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Michael Gasiorek2 February 2017

Dr Michael Gasiorek, senior Lecturer in Economics, Managing Director of InterAnalysis, and member of UKTPO responds to the  United Kingdom’s exit from and new partnership with the European Union White Paper.

My top line response to the White Paper is that it is full of wishes and hopes, but there is very little specific detail in there. No doubt this is in part because the government would argue that it does not want to give too much away so as to strengthen their hand in the negotiations, but also because some of the problems are somewhat intractable, (eg. CTA and Ireland) and finally, because the government probably does not yet know itself.

Specifically, on trade, there really is almost nothing new in the White Paper. One can exegetically examine the wording to see if there are any new insights but these are hard to find. I thought it was interesting how much work had gone into discussing dispute resolution, and wonder whether it suggests any view regarding the likelihood of future disputes?

Key points

  • It is clear that the government is intent of the idea of a new customs arrangement with ‘elements of a single market in certain area’. So given the red lines (Briefing Paper 5) I think the government is right to say we should not be constrained to one of the existing types (EEA, Turkey, Canada), and that we need to consider alternatives. However, the government is not giving any indication of what those alternatives options are and what they actually have in mind. For example, what does it mean for the “UK to remain a signatory to some of the elements of the existing arrangements” – which elements? Do they mean with regard to tariffs, or non-tariff measures? Do they have in mind some form of sectoral deals (cars, services)? Or, do they have in mind some special arrangements with regard to rules of origin? These are all quite different.
  • There is a repetition of the focus on high-skill migration… While it is understandable that the government might want to pitch it this way, there are some key sectors in the economy (e.g. horticulture, construction) which depend heavily on lower skilled migration. This does not seem to be recognised explicitly. That is a concern, especially for those sectors.
  • Towards the end of the paper, there is the phrase “no deal is better than a bad deal”. In some sense they have to say this – from a negotiating point of view, you have to seem that you are prepared to walk away. But there is a difference between walking away from a cliff edge, and falling off the edge. As UKTPO has repeatedly said… no deal would almost certainly be a cliff edge (Briefing Paper 5). Moreover, the term suggests that the UK has to strike a deal, which means that the actual options on offer may not be quite as generous as the UK hopes. In economic terms the government’s problem is that no deal is the worst deal so the reality could be that “a very limited and shallow trade deal is better than no deal”, but even then might not amount to much.

This is not about being negative for the sake of being negative. The UK has put itself in a genuinely difficult and challenging position. While there may be opportunities for new trade deals and these need exploring, it is hard to see how these could (economically) compensate for possible cliff-edge reductions in trade with the EU, and all the countries in the EU, and therefore with whom the UK has existing trade relations with. To overcome this is going to require serious creativity and genuine goodwill.

Disclaimer:

The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.

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