstrated by Turkey, which has
a long-standing customs union agreement with the EU.
Turkey must open its market to countries with which the EU
agrees to trade deals but it doesn't get automatic freer trade
access to those countries. The customs union mainly covers
industrial goods -- so it doesn't include agricultural products or
services. And there is no transport agreement with the EU, limiting
the freedom of Turkish trucks to travel on EU roads.
These create frequent lengthy hold ups that the U.K would want
to avoid, so any temporary U.K.-EU customs union aimed at
preventing border checks would also have to include agriculture and
cover transport.
The U.K. proposals portray two future technical arrangements
that assume Britain will in the longer term be outside the umbrella
of the customs union and single market.
The first would be to use technology and other arrangements,
such as joining an established transit convention with the EU, to
smooth border procedures. The paper concedes "there will remain an
increase in administration compared to being inside the customs
union."
The second is an unprecedented "customs partnership" with the
EU, which it calls "innovative and untested." In it, the U.K. would
mirror EU tariffs for goods ultimately destined for the EU that
would be tracked technologically as they moved through the U.K.
Henry Newman, director of the Open Europe think tank, argues
this is a non-starter. It would be difficult to negotiate with the
EU, legally questionable and provide a big administrative burden
for businesses and government. It would be politically challenging
not least because the U.K. would have to send customs duties it
collected to the EU.
There are further clues about government thinking in another
paper the U.K. released this week on Ireland. There it suggested
that a way to avoid border checks on whether agricultural products
complied with EU health standards would be through "regulatory
equivalence." That would involve each side recognizing the other's
regulation as achieving the same high standards, with flexibility
in how the regulation is achieved. Whether the EU would accept that
remains to be seen.
There are other sources of trade friction and bureaucracy for
exporters and importers as yet little debated. Allie Renison, head
of Europe and trade policy at the Institute of Directors business
lobby group, says one will arise from the administration of
value-added tax at the border.
In what they discuss and what they don't, the British documents
this week begin to suggest how complicated for government and for
business it will be to extract the U.K. from the EU. It also
demonstrates why the extra negotiating time granted by a transition
agreement -- that will likely have to cover much more than the
temporary prolongation of the customs union -- will be necessary to
avoid trade disruption in March 2019 when the U.K. leaves the
EU.
--Laurence Norman contributed to this article.
Write to Stephen Fidler at stephen.fidler@wsj.com
(END) Dow Jones Newswires
August 17, 2017 17:05 ET (21:05 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.