Europe (or the UK) changing tune in trade negotiations?

Something interesting at last in the negotiations between Britain and the EU on post-Brexit trade arrangements.

Without anyone claiming responsibility, a proposal is being floated that British exporters might retain tariff-free access to Europe’s markets, but with Europe retaining the right to re-impose tariffs if the UK changes its internal market rules.

The fact this idea has emerged suggests there is some movement.

It would reflect a softening of the EU demand that the UK follows the EU’s internal market rules for all time.  And there are growing signs that Europe’s negotiators have abandoned their strategy of stringing out negotiations beyond the end of 2020 and are instead exploring more gentle ways of keeping the UK in Europe’s regulatory orbit.

But as a basis for settlement it has limitations.

One can certainly envisage a system which fences off the EU-facing industries, while giving the UK regulatory sovereignty.  But such an outcome would run completely counter to the EU’s demand for blanket compliance with its rules.

Moreover, the EU would be expected to demand a high price for such a ‘concession’, in terms of ongoing political and economic commitments and contributions, for example making available fishing rights in UK waters.

And the British negotiators would need to ensure such a structure did not freeze the regulatory environment for a chunk of the British economy and entrench the position of incumbent EU-facing industries, making future change even harder to implement.

There is no harm per se in Boris and his colleagues exploring this line of approach – as long as they see it as a means of achieving their goals of economic and political independence, rather than a vehicle for repackaging the EU’s demands in a different form.

British ministers have the free trade religion and are pushing ahead quickly with their non-EU options.  The UK is looking at joining the CPTPP.  Japan is seeking an early decision in order to stake out its position.  Their behaviour is consistent with seeking to shift the UK’s trade orientation away from Europe and towards faster-growing markets.

But, as their policy response to Covid shows, they are a bit shakier on the importance of regulatory policy, and still seem to have undue confidence in their own ability and that of their civil servants to micromanage their way through things.  This means they may be inclined to overrate the benefits of avoiding disruption to EU-facing businesses and to underrate the benefits of exposing UK business to a more open regulatory environment and greater competition.

So the best one can say for this ‘tariff retaliation’ model is that there would need to be considerable further weakening of the European position to make a comprehensive settlement economically and politically attractive to the UK.  And Boris has surely figured out by now that on this subject you don’t get much political benefit from seeking a middle way. 

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