20 March 2017

Pascal Lamy, former Director of the World Trade Organization (WTO), warns that a UK-EU free trade agreement will take five to six years. Oliver Ilott argues that the pressure of trying to agree a deal in two years means that government has to establish new, rapid processes for decision making in the negotiations

Pascal Lamy

“We are entering a race with time”

Theresa May has stated that the Government will complete a comprehensive EU-UK free trade agreement (FTA) inside the two-year negotiating window set out in Article 50. Sarah Healey, Director General at the Department for Exiting the EU, told us at an IfG event on 13 March that the civil service was ready for this challenge.

But speaking on 16 March at an IfG event in partnership with the City of London Corporation, former WTO head and EU trade commissioner, Pascal Lamy warned that this was impossible. He explains that this is not because of a lack of goodwill on behalf of the EU 27, where there is a desire to get a deal based on the recognition that “anything that has a cost for the UK has a cost for the continent”. Nor is it due to a lack of preparedness; Sir Michel Barnier, Europe’s negotiator, is walking around Brussels with a copy of his negotiating guidelines “in his pocket”.

“The reason it will be hard is that some of these things are horribly complex”

The real issue is that the EU-UK negotiations will involve “100 small steps” and “some of these steps can be easy, but many of them are very complex and complexity in negotiations means time”. Lamy categorises the issues for a EU-UK FTA into the “relatively simple”, “complex” and the “really complex”:

Relatively simple Complex Really complex
Goods and tariffs  Trade defence Technical standards
Establishing the UK in the WTO Public procurement Services

Maintaining existing EU FTAs

Climate change and environment policy Taxes
Fisheries Competition law and its enforcement Intellectual property (IP) protection
Erasumus programme EU research and innovation Euroatom 

 

Some of the “relatively simple” in theory might not be so simple in practice. For example, on fisheries, it would effectively mean leaving the Common Fisheries Policy – but sticking with its rules and restrictions. It is the “really complex” issues that would cause negotiations to overrun the two-year window. In particular, the UK and the EU will need to agree to an ongoing regulatory relationship if they are to make any progress on services, IP, government procurement or competition law. While the Great Repeal Bill will transpose the EU’s acquis into UK law, meaning that the two markets will start from a position of regulatory harmony, problems would emerge as the practises of the UK and the EU begin to diverge. Preventing this divergence will mean binding the UK and the EU together in some form, a step that would be politically contested and technically complex. 

Based on this assessment, Lamy argues that some kind of interim deal would be necessary to bridge the gap between the end of the two-year negotiating window and the agreement of a final deal five or six years hence.

This is not a view that is universally shared (least of all by the Prime Minister). Major trade deals have been done in a similar timeframe: the Northern American Free Trade Agreement between the US, Canada and Mexico, was negotiated inside two years (although it then took several years to ratify). Jeremy Browne, Special Representative of the City of London Corporation, expressed confidence that political determination can overcome administrative challenges; he pointed to the breakup of Czechoslovakia and the disentanglement of the Baltic States from the USSR as examples of projects that a technocrat would have rejected as unfeasible.

Does the UK have a negotiating “capacity issue”?

Nevertheless, UK politicians will not be able to complete the negotiations inside two years simply by willing it so. Instead, they will need to establish the processes inside government that will allow them to be swift and nimble negotiators. The IfG continues to argue that the UK civil service has shown real progress in preparing for negotiations. But questions remain about the composition of the negotiating team, the role of Whitehall departments in negotiations (and the capacity that they will need to build to fill this role) and the decision-making process that Theresa May will use to resolve issues in the heat of discussions. If the Government is serious about its timetable, it needs ensure it has a machine that can deliver it. 

Further information

Watch or listen to the full event – Pascal Lamy: Brexit, trade and the WTO

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