With the aim of reducing the economic impact of leaving the European Union, the U.K. government is preparing 11 trade deals. But despite the efforts, all this work might not be fruitful.
While a member of the European Union, the department led by Liam Fox cannot negotiate any trade deal. U.K. is to remain a EU member until March 29 of 2019. However, discussions with potential partners can be held by it.
And the countries that have bene chosen as the potential trade partners for the U.K. after the Brexit divorce include the United States, Australia, China, the Gulf Cooperation Council (GCC), Israel, India, Mexico, New Zealand, Norway, Turkey and South Korea.
But there can be no light of day for this preparatory work.
“It really depends whether the U.K. can sign off the deals during the transitional period, such that they automatically come into force after the transitional period is over,” Kallum Pickering, senior U.K. economist at Berenberg, said.
Furthermore, to allow businesses to adapt and prepare for a post-Brexit world, the U.K. has said that it needs a transition period. And the U.K. will have some sort of link with the union until 2022 because this transition period might be as long as three years.
“We won’t know whether (the possibility of making trade deals) will be a feature of the transitional period until there is ‘sufficient progress’ on the Brexit divorce and the transitional framework can thus be negotiated,” Pickering said.
But the EU in all probabilities would be unlikely to agree to do that. In its guidelines for the Brexit negotiations the EU stated: “Should a time-limited prolongation of Union acquis ( a body of common rights and obligations) be considered, this would require existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures to apply.” And hence the current rules on negotiating trade deals would continue to apply during the transition period, this statement seems to suggest.
However, without first negotiating its trade links with the EU, the U.K. might not be able to convince new partners to strike deals even if the EU agrees to that.
“The problem for the Department of International Trade is that any trade partner will wait to find out what the final trade terms between the U.K. and the EU will be, before agreeing a meaningful bilateral trade agreement with the UK. The EU market is simply too important for UK-based business,” Rem Korteweg, head of Europe in the World unit at the Netherlands Institute of International Relations, said.
Therefore, an investor in the U.S. or in India is unlikely to buy a factory unless he is sure whether a U.K.-based factory will face trade barriers when selling to the EU market or not.
“Since the transition deal is also meant to buy time to negotiate the future EU-UK trade relationship, it is highly unlikely that a meaningful trade deal will be finalized during that period,” Korteweg said.
A final free trade agreement in themselves is not constituted by setting up joint working groups, signing letters of intent with potential suitors, signaling its interest and exploring new trade deals, talking about them, preparing for them, all of which are allowed to be done by the U.K.
According to Korteweg, “such flirts do not make a marriage.”
(Adapted from CNBC)