Michael Emerson is Associate Senior Research Fellow at the Centre for European Policy Studies (CEPS), Brussels.
Liam Fox used to trumpet a comprehensive free trade agreement with the US. Now the trade secretary envisages only a services deal, according to the Financial Times.
What’s going on? Has the hardline Brexiter discovered that a comprehensive free trade agreement is going to be more difficult that he thought? For sure he suffered the embarrassment of slipping on chlorinated chicken on his first mission to Washington.
Maybe he wants to skip agriculture, given the formidable firepower of the US agri-food sector? But how will the US react to that? Ivan Rogers, Britain’s former ambassador to the EU, told MPs yesterday that Washington won’t agree to a trade deal without a big agricultural component because Congress cares more about agriculture than anything else.
Is this novice in international trade beginning to learn the facts of life?
The first thing he has seen is that there ain’t no special relationship with the US in this business. The prime minister discovered it in telephoning the Trump, complaining that the Boeing-driven punitive tariffs of over 200% being imposed against Bombardier threatened jobs in the wing factory that the Canadian company has in Northern Ireland. London muttered that this risked hurting Boeing’s business prospects in the UK. Response from Washington: zero, or get lost.
The problem here is that the UK’s vague threat of counter measures lacked credibility. But then something else happened. Europe’s Airbus dashed in to save Bombardier by buying a controlling stake for one euro (sic, one euro!), announcing the plan to assemble the new Bombardier model at its US plant in Alabama. This neatly gets around or over the US punitive tariff. So the moral of the story is: the UK cannot save its jobs in Northern Ireland, but the EU can and actually is doing so. Airbus and Boeing are equal powers in aerospace. The US cannot punish Airbus like little Bombardier, without devastating counter-punishment for Boeing.
Maybe Fox has not yet noticed that, while the EU does not have a comprehensive free trade agreement (FTA) with the US, it does have a mutual recognition agreement (MRA) since 1999, which greatly reduces the costs of implementing divergent technical product standards. For those willing to get their minds round this arcane feature of trade rules, the MRA allows accredited conformity assessment bodies in the exporting country to certify conformity with the importing country’ standards, dispensing with the need for further certification in the importing country.
This is really important. Non-tariff barriers are well understood to be more important between the EU and US than the low prevailing tariffs. So this MRA is already a good part of the way towards an FTA. Maybe Fox has been briefed on this, but does not speak of it since it is for him a politically inconvenient truth. The UK will not forge ahead of the EU here, but can only play catch-up.
Good luck on services
So Fox wants to focus on services. Good luck to him. On financial services, New York is savoring repatriation of part of its banking business as a response to London losing its full “passport” to the EU market. Next in importance is civil aviation, where the EU and US share an agreement. So here too the UK will not be forging ahead, only playing catch-up.
Then there are the dozens of business services: consultants, lawyers, media, etc. The key point about liberalising these markets is that they rely upon freedom of movement of personnel – so much for controlling migration.
Then there is the important area of open competition in public procurement, otherwise known on the other side of the Atlantic as the “Buy America Act”. Trump is not going to soften that for anyone.
And now turn to the digital titans of Silicon Valley – Google, Microsoft et al. Only the EU competition department has had the guts and power to call them to account for their super-low tax bills in Europe and abuse of market power. The UK in this case has no hope of even playing catch-up on its own, and can only hope to hang on to the EU’s coat-tails.
It is so often said that the EU’s weight in international trade is a big asset in the tough world of trade negotiations. So often, that the point seems to be overlooked. Today’s concrete realities show this to be a real asset that Fox wants to throw away. Why does he not go back to the job he knows: Dr Fox, the GP?