Why Brexit will not be easy, installment #1437

by on July 5, 2016 at 12:26 am in Current Affairs, Economics, Law, Political Science, Uncategorized | Permalink

A contentious EU-Canada trade agreement is at risk of becoming bogged down in a spat between EU capitals and Brussels over whether national parliaments should get to ratify the deal.

The European Commission has waded into sensitive political territory by suggesting that, legally, the wide-ranging accord could simply be approved by national trade ministers and by the European Parliament to take effect.

While EU leaders are highly supportive of the trade deal, known as CETA, the commission’s push for a streamlined adoption has raised the prospect of an ugly power struggle even as the bloc seeks to cope with the trauma of Britain’s vote last month to leave the EU.

At stake is whether a total of 38 different national parliamentary chambers, including in some cases regional assemblies, should have a binding say. In addition to the commission’s belief that this is not required under the EU’s treaties, a pressing political concern is that it could be the death knell of a deal that took five years to negotiate.

The outcome of the tussle could also have implications for how complicated it will be for post-Brexit Britain to negotiate a trade deal with the EU.

That is from Jim Brundsen and Duncan Robinson at the FT.  And Canadian exports are far more resource-intensive, and less services-intensive, which ought to make that free trade agreement especially easy.

I’ve seen various articles suggesting Britain has only about twenty trade negotiators and the country will look to New Zealand (!) to borrow expertise in this area.  In other words it will rely on immigrants of a sort.  What does that tell you about the level of preparation?

Wolfgang Munchnau on Twitter suggests that Tory leaders can deliver and support only hard forms of Brexit, without EEA or a real trade agreement.  The French are talking about no longer spending the money to cut off migrants in Calais and instead letting them cross the channel so the British can deal with it themselves.

People, this already isn’t going well!

1 Tay July 5, 2016 at 12:41 am

“I’ve seen various articles suggesting Britain has only about twenty trade negotiators”

So who was negotiating the EU’s trade deals? Germans? I’m sure they had Britain’s best interests at heart.

2 Maybe it's me but... July 5, 2016 at 12:50 am

“Speed is the essence of war. Take advantage of the enemy’s unpreparedness; travel by unexpected routes and strike him where he has taken no precautions.”– Sun Tzu
Sorry, but it’s just how I feel.

3 sansfoy July 5, 2016 at 7:11 am

You may or may not have something interesting to say in any given comment, but the annoying little catchphrase you attach makes me skip your posts instead of reading them.

If it were my blog, you’d be banned as too annoying to sit at the grownup table.

4 Dmitri Helios July 5, 2016 at 10:10 am

Do you even bot bro?

5 lol July 5, 2016 at 11:34 pm

Funny

6 Maybe it's me but... July 5, 2016 at 12:43 am

“A diplomat is a man who thinks twice before he says nothing.” Sorry, but it’s just how I feel.

7 Chip July 5, 2016 at 12:59 am

Singapore has 20 free trade agreements with 31 trading partners.

There are 5 million Singaporeans.

But somehow the UK will struggle to negotiate FTAs on their own.

The world’s fifth-biggest economy with troops stationed in 80 countries.

Now that the pound has steadied, stocks have recovered and borrowing costs fell (flight to safety!) the anti-Brexiters need another absurdity.

8 Todd K July 5, 2016 at 1:27 am

Well, the UK isn’t the 5th largest economy but the 9th – yet still in the top 10!

9 Chip July 5, 2016 at 1:34 am

GDP – the usual measurement – not PPP.

10 Damien July 5, 2016 at 10:25 am

Define “struggle”. Will the UK eventually be able to secure FTAs? Probably, although maybe also on less favorable terms than if they were EU members. But it will take years to do so. The EU-Singapore FTA took more than four years to negociate, and it won’t be in force until at least 2018/2019. That’s 10 years in total. Granted, this is a very long time and it would probably be faster for a single country like the UK to sign an agreement. But it would take at least 3-4 years per country. Provided that other countries are interested in bilateral deals with the UK : other countries also have limited resources and might decide that negotiating other FTAs with larger blocs would provide a better return on investment. Note that many of these Singaporean FTAs are actually ASEAN FTAs.

