Boris Johnson Faces His First Real Brexit Trade Test
(Bloomberg Opinion) -- U.K. Prime Minister Boris Johnson’s cabinet met this week to debate whether to approve the terms of a free-trade agreement with Australia. What, you might wonder, could be less controversial?
After all, there’s nothing more Brexity than free trade. In a set-piece speech in early 2020, Johnson promised that Britain would campaign for unfettered global commerce. He even namechecked a trio of liberalizing forefathers: Adam Smith, David Ricardo and Richard Cobden. It was Cobden who called free trade “God’s diplomacy.”
And who better to make the Australia case than International Trade Secretary Liz Truss? She regularly tops surveys as the most popular government minister among the Tory grassroots and hails from the north of England. Her trade brief is at the center of Johnson’s “build back better” recovery plan that promises to boost the lagging regions in that part of the country.
Easy — or rather it should be. The problem is that the Australia deal also highlights the inevitable post-Brexit costs that didn’t get mentioned during all the flag-waving and sloganeering. Opponents say the agreement will expose Britain’s farmers to a “tsunami” of cheap imported beef. That, they argue, will trash an important industry, undermine animal welfare standards (Britain’s are strong) and even threaten the increasingly fragile United Kingdom. The Scottish National Party’s leader in Parliament accused Johnson of “planning to throw our farmers and crofters under the Brexit bus.”
Some of the direst warnings are overdone. There won’t be anything like a tsunami: Australian beef exporters are more focused on their Asian markets. Tariffs would probably be liberalized over a number of years and the U.K. is reportedly looking at quotas to prevent the feared flood. Australian beef and lamb imports are as likely to compete with French or other European meats as domestic ones.
Even so, the competitive pressure for British farmers is real. Australia is the world’s second-largest exporter of beef; some 27% of its beef farms have between 400 and 1,600 cows and a small farm still has more than 100. The average size of a herd in Britain is 27 cows. And years of having to compete against subsidized markets have also forced Australian producers to innovate by investing in genetics, marketing and other areas. Welsh sheep farmers have similar worries about competition.
Britain’s agriculture industry is certainly in for a rough time outside the EU. Beef finishing costs are high in the U.K. compared with other countries, as is the production expense for sheep meat. Commercial beef businesses in the U.S. and Argentina, which benefit from economies of scale, are far more profitable. If only the government hadn’t tried to hide these realities over recent years by pretending it could do free-trade deals and keep the agriculture sector happy.
Having declared itself a campaigner for global trade, the government’s international credibility is on the line. While a deal with Australia would add only an estimated 0.01%-0.02% to U.K. GDP in the long run, modest gains are still gains. And there’s likely to be increased trade in services and better labor mobility.
There are other benefits, too. Competition from Australian goods and services should force U.K. businesses to become more efficient, benefiting consumers. Britain’s first major free-trade deal outside the EU may also help its efforts to join the Asia-Pacific free-trade area, known as CPTPP.
The U.K.’s debate pits those Conservatives who claim they’re standing up for farmers — and animals — against those who claim they’re delivering on the promises of Brexit. The Financial Times reported that Truss’s deal has the support of David Frost, the cabinet minister in charge of implementing the Brexit deal with the EU, and Kwasi Kwarteng, the business secretary. They represent economically liberal Tory backbenchers who ask, rightly, what was the point of Brexit if not to do these deals.
Environment Secretary George Eustice has been on the other side and reportedly has the support of Michael Gove, a party grandee who promised Brexit wouldn’t harm agricultural interests.
What opponents really fear is not so much the particulars of this agreement but that the U.K.’s first big post-Brexit