Monday

29th May 2017

Column / Brexit Briefing

Brexit prompts trade limbo

  • Kenya's exports will be stung by EU import duties of up to 25 percent if talks are not concluded by 1 October. (Photo: Ninara)

One of the main economic arguments used by Leave campaigners before the UK's referendum on EU membership in June was that the UK, freed from its EU shackles, would be able to cut its own bilateral trade deals entirely on its own terms, and much quicker than as part of the EU bloc.

The UK will remain party to all EU trade agreements until it formally leaves the bloc, and cannot conduct any separate negotiations of its own. It hasn’t had to negotiate a trade deal for more than 40 years, which probably explained the Leavers’ optimism about how easy it would be.

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  • Of the five EAC countries, Kenya is the only one to have any real economic skin in the game with the EU. (Photo: Lisbeth Kirk)

Trade negotiators are among the most world-weary of government officials. Not surprising really, when you spend years negotiating milk and cheese subsidies only to see a deal collapse when the politicians get involved.

Two months after the referendum and the UK’s newly created international trade ministry is not launching any trade talks. Instead, it's embroiled in a turf war with the Foreign Office over who gets to handle economic diplomacy. Its officials don’t have their own building yet.

But the UK is not the only one in limbo.

October deadline

A fortnight after the referendum, Tanzania and Uganda abandoned plans to sign a regional trade agreement between the East African Community (EAC) and the EU citing the political turmoil caused by the Brexit vote.

The EAC is one of the so-called Economic Partnership Agreements (EPAs) between the EU and African, Caribbean and Pacific nations.

Talks on EPAs have been a decade in the making, amid complaints from African governments about having to open up their domestic markets to European imports in exchange for the removal of EU tariff barriers.

In cash terms, EU trade with East Africa is no big deal - the bloc imports about €2.6 billion worth of goods from the five countries in the EAC, mainly cut flowers, fruit and vegetables.

Of the five EAC countries, Kenya is the only one to have any real economic skin in the game with the EU.

As the only country designated by the UN as “middle income”, Kenya's exports would be stung by import duties of up to 25 percent if the EPA is not signed by the October deadline.

As “least developed countries”, its neighbours will enjoy preferential access to the EU’s single market with or without the EPA.

If the EAC deal is small potatoes economically, its potential collapse underscores that the goalposts have moved, not just for the UK and EU, but third countries too. Brokering a trade agreement is about leverage, and the EU and the UK now have less.

CETA and TTIP

The painstaking negotiations between the EU and Canada (CETA) and the United States (TTIP) were already in deep trouble before the referendum.

Classifying CETA as a “mixed” agreement that requires domestic ratification by all 28 EU national parliaments may kill the EU-Canada deal, while the early optimism surrounding TTIP has now been almost completely extinguished by public scepticism on either side of the Atlantic.

But Brexit is certainly unlikely to make a trade deal with the EU any more enticing. Faced with a changing EU target, third countries are perfectly entitled to cast aside years of negotiations and ask the EU for more.

The Brexit vote will force the Foreign Office to overhaul the UK’s trade policy but for the moment, international trade minister Liam Fox and his team can offer little more than warm words.

While Fox claims to have 10 bilateral trade deals lined up - and trade ministers are forming a queue to open talks with London.

Mike Froman, the US trade representative, reminded Fox of this on his recent visit to Washington, stating that it was “not possible to meaningfully advance separate trade and investment negotiations with the UK until some of the basic issues around the EU-UK relationship have been worked out”.

The UK is also short staffed. Its foreign office has fewer than 40 trade negotiators, compared with the 550-strong team boasted by DG Trade in Brussels.

For the UK, unpicking its place in the EU's trade policy while simultaneously seeking to draw up new trading arrangements with the EU, the 65 countries that already have trade pacts with Brussels, and the bigger fish like the US, Canada, China and India, will be a long and painstaking job.

In the interim, the prospect of Brexit has landed EU trade policy, as well as the UK, in limbo land.

Benjamin Fox, a former reporter for EUobserver, is a consultant with Sovereign Strategy and a freelance writer. He writes the "UK referendum briefing" column during the 23 June referendum campaign.

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