11 jon livesey July 5, 2016 at 12:04 pm

Andorra has a Free Trade agreement with the EU. Andorra, population 80k.

12 stephan July 5, 2016 at 12:59 am

The EU is like a roach motel, you can check out but you can never leave.

13 JWatts July 5, 2016 at 2:46 pm

Hotel California

14 dax July 7, 2016 at 5:37 am

“The EU is like a roach motel, you can check out but you can never leave.”

So is the US, except it actually has roaches. No like about it.

15 BC July 5, 2016 at 1:05 am

Strange, because the US is already moving to lock in current trading arrangements and reach a new free-trade agreement with the UK within about a year [https://heatst.com/uk/us-uk-trade-bill-in-congress-just-one-week-after-brexit-vote/]. Brexit per se doesn’t seem to be causing any trade barriers. If there are political barriers to free trade from the EU itself, then that would seem to undermine the view that the EU is a positive force for free trade globally.

16 stephan July 5, 2016 at 1:16 am

The article suggests ( referencing CETA 5 years in the making) that deals withe EU may take a long time ( because of the ratification by national parliamentary chambers, including in some cases regional assemblies,).

Deals between UK and non EU countries may be a lot easier. Can the UK deal with an EU country one on one bypassing the EU ?

17 BC July 5, 2016 at 1:20 am

I don’t think so, at least under present EU arrangements. One of the complaints of the Leave crowd was that EU membership actually made it more difficult to trade with non-EU countries because individual members were not allowed to negotiate their own agreements with non-EU nations. That’s why Britain does not have its own trade negotiators right now.

18 BC July 5, 2016 at 1:16 am

During a period of disconcerting protectionist retrenchment, Brexit appears to have stimulated a surge of pro-trade globalization activity among 11 nations: [http://heatst.com/uk/11-countries-gearing-up-to-strike-trade-deals-with-britain/]. If the EU does not catch up in reaching out to the UK, it risks losing its pro-globalization street cred.

19 jon July 5, 2016 at 2:17 am

The EU has always been a protectionist bloc. Is it possible that as Britain moves on, the EU will be seen as not insulating but isolating itself from the global eocnomy?

20 Fazal Majid July 5, 2016 at 3:44 am

No more than the US, and the EU is certainly less protectionist than most of its member nations were before trade policy was pooled.

21 JWatts July 5, 2016 at 2:48 pm

“The EU has always been a protectionist bloc. ”

Certainly that’s seems to be the narrative that the Remain supporters seem to be pushing.

22 Axa July 5, 2016 at 1:28 am

I’d be a bit cautious when the USA wants to “help”. The more desperate the UK, more favorable rules for the US in the new agreement.

23 JThomas July 5, 2016 at 1:16 am

Tyler, quit with the mood affiliation!

24 dan1111 July 5, 2016 at 4:26 am

+1

25 prior_test2 July 5, 2016 at 1:19 am

Finally, an acknowledgment that the EU is not a monolithic power structure, and never has been.

