Boris Johnson Wants the Hardest of EU Trade Deals

Therese Raphael
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Boris Johnson Wants the Hardest of EU Trade Deals

(Bloomberg Opinion) -- British voters are being hit over the head with the key message of Boris Johnson’s campaign for the Dec. 12 election: In speeches and on posters and on campaign flyers is the promise that his government would “get Brexit done” quickly and move on to other things.

The Conservative Party is in a hurry. Johnson’s team is promising that Brexit will happen so fast that he won’t need the full time available to negotiate a trade deal with the European Union. Britain could if it wanted push this process out to 2022, but Trade Secretary Liz Truss tweeted this week that “we will not be extending the Brexit transition period beyond 2020. The British people have waited long enough.” On Tuesday, her cabinet colleague Michael Gove promised the U.K. would have a trade deal by the end of next year.

If we’re being generous, we’d say this is normal campaign bravado, intended to keep hardline Brexit voters warm. If it’s not, Britain is heading for a much harder Brexit than most people realize.

The 11th-hour agreement Johnson struck with the EU provides for an orderly exit (the divorce part of things) and then a transition period during which the all-important trade relationship will be negotiated. That deal will determine the entirety of the U.K.’s relationship with the EU, including trade in goods and services, but also security and other ties. The government has until July 1 to request an extension of one or two years.

The real cost of Brexit, and the opportunity for new trade deals with the U.S. and other nations, will depend on that second negotiation. Johnson says it can be fast and advantageous. Neither is likely.

The prime minister says he wants a bare-bones free trade agreement with the EU, often referred to as “Canada plus plus,” signifying something similar to the EU’s agreement with Canada alongside extra provisions on services and security. Canada’s deal took seven years to agree. Johnson claims a U.K.-EU free trade deal would be a comparative cinch because the two sides are starting from a harmonized position.

But most trade deals are about advancing integration, not decoupling. Some of these discussions will be fraught. Moreover, there will only be a few months between negotiations beginning in earnest and the July deadline for extending the transition. That gives the EU nearly all the leverage.

As for Johnson’s claim that this will be advantageous, compared to what? A simple free trade agreement would be at the very hard end of a hard Brexit as it avoids participation in the single market, the EU customs union and it wouldn’t promise a level playing field on competition, tax and social and environmental protections.

Such an agreement would seriously limit the U.K.’s market access to the EU. It would avoid the potential for a truly destabilizing no-deal Brexit and it would be better than just trading on World Trade Organization terms, but not by a big margin. It would cost the U.K. more than the Brexit deal agreed by Johnson’s predecessor Theresa May, according to research by the U.K. in a Changing Europe think tank.

The best Britain can hope for is the removal of tariffs and quotas on goods. But, as the Center for European Reform’s Sam Lowe points out in a paper published this week, even that will depend on how far it submits to the EU’s level playing field demands.

And tariffs and quotas aren’t the only trade frictions. Trade deals include so-called rules of origin provisions that require exporters to prove that their products were largely made in the U.K. Many companies would find the compliance costs too high to bother.

Lowe also notes that EU companies exporting to third countries with whom the EU has trade agreements — such as Korea or Canada — would no longer be able to count British parts in their own rules-of-origin certifications, an exclusion that would put U.K. car industry suppliers at a serious disadvantage.

Then there are the customs declarations, inspections, payments of tariffs (where they exist), Value Added Tax and excise duties. The EU’s ultra-strict regime for food and animal-product checks also means extensive inspections and controls.

A longer transition period would let U.K. companies adjust. Some would want to move to manufacture within the EU. Relocating would be especially attractive for services companies, who would face particular frictions under new trading rules.

The question of services has received very little discussion, perhaps because things like insurance contracts are less tangible than car parts. It’s hard to envisage a trade agreement scenario that won’t hurt U.K. services. While grants of EU “equivalency” for British services and other mutual recognition agreements would protect some of the services trade, Lowe estimates in another CER paper that the impact of a bare-bones free trade agreement would be substantial.

Such an agreement would also need to be scrutinized by members of Parliament. The 2010 Constitutional Reform and Governance Act allows lawmakers to object to its ratification. But we don’t yet know, of course, whether the new intake of MPs will prove as rebellious on Brexit as the last lot.

So we’re back to guessing what Brexit will mean in the end, the question that dogged May in her botched election campaign in 2017. Johnson can possibly have a quick trade deal, or he can have one that reduces some of the cost of Brexit. He can’t have both.

To contact the author of this story: Therese Raphael at traphael4@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Therese Raphael writes editorials on European politics and economics for Bloomberg Opinion. She was editorial page editor of the Wall Street Journal Europe.

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