Posted 7th February 2017
Yesterday we started the ball rolling on this week’s Brexit debate with the first part of my interview with Telegraph journalist Liam Halligan (@liamhalligan).
I asked for his opinion on Brexit based on the Policy Exchange paper he’s written with Dr Gerard Lyons, called Clean Brexit.
Today we continue that conversation with Liam’s view on Britain’s trade negotiations and why the EU itself might be forced to make a deal with the UK.
We jump back in the conversation with me asking Liam if Britain has lost negotiating power by leaving the EU and whether it runs the risk of having to make big compromises on health and safety standards or immigration in trade deals with bigger partners.
Liam: Any trade deal is a negotiation, there’s a compromise. If we don’t think that the trade deal that we could get is better than the status quo that we currently have, then we just won’t sign it.
The point is that we will be in a position to make our own decisions.
The EU is crap at negotiating trade deals. It hasn’t got any, really. It’s got one with South Korea. There’s almost no other major economy, only tiny little countries.
We haven’t got a trade deal with America or China. It’s mad.
They’re the two biggest economies in the world. Our prospects of getting a trade deal via the EU with the other large emerging markets – India, Russia, Brazil – are completely remote.
I’d rather have a shot at getting a trade deal than no chance at all.
There are all kinds of Remain lobby people who are often funded by big business interests who like the status quo.
They want us to stay in the European Union because the European Union is a very good way of keeping little companies down. That’s because the regulatory thickets are so difficult to wade through and so costly for small businesses.
So there’s a big lobby that wants us to stay in the Single Market, but there’s absolutely no logic behind staying in the Single Market or staying in the Customs Union.
Outside you can cut your own free trade deals and the other countries outside the Single Market trade completely happily with the European Union.
Of course, we need to negotiate these trade deals, but there’s much more chance of getting one if you actually negotiate in a way that suits your own national interests.
Pieter: It takes a while to negotiate trade deals. The EU and the US have been negotiating a trade deal for a long time. Do you think if it was just Britain and the US it won’t take as long?
Liam: Yes, it will take a while. The US and the UK are the world’s first and fifth biggest economies respectively. It’s not like we’re doing a deal in a pub.
This is quite complex but we’re allowed to negotiate from now on. This nonsense that you can’t negotiate!
Unless a treaty comes into force when you’re in the European Union, it breaks no treaty obligations whatsoever. You just agree for it to come into force after you’ve left.
Anyone who’s done any kind of business at all understands the idea of heads of terms or a post-dated agreement.
You get these bureaucrats telling us we can’t talk to America, but we can talk to who we want.
Pieter: Yes, it just can’t come into force, that’s true.
Liam: So, forget all that. If it takes a year, two years, three years, it is what it is.
You know what, in the end, even if we don’t get a free trade deal with these countries, we’re still massively trading with America. It’s still 19% of our exports that go to America as it is.
You can do sector-specific deals. It doesn’t have to be a completely overarching free trade deal. There are many ways to skin a cat.
The fact is, though, it’s almost impossible to do a deal when you’ve got 27 people on one side and one country on the other.
Pieter: Yes, that might complicate things.
You can start negotiating now with the States and with China and other countries, but do you think it will be possible, or desirable even, for Britain to start negotiations with them now?
In your paper, you mentioned that there might be a shortage of trade negotiators and Whitehall servants. Could that leave you open to not getting the best deal you could have had otherwise – if you try to negotiate on multiple fronts?
If you negotiate Brexit and, simultaneously, a US treaty, do you think that might be a problem?
Liam: We’ll have to train trade negotiators to do some trade negotiations. I mean, what are you going to do, put them in a room in Croydon and train them?
Let’s just go for it, let’s have some faith here. The country’s full of very clever people. Of course we can negotiate a trade deal.
The complexity is not that the concepts are difficult to get your head around; the complexities are that Britain and America are advanced industrial societies with many different sectors and sub-sectors and interest groups.
The complexity is in terms of the volume rather than the difficulty of concept.
A lot of this ‘oh, we need more people’ is just public sector interest groups, civil servants saying ‘we need more money’, with their public sector final-salary pensions, retiring at 55.
Of course civil service are going to bleat that they need more money and that they need more people. And of course papers and MPs in denial are going to repeat those concerns.
A lot of this, ‘we have no ability to do this stuff’ is just typical public sector lobbying for more funds.
Pieter: I’d like to ask you something about the tariffs that companies might face when exporting to the EU.
One of the main reasons Japanese and Chinese companies have based themselves in the UK may have been to have Single Market access.
Do you think they won’t mind those tariffs?
Liam: They can have Single Market access.
Pieter: Yes, but maybe not without tariffs.
Liam: Well, they’ll have to make up their minds, won’t they? But the exchange rate depreciation we’ve had is a multiple of the tariff cost.
It’s just a business cost. And these tariffs are the worst-case scenario. Given that we run a huge trade deficit with the European Union, there is every chance that we can negotiate lower tariffs.
Not least because you’ve got multiple French and German-owned car factories in the UK and because German, French and Italian industrial lobbies want their so-called political leaders to do a deal.
Billions of euros of profit and hundreds of thousands of Eurozone jobs depend on trade with the UK.
So the tariffs that people talk about are the worst-case-scenario tariffs, the WTO tariffs. If we don’t want to pay WTO tariffs, then we can try and do a trade negotiation with Europe.
I put it to you that the very next day after the EU referendum, you had the main German industrial group saying ‘we’ll do a deal’.
Pieter: Don’t you think both sides have tried to play hardball in the media so far?
Liam: I don’t think so. I think the UK has been astonishingly emollient. We will do a deal. But it’s not hardball to do what your electorate has asked you to do.
It’s not hardball to say that being in the European Union basically means being in the Customs Union and being in the Single Market.
We have a large current account deficit with the European Union. So go figure.
Pieter: But isn’t that just with a few countries, though? The EU will be negotiating on behalf of 27 countries, not just the ones that Britain has a trade deficit with.
Liam: Yes, but this is the other myth of the European Union. Of course, each of the 28 doesn’t have sway.
It’s the French and the Germans who will decide and the French and the Germans both have enormous trade surpluses with the UK. As do the Italians.
So the big countries have big trade surpluses with the UK. They have big, powerful industrial lobbies, full of world-class companies, who themselves are increasingly impatient with the whole madness of the European project.
You’ll find that there will be an enormous amount of political pressure brought to bear on the leaders of those countries in the upcoming election campaigns.
Those industrial lobbies will pressure them to be a grown-up and actually do a proper, sector-specific or more over-arching trade deal with the UK.
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