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23 October 2017

The British political class hasn’t come to terms with the reality of trade after Brexit

Two speeches by two different ministers share the same problem.

By Stephen Bush

What connects this morning’s story in the Financial Times that Liam Fox is hoping for a trade deal between the United States and the United Kingdom that excludes agriculture and Theresa May’s statement to the House of Commons this afternoon that her proposed “transition period” will be one of implementation, rather than further negotiation, between the United Kingdom and the European Union?

Answer: historical, economic and political illiteracy.

Let’s take Fox first. He’s right that, as far as the British electorate goes, the politically fraught part of a trade deal with the United States is over food: they are more open to genetic modification and they have different food safety standards. The most famous example – chlorine-washed chicken – is just as safe to eat as chicken prepared to EU standards, but the supply chain may be dirtier. (Under European regulations, the requirement is that the whole production line, from field to abattoir to supermarket, is clean. In the States, they are more permissive about the journey to the table, as that chlorine wash will expunge any number of nasties picked up along the way.)

The issue as far as British consumers go is voter resistance. You don’t have to have a particularly well-developed imagination to see how either an opposition party, the British farming lobby or an environmental organisation could rapidly increase the political importance and the threat of chlorine –washed chicken.

Adding to the Tory headache, it is Conservative MPs who will have to bear the brunt of any electoral blowback from farmers in the United Kingdom.

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So you can see the case for ignoring agriculture and instead focusing on an agreement that covers services, which in any case makes up in excess of two-thirds of Britain’s gross domestic product. There are bigger economic wins for the United Kingdom here and it is less politically fraught.

The difficulty is that it’s hard to see why the United States would agree to this. The big prize for them in trade negotiations is greater access for their farmers to British markets, and as trade negotiations are primarily the preserve of the Senate, where the agricultural interest is disproportionately powerful thanks to the American constitution, for Washington, a good trade deal is one that puts American farming first.

It’s also not as if the United States has any pressing need to conclude a trade deal with the United Kingdom. The British government, however, will have a worse standard of access to the European market than it currently has, and assuming the Conservatives are still in office by the time the Brexit negotiations are completed, whoever the Prime Minister is will face considerable pressure to “prove” that Brexit is worthwhile through signing a few major trade deals.

The idea that the United States won’t use the opportunity to force its way into agriculture is lunacy: rather like the idea that the EU wasn’t going to use its greater size and the asymmetric economic risk to the United Kingdom to bully its way through trade negotiations.

Anyone with even a passing knowledge of the history of trade talks knows that they broadly fall into two types: ones between larger and smaller blocs, in which the smaller partner acquiesces to most of the larger’s demands. (In this basket we can place: every trade deal the United States has struck with its neighbours, the EU’s deals with Albania, Algeria, Jordan, Morrocco, and Tunisia and very probably the one it will strike with the United Kingdom.) Then there are those between of equivalent size, which tend to end in failure and deadlock, in which we can place the various attempts to sign wide-ranging deals between the US and China, the EU and the US, and China and the EU.

Both the United Kingdom’s response to its negotiations with the EU and the way it talks about its trade negotiations with the United States show that the political class simply hasn’t come to terms with this fairly basic truth. (Frankly if the United Kingdom wants “quick wins” in trade, it should be focusing on making it easier for British lawyers and financiers to sell their wares in nations with poor human rights records that buy arms from British firms.)

So that’s Fox. What about May? Trade deals are also tricky to negotiate, and the United Kingdom is simply not in a position to move into its post-Brexit life on 31 March 2019, when our exit from the EU will officially take place. The “transition” period isn’t an “implementation” period or anything like it: it is a request for extra time.

Though May, in her defence, knows full well that this is nonsense but can’t risk being toppled by her backbenchers.  What’s Liam Fox’s excuse?

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