The Countdown Begins – Is a one year Brexit trade deal possible?  

roger-isaacsBy Roger Isaacs, Partner at Milsted Langdon

One of the first actions Boris Johnson implemented following his commanding win in the UK general election was to redraw the Withdrawal Agreement Bill so that it would be illegal to extend the transition period past the end of 2020.

This means that in less than a year, his Government will need to have negotiated a new trade agreement with the European Union (EU).

This is an extremely tight timescale and there are fears that it could lead to a rushed trade deal or, thanks to the Northern Ireland Protocol, give the EU the option to implement no deal, thereby forcing the UK to trade under the World Trade Organisation’s rules and tariffs.

How long does it take to do a trade deal?

Historically, trade deals have proved to be long and drawn out affairs. As an example, the deal that the EU established with Canada, known as CETA, took seven years to reach in outline agreement and longer to implement the rules. However, before either side even reached the official negotiating table the deal is thought to have been 22 years in the making.

Similarly, the EU’s trade deal with South Korea took four years and the US-Canada-Mexico trade deal took six years to negotiate, while the previous agreement between the US and Canada took eight years.

Unfortunately, things look even more bleak if one considers the several recent deals that have failed altogether. The US/EU Transatlantic Trade and Investment Partnership (TTIP) and the US/Asia deal, known as the Trans-Pacific Partnership (TPP), both proved so controversial and complex that negotiations collapsed.

This may not bode well for Boris Johnson, but if you crunch the numbers as the Peterson Institute for International Economics (PIIE) has done, the outlook could arguably begin to look more hopeful.

Having looked at 20 bilateral trade deals conducted by the US, the PIIE found that on average it took one and a half years to negotiate the deal and more than three and a half years to get it to the implementation stage.

This still means it took 50 per cent longer on average for the US to reach a deal than Johnson has given himself, but it suggests that a one year deal may not be outside the realms of possibility.

Similar studies that take a global outlook tend to suggest that the average time to complete a deal is around three years, but again within these studies there are outliers where deals have been struck in a year or less.

The big challenge for the UK will be to gain the agreement of all EU members states and this may be the one factor that could frustrate a swift deal.

Unlike the ratification of Article 50, which only required a qualified majority in the council and a majority in the European parliament, a new EU trade deal would be classed as a mixed agreement and would require unanimous decisions in the  EU council, a majority in the European parliament, and ratification in all 27 national parliaments, as well as some regional parliaments.

This means that any potential free-trade deal faces 36 legislatures, each with the ability to veto it. It is for this reason that many have quite reasonably suggested that a post-Brexit deal could take up to a decade to achieve.

Even Donald Tusk, the outgoing European council president, reiterated that the negotiation and ratification process could take between five and seven years (a figure that many in Brussels have said is highly optimistic).

What trade deals are already in place post-Brexit? 

The UK has effectively remained a member of the EU since the referendum and will continue to do so until the transition period ends in 2020. This means that it has been unable to negotiate new deals because it remains currently subject to EU trade rules.

These limit members’ ability to make independent trade deals outside the bloc. Members of the EU benefit from about 40 free-trade deals, covering more than 70 countries, which ensure tariff-free trade with much of the world. However, the UK will lose the benefit of these agreements in the event of a no-deal Brexit.

For that reason, the UK has worked hard to create continuity deals with around 50 countries that ensure similar arrangements are in place once the transition period ends.

These include deals with nations such as Norway, Switzerland, Israel and South Korea. The deals achieved so far represent just over eight per cent of total UK trade and mean the UK has so far rolled over about three-quarters of the EU’s trade deals.

Of course, the UK’s largest trading partner will be the EU itself, which is why many argue that a free-trade deal with the bloc is so essential to the future economic success of the country. The problem is that free trade will inevitably come at a cost that could prevent the very agreements between the UK and non-EU countries that Brexit was intended to facilitate.

What about new deals? 

One of the often-quoted benefits of Brexit is that it will give the UK the sovereignty to create and conclude trade deals with countries that the EU doesn’t currently have a relationship with.

Top of this list is the US. During the referendum former President, Barack Obama warned it could take the UK up to 10 years to negotiate trade deals with the US.

However, since then, the current President, Donald Trump, has praised Johnson for securing a majority at the election and has said he will ensure the UK is put at the top of the list post-Brexit.

In fact, under his leadership the UK has already signed a mutual recognition agreement with the United States which will, according to the Department for International Trade, particularly benefit the pharmaceutical sector which accounts for around £7.7 billion of UK exports to the US.

A similar arrangement is in place for Australia and New Zealand, which replicates all aspects of the current EU agreements when it comes to recognising product standards, such as labelling and certifying. This will ensure that a new trade deal can be stuck up quickly with our antipodean cousins as well.

Kicking the can down the road

Most commentators seem to agree that there is no realistic prospect of getting a final concluded with the EU this year which raises the question as to why the Prime Minister has publicly committed to doing so.

Some might say it was simply pre-election bravado but others argue that it might be possible to sign some form of outline agreement that, in effect, does little more than to set out the broadest of aspirations, kicking the can of detailed negotiations down the road. If I were a betting man, that would be where I would put my money.

Posted in Press Releases.