And that its ‘executive branch’, as executive branches throughout history always do, seeks to escape any bounds forced upon it. One can see how the EU Commission is attempting to get around the difficulties of actually not having its will becoming binding when one understands how ACTA died – ‘The European Union and its 28 Member States share competency on the subject of this convention. This means that entry into force on its territory requires ratification (or accession) by all states, as well as approval of the European Union. Approval of the European Union involves consent of the European Parliament as well as the Council. On 26 January 2012, the European Union and 22 Member States signed the treaty in Tokyo. According to depositary Japan, the remaining members (Cyprus, Estonia, Germany, Netherlands and Slovakia) were expected to sign it on the completion of their respective domestic procedures. On 3 February 2012, Poland announced it halted the ratification process as it “had made insufficient consultations before signing the agreement in late January, and it was necessary to ensure it was entirely safe for Polish citizens.”[48][50] Also, Bulgaria, the Czech Republic, Latvia, Lithuania and non-signatories Germany, Slovakia and Slovenia have indicated to have stopped the process of becoming a party to the treaty. On 17 February 2012, the Polish prime minister, Donald Tusk, announced that Poland will not ratify ACTA. On 21 February 2012, a news report noted that “many countries in Europe that have signed the treaty have set aside ratification in response to public outcry, effectively hampering the ratification and implementation of the treaty.” https://en.wikipedia.org/wiki/Anti-Counterfeiting_Trade_Agreement#European_Union_2

As Brexit occurs, one will likely see how the EU Commission is just one power bloc among several, and that Germany and France will have a much greater say in binding agreements between the UK and EU than the Commission (well, if one discounts that various commissioners also represent national interests/power alignments). It is much simpler to be precise concerning the UK/England/Northern Ireland/Ireland than it is trying to see how ‘the EU’ is made up of different power centers. Though at this point, the City has taken a major hit, having lost its ability to use UK mouthpieces in influencing EU policy (a major reason why I fully support Brexit). And it is amusing to think that Prof. Cowen’s recent travels were planned with the expectation that the UK would remain an EU member – including that likely weeks/months planned in advance City visit.

26 Axa July 5, 2016 at 1:23 am

Good intentions are not enough. CETA negotiatins started back on 2009.

On the other hand, it’s a good time to negotiate a trade agreement with the UK. Who needs it more? That’s a great negotiation position for other countries to push rules that may not be favorable to the UK. Diplomats say nice words around the US-UK ties, but the opportunity is too good to let it go.

27 Fazal Majid July 5, 2016 at 3:37 am

The extradition treaty between the US and UK is a good example. It is one-sided in that US persons enjoy a great many more safeguards than in the other direction.

28 yo July 5, 2016 at 3:54 am

Or negotiate Colony status directly for the UK? Given how the Brits voted, I’m sure they’d love to be ruled by the Supreme Overlord Donald Trump

29 Chip July 5, 2016 at 1:28 am

Think about the spin here.

A Canada-EU agreement – supposedly a simple agreement – is hitting a wall because of the inherent complexity of the EU, but the takeaway is that the UK is harmed by exiting this same EU.

30 dan1111 July 5, 2016 at 3:05 am

Yes, and also the EU is trying to force a policy on all member countries without their say. But no, there’s nothing here that suggests Brexit might be a good idea!

31 chip July 5, 2016 at 3:45 am

And have a look at how successful the EU has been in negotiating FTAs with non-EU countries. I count 33 compared with Singapore’s 31, and they include such economic heavyweights like:

Akrotiri and Dhekelia
Andorra
Faroe Islands
Bailiwick of Guernsey
Isle of Man
Monaco
Palestinian Authority
San Marino
https://en.wikipedia.org/wiki/European_Union_free_trade_agreements

Sheared of the EU’s grinding bureaucracy and dirigisme just how hard will it be for the UK to attain trade agreements with Australia, Canada and the US (Obama and his ‘back of the queue’ somewhere on a golf course).

And then there’s China, which has FTAs with NZ, Australia and Switzerland – and not the EU – even though they probably lack that enormous negotiating team in Brussels.

32 Lukas.h78 July 5, 2016 at 2:32 am

“In other words it will rely on immigrants of a sort”

Ohh, yes. Cant everybody see the great irony. Its immigrants.

Kind of the same as having millions of poor uneducated immigrants with very different cultural backgrounds. You nailed it again.

33 passingby July 5, 2016 at 6:20 am

+1

Also, leaving aside selectivity: nobody in the Leave campaign, or in UKIP, argued that there should be *no* immigration to the UK. What’s considered to be a “hardline” position in the UK is that the government should deliver on its election pledge (in 2010 and 2015) to lower net immigration to the tens of thousands – which given a net emigration of UK nationals of around 40,000 per year, would still allow for a substantial number of new arrivals.

