Monday, 2 March 2020

What do you mean by "Canada style deal"?

Most people have no real concept of what a free trade deal is. Quite a lot of people who really should don't either. Then there are those who do have a rough idea but don't fully appreciate the subtle but significant differences. As to trade experts, I always take them with a pinch of salt because they tend to speak only in generalities.

Cutting to the chase I'm talking about CETA, which, like the other new generation trade agreements, is not an ordinary FTA. They are foundation frameworks for future convergence on a set of mutually agreed principles. While these "trade deals" often amalgamate a number of previous agreements and cooperation mechanisms, completing a new generation trade and cooperation treaty is no "mission accomplished" moment. 

Agreements like CETA create the institutional frameworks for future regulatory cooperation and dispute resolution which feed into each other. Bilateral relationships are a continuum, only these agreements form the structure to tackle tackle non-tariff barriers through regulatory convergence wherever possible.

Thus when the UK demands a bare bones "Canada style deal", it essentially seeks to reset the clock on regulatory harmonisation but retain the frameworks for rebuilding that cooperation over time. The UK prioritises regulatory sovereignty in the belief that mere "equivalence" rather than full harmonisation has the same effect. This, of course, is not the case. 

The UK presumption is that a "bare bones Canada style deal" is basically an agreement on tariff elimination with a few add-ons and once concluded we can put the EU relationship question to bed, failing to realise that such an agreement will see us with an equal or larger lobbying contingent in Brussels for as long as the EU exists. The Tories seem to think trade is a game of "fire and forget", fundamentally failing to understand the evolutionary nature of trade relationships.

Being that the nature of trade is always changing and there are new and emerging threats to the functioning of trade, it becomes necessary to monitor trade and adapt and improve regulation accordingly, and for mutually beneficial outcomes, the must at least be some coordination if not full harmonisation. The idea, therefore, that the UK should be free to make its own rules entirely in isolation of anything beyond our shores, is more of a sovereignty fetish.

As it happens, CETA is as good a framework as any for UK ambitions in that it's a scaffolding for future construction at a pace the UK is comfortable, but as the realities of Brexit set in and it becomes inescapable that the UK requires a closer relationship than was anticipated by Tory Brexiters, we at least have the means to start building.

CETA is favoured by the Tories in that it does not, superficially, require adoption of EU rules. It does lay down the base common standards as per the WTO agreement on Technical Barriers to Trade but the EU's trade policy is to go further and faster than the WTO, so when the UK asks for equivalence under such a deal that's when the EU will play hardball and will only grant equivalence if our rules match theirs exactly. It is that which makes us a "rule taker". 

In respect of that, the EU can freely grant a bare bones deal so long as there are basic guarantees that the UK will not use its regulatory sovereignty to undermine the integrity of the single market. They know what any realist knows - the UK will come back for more as and when the penny drops. In the first instance UK requests for equivalence will be on a more basic level, but as we come to trade in services the EU will make more stringent demands for alignment.

Here remainers would have it that in the longer term this makes Brexit self-defeating in that we end up "having no say in the rules". But then this overlooks that the rules are based on international conventions on everything from banking to climate and global standards on everything from vehicle safety through to sulphur limits on maritime fuel. Much of the regulatory diplomacy will happen at the global level where the UK will enjoy greater independence. 

This is also a question of repatriating the decision making. We are at liberty to refuse alignment if we deem it in the national interest to do so and with the trade off in lost market access. Moreover even if we align substantially on trade related matter, that's still only a fraction of the EU acquis and removes the EU as the supreme authority. 

In reality it means for the most part we will continue to align with the EU, more so as the agreement matures, only we can refuse adoption of the more egregious measures dreamed up by the EU. This is not to say, though, that there won't be political pressures from within and without to adopt such rules. As with Switzerland, the EU is happy to play the long game, building up the economic pressure on other sectors, gradually wearing us down.

What's driving Tory minimalism is the belief that we can mix and match who we align with and how, particularly with the US in mind, failing to note that any external alignment to regulatory regimes outside of the European regulatory ecosystem increases the risk of contaminating the purity of the single market thus UK goods will be subject to more stringent inspections at the border. Every choice has consequences and nothing is ever isolated from other concerns.

With that in mind, no two relationships based on the new model agreements are ever directly comparable. It's entirely contingent on their maturity and whatever other agreements they are a party to. All we can say for sure, with the UK hell bent on a minimalist deal, having placed artificial time constants, if there is to be a deal, it won't be much of an improvement on no deal at all especially without meaningful services access.

It remains my view that, when taking into account all the flanking agreements necessary for a wider bilateral relationship, the eventual destination is either a mish mash resembling the Swiss "model" or something a long way toward the EEA. Though the Tories may satisfy the hardliners with a minimalist deal, it is certain not to stay that way since the Tories will eventually be kicked out, not least when it sinks in just how damaging their hard Brexit really is.

Gone now is any hope of a sensible Brexit. One could even say it scarcely matters whether there is a deal or not for all the difference it is likely to make in the mid term, but the failure of the Tories in this round to conclude a framework for future relations will leave the EU question unresolved for some time. With the Tories seemingly now the radical revolutionaries and Labour fighting to preserve whatever they can form the status quo, the new battlelines on Europe will soon emerge and the power will gravitate to anyone who can sort out the mess.

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