From their comments, some leaders of Caricom, now meeting in Guyana, are unclear of what lies ahead for trade with Britain and the EU as the former works to extricate itself from the latter. They know Britain will first have to invoke Article 50, giving them a two-year window to negotiate Brexit. But this process was always conceded to be a tremendously complex one that would take at least five years. And this is being optimistic since Britain lacks a reservoir of experienced negotiators, having been the beneficiary of Brussels doing that job for two generations.
During that time, unlike what has been assumed by some leaders, neither Britain nor Europe can negotiate new rules of trade until the exit has been complete – even between Britain and the EU. As the EU’s top trade negotiator Cecilia Malstrom said, “First you exit, then you negotiate.” The Brexit negotiations and new trade relations must be sequential not parallel or simultaneous. What is also not clearly understood is that after an exit was negotiated, it was assumed that World Trade Organisation (WTO) rules such as Most Favoured Nation (MFN) non-discriminatory tariffs would automatically kick in to facilitate trade with third parties.
But the Director General of the WTO, Roberto Azevêdo, has claimed that the UK, while a member of the EU, cannot negotiate trade pacts even with his umbrella body until after its exit. The negotiations with the WTO can be very protracted (Russia’s application took 20 years), but, in the meantime, Britain would have two WTO-compliant options in trading with those markets such as the Caribbean, it had preferential access because of EU Treaties. It can either apply MFN status to them and have its citizens swallow the increased costs or like Singapore, for instance, allow all goods into its markets duty free. This latter position is very unlikely.
The options for Britain and its trade relations will also be influenced by the nature of the relationship it will seek to negotiate with the EU. There were five models suggested by the think tank Global Council. First is the “Norwegian- style EEA agreement. In this, the UK joins the European Economic Area and maintains full access to the single market, but must adopt EU standards and regulations with little influence over these. The UK still makes a substantial contribution to the EU budget and is unable to impose immigration restrictions. But this does not address the UK’s political problems with the EU.
There is then the Turkish-style customs union. Here, internal tariff barriers are avoided, with the UK adopting many EU product market regulations, but sector coverage of the customs union is incomplete. The UK is required to implement EU external tariffs, without influence or guaranteed access to third markets. This would be seen as a bad compromise for the UK.
Third is the Free Trade Area (FTA)-based approach where the UK agrees to FTAs with the EU and other countries. Tariff barriers are unlikely, but as with all FTAs the UK will need to trade off depth – which means agreeing common standards and regulation – with independence. Global adjudged this to be possible, but that it all depended on the deal.
Number four would be Swiss-style bilateral accords. The UK and the EU would agree a set of bilateral accords which govern UK access to the single market in specific sectors. Concerns in Brussels about cherry picking may limit the sectors. The UK becomes a follower of regulation in the sectors covered, but negotiates FTAs separately. Global felt this was possible, but may not be attractive to the EU.
Finally, as mentioned as an interim measure, an MFN-based approach can be adopted. This, however, would be costly to the UK and be inconsistent with the UK’s liberal approach to trade. “
Some, however, may still hope for Britain to change its mind after delaying Article 50. Hope beats eternal.