34 M July 6, 2016 at 1:05 pm

Hah, if we’re happy calling New Zealand negotiators, “immigrants of a sort”, then it seems like the logical corollary is that EU migrants previously “terk dere jurbs” of British trade negotiators and left the country ill prepared.

(Or we could just be not be a bunch of wallies and *not* call New Zealand trade negotiators lent to Britain immigrants)…

35 dan1111 July 5, 2016 at 3:07 am

The status quo is British free trade with Europe. EU businesses are generally interested in maintaining that status quo. So, this will be very different from the Canadian situation.

36 Fazal Majid July 5, 2016 at 3:53 am

The quid pro quo is freedom of movement for EU nationals, which was the biggest reason why a majority voted to leave. The Norwegian/Swiss option would probably be unacceptable to them, as the UK would lose its rebate, it’s opt-outs and veto power, for marginal to negative net contribution savings.

Only the Canadian or WTO options would be compatible with the core, committed Brexit voters, as opposed to the marginal ones that are now having buyers’ remorse. The ideal way forward would be to negotiate a Brexit deal and resubmit it for referendum,but that would require exercising article 50, which is an irrevocable step.

37 Chip July 5, 2016 at 6:07 am

1) polls consistently showed that migration came a distant second or third to democracy and the economy with the Leavers

2) Any data for ‘buyers remorse’ as opposed to ‘it’s not as bad as I thought it would be?’

3) Switzerland had a referendum in 2014 rejecting immigration as mandated by the EU. This year the Swiss withdrew their application to join the EU. So there’s no ‘Swiss option.’

38 dan1111 July 5, 2016 at 6:19 am

I think free movement + free trade, but being outside the EU, would be a good deal for Britain. They may not get a vote, but they had little influence anyway, and it would free them from a lot of the burdensome regulatory aspects of the EU.

This is assumed to be a political non-starter, but I’m not so sure. While Britain would have to accept the right of EU citizens to come and work, in this scenario they would have much more freedom to restrict welfare benefits to foreign citizens than they do as part of the EU. So, it would not be “the same deal” in terms of immigration that they have now. And people coming from other countries to collect benefits in Britain is a big part of the immigration debate.

39 Chip July 5, 2016 at 6:40 am

The equation never answered by Remainers is why free trade + free movement = web of laws from the unelected EC.

40 Fazal Majid July 5, 2016 at 11:38 am

Because the first two are what the EU (as opposed to the defunct EEC and EEA) is all about, and that’s what’s on offer. Free trade without free movement are certainly conceivable, but the EU is not NAFTA and no amount of wishful thinking by Boris Johnson will make it so.

The EC is the EU’s civil service. The British civil service (or the American one) is not elected either, so that is a red herring. As for the laws themselves, they are passed by the European Council (EU heads of state) and the European Parliament.

41 Decimal July 5, 2016 at 10:02 am

I think what everyone is forgetting here is that the ‘burdensome regulatory aspects of the EU’ are in place to allow for free trade.

42 Roger Sweeny July 5, 2016 at 10:07 am

Ha ha ha ha ha ha ha ha ha ha!

43 JWatts July 5, 2016 at 4:01 pm

“I think what everyone is forgetting here is that the ‘burdensome regulatory aspects of the EU’ are in place to allow for free trade.”

It’s a stretch to insist that purely green initiatives like limits on the electric consumption of vacuum cleaners and tea kettles are related to “free trade”.

44 derek July 5, 2016 at 5:25 am

Of course the Canadian negotiators will go along with this. So will the federal Liberals. They see an opportunity to cement in a structure that benefits Ontario and Quebec helping them regain political and economic ascendancy in the country.

