Why a UK Free Trade Agreement with the EU is Worthless

There is a lot of nonsense ‘out there’ that assumes that the UK can replicate or nearly replicated the access it has to the European Union wide market once it leaves via a bespoke Free Trade Agreement (FTA).

First of all, the agreement with Canada, for which we could be “plus plus plus” is not all it is set out to be. It is basically an improvement on World Trade Organisation rules. However, this agreement has an important provision in it, that does affect the UK directly. It is called Most Favoured Nation (MFN) which means, in the context of this agreement, that anything better offered to any other nation in a free trade agreement must also be offered to Canada.

So if the British deal was much better, the Canadian deal would have to improve. So what is to stop that?

It is all to do with Regulatory Alignments, that is standards and rules that exist in trading. In other words, the European Union or Canada cannot be sure that the other party has and will maintain Regulatory Alignment in any particular economic sector. Furthermore, the EU is reluctant to enter into Regulatory Alignment agreements outside the EU Single Market, because it means the EU loses regulatory control over its own single market.

When the United Kingdom leaves the European Union, and seeks to ‘go it alone’ (unlike Norway), it must have a Free Trade Agreement instead. The UK starts with Regulatory Alignment, but it would be free to diverge. So a Free Trade Agreement would have to go into immense detail sector by sector to fix Regulatory Alignments, and would mean binding the UK to EU regulations as the EU would demand its autonomy over the Single Market where all these sectors operate. Otherwise a decision to diverge would mean a decision to lose access on anything other than World Trade Organisation rules or yet another agreement, that would have to be less than in the Single Market.

And in any case, again, to give the UK something on a Free Trade Agreement would be to offer it to Canada on the MFN basis, and yet Canada has divergent and potentially divergent rules.

First of all, then, a FTA is going to be immensely complex. It cannot possibly be negotiated by Autumn 2018, by March 2019 (the date of leaving) or correctly now the end-date, after an eighteen month or so transition period (end of 2020).

That there could be divergences built in immediately increases trading costs; that we move to an FTA means being treated as divergences likely and thus being an outsider.

The UK exports eight times as much in goods to the EU than Canada; the service sector (Finance especially) is hugely greater.

(An alternative, of course, is the highly costly WTO basis of trade. Overnight trade becomes expensive and bureaucratic, with the assumption of diverging anywhere. We cannot base WTO rules on a devalued pound, because a devalued pound is a less-worth currency, and thus imports are expensive. Lowering the value of the pound is not an alternative to increasing productivity and actually lowering prices. We end up becoming a low-wage low productivity and low social welfare with a low quality political economy: some Tories may slaver at this prospect, but it is hardly the reason why so many frustrated at low living standards voted to leave the EU.)

All this leads to a simple conclusion: there is no “jobs first” deal with the EU available that does not place us in the Single Market and Customs Union as regulated by the European Union’s European Court of Justice. Sir Keir Starmer ought to tell his boss Jeremy Corbyn why we cannot come out of these two institutions, and develop a House of Commons and House of Lords consensus to stay in – at the very least.

It follows that in order to affect policy across the Single Market and Customs Union, we should stay inside the European Union. We then are part of this confederation through the initiating and regulating Commission, through decisions by the Council of Ministers, and checked by the European Parliament. The EU is the reality on the ground, and politicians should stop fantasising.

Liberal and Thoughtful Website creator; critical examiner of social sciences and theology, religious liberal, ‘terror blogger’.