Insight
What a Boris Johnson EU-UK free trade agreement means for business by Sam Lowe 5 November 2019
Johnson’s EU-UK free trade agreement would increase friction and costs of trading with the EU. Many businesses would find adapting to a new FTA just as troublesome as if the UK had crashed out without a deal. Boris Johnson intends to lead the UK out of the EU on January 31st 2020, and to use the subsequent transition period to negotiate a free trade agreement (FTA) with the EU. Yet not enough attention has been given to the practical consequences of his proposal, and the pain it will cause for significant sectors of the British economy. In practice, while an FTA with the EU could lead to the conditional removal of tariffs and quotas, it would still create a lot more trade friction and cost than currently exists. A December 2020 shift to an FTA with the EU would require many British businesses to adjust as much as if the UK were to exit without any future relationship in place. Under the withdrawal agreement Northern Ireland will have supplementary provisions leaving it far more integrated with the EU’s single market and customs union than the rest of the country, so this piece focuses on the EU’s trading relationship with Great Britain. Johnson has prioritised domestic regulatory flexibility, and the freedom to negotiate new FTAs with countries such as the US, Australia and New Zealand, over economic integration with the EU. This choice rules out closer EU-UK models of integration, such as a partnership built on a customs union, or regulatory integration akin to the EU’s relationship with Switzerland or (even closer) the EEA/EFTA countries. What is left is an FTA. And no matter how ambitious an EU-UK FTA is, there are known limits to how much it can do to liberalise trade. Trade in goods and agrifood At its most expansive, an FTA between the EU and UK could remove tariffs and quotas on all goods traded between the two territories. However, fully tariff and quota-free trade will be dependent on the UK complying with EU level playing field demands on state aid, the environment and labour rights that go beyond what the EU would normally ask of an FTA partner. The EU’s justification for asking more of the UK than others is that it is a large economy that is very nearby. If the UK refuses to concede to the EU’s demands, the EU will probably refuse to remove tariffs in certain sectors such as fish and agriculture. CER INSIGHT: What a Boris Johnson EU-UK free trade agreement means for business 5 November 2019
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