But to have that translate into a political debate with parliamentary votes will distract from the important work of reforming the economy from a high cost commodities model to a high cost manufacturing model.

45 Chip July 5, 2016 at 6:21 am

It will take a lot more for Quebec and Ontario to regain economic ascendency. They’re in that stage of decline where they double down on the same ruinous policies while doubling their debt.

I’ll be moving back to Vancouver next month but my view of Canada is very bleak – massive real estate bubble, evaporating oil prices and politicians hell bent on unaffordable social policies.

Fine if you make your money elsewhere but a painful lesson coming for those who don’t.

46 OK USA July 5, 2016 at 10:03 am

Project fear!

47 derek July 5, 2016 at 10:29 am

There is an air of desperation only alleviated by the ability to borrow vast amounts of money below cost.

48 Kiwi July 5, 2016 at 7:02 am

Hey, why the “(!)” after New Zealand?! A small, distant nation which has to make its way in the world by trade, without the benefit of a large army, huge population, enormous balance sheet or close and caring patronage from a country with one of the foregoing, might just, you know, actually have something to offer in the way of trade treaty negotiating experience – and see an opportunity to benefit by deploying that where it will be welcome. Just a thought. Also, hobbits are magic.

49 dan1111 July 5, 2016 at 7:41 am

This is a very good point.

50 Kiwi July 5, 2016 at 7:15 pm

The bit about the hobbits or the other bit? (Either way, thanks.)

51 Max July 5, 2016 at 7:58 am

If these are the worst problems for Britain then imo Britain will be fine. Trade negotiators you can license and I doubt that this will be a long-term problem. Same goes for the immigrants. A retaliatory EU might be a bigger problem but I also think this will be short-term rather than long-term.

52 ChrisA July 5, 2016 at 1:38 pm

Indeed. Also London has a massive commercial law firm presence who are the go to guys for any international deal of any significance. These are people with extensive experience of negotiating detailed complex agreements. Just how hard can trade negotiations be? This isn’t by any means a substantial problem.

Tyler – the FT Alphaville team are not people you can rely on for informed comment on this subject. They are journalists, not experts. Please don’t devalue your brand in this way.

53 Art Deco July 5, 2016 at 10:37 am

Remainders complaining about the day to day problems of their work life are leaking to a press eager to act as their conduit, as are the Mercatus crew. Why does this not surprise me?

54 adam July 5, 2016 at 10:50 am

I must be missing something. It appears the EU is having a hard time negotiating free trade deals because of its complicated internal politics. Britain will no longer have to deal with those complicated EU politics in negotiating free trade deals. How is that a point against Brexit?

55 jon livesey July 5, 2016 at 12:07 pm

It isn’t. Tyler is just over-complicating things.

56 stephan July 5, 2016 at 11:26 am

44% of UK exports go to the the EU. it’s likely that trade agreements with the EU will be more difficult than with the rest of the world.

57 jon livesey July 5, 2016 at 12:07 pm

It is 44% today, but that is down from a peak of 60%, and projected to fall to 37% by 2030. In fact, it is the declining importance of the EU to UK trade that is the point.

58 jon livesey July 5, 2016 at 12:06 pm

I think that the real message in this piece is how hard some people are scratching around looking for an anti-Brexit argument, *any* anti-Brexit argument. So there is a dispute between the EU and national Parliaments? Whoopee Ding. When was there ever not?

59 Longtooth July 5, 2016 at 10:00 pm

“People, this isn’t going well.” Duh… who’dv thunk it?

60 David Pinto July 6, 2016 at 11:45 am

We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard.

61 Azerok July 6, 2016 at 9:13 pm

Brexit was never going to be easy, it’s a sort of stuff that is going to have impact even for next 6 months and till the final decision of actual outcomes is revealed, we could continue with been careful. I always go with long term trades and it helps a lot to do through OctaFX broker since they have outstanding swap free account option, it’s ever easy to use given no trouble or pressure of overnight charges and that makes me incredibly comfortable.

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