In its efforts to not only clarify but establish its new trade relations with the EU post-Brexit, the British government’s first choice appears to be a Canadian or Australia style trade agreement.
Boris Johnson Considering Two Main Trade Deal Options With EU
Nonetheless, the UK does not rule out having relatively loose trade relations with the EU in the future after Brexit. Currently, Prime Minister Boris Johnson is examining two options of a trade agreement in particular. The first is a free trade agreement like that between the EU and Canada. The second deal is a less restricted trade agreement such as that which the EU has in place with Australia.
Reports on Sunday night also indicated that Johnson seeks to free the UK from binding EU rules. For this he also accepts border controls, according to unnamed government sources quoted by British media quoted on Sunday night. The prime minister would be ready for a free trade agreement with the EU modeled on Canada, the report said. He also wanted to present his negotiation goals for the upcoming talks on the future relationship with the EU in a speech on Monday.
Here, he will also speak to CEOs, entrepreneurs, and ambassadors, though the exact content has not been communicated. However, the indication is that sovereignty for the UK remains more critical than trade if substantial restrictions bind the latter. Johnson is even reportedly willing to accept trade barriers such as tariffs in order to maintain a high degree of sovereignty.
Is There Enough Time To Make A Deal Before Hard Brexit Hits?
Besides Johnson, EU chief negotiator Michel Barnier—who is mandated to carry out negotiations by the 27 remaining member states—will also present his perspective on Monday. After leaving the EU on January 31, the UK has entered a transition phase during which almost everything will remain as it was prior to Brexit. Until the end of the year, the EU and the UK will seek to agree on conditions for future relationships. However, if the latter cannot be facilitated within the time-frame, a hard Brexit will become a possibility again. Considering that the aforementioned trade deal between the EU and Canada took several years before it was finalized, the transition period raises the question of whether or not it might be too short, given the complexity of the issues on hand.
The Canada-UK Trade Deal (CETA)
The current agreement between Canada and the EU is called the Comprehensive Economic and Trade Agreement (CETA). In a nutshell, it allows for 98% of all tariffs on goods traded between Canada and the EU to be duty-free. Thus, Canadian importers do not have to pay €590m in taxes on the goods they receive from the EU, and European importers see tariffs reduced to zero on some 9,000 Canadian products. Moreover, part of the agreement is the opening up of contracts on the local, regional, and federal levels to each other’s contractors. The latter aims to protect EU “geographical indications” (e.g., Canada is only allowed to import goods such as prosciutto di Parma ham or camembert cheese from its countries of origin).
The Australia-UK Trade Deal
Similar restrictions would likely not apply under an Australian style system. The EU and Australia have been conducting their trade and economic relations under the 2008 EU-Australian Partnership Framework, which aims to facilitate trade in industrial products between the EU and Australia by reducing technical barriers and improve trade in services and investment and is governed by a rules-based multilateral trading system, the World Trade Organisation (WTO). In November 2015, however, both sides agreed to start working on a possible future Free Trade Agreement (FTA); and in November 2017, this preparatory work ended, paving the way for substantial negotiations between the two parties, which began in May, 2018.
It remains in both side’s interest to form a coherent trade agreement soon. Johnson’s proclivity for sovereignty may indicate that he favors the Australian model. However, the benefits of almost tariff-free trade will need to be considered. Much will depend on how the UK’s economy shapes up over these next months, but much will also depend on how many concessions the EU is willing to make with the UK after having played hardball since 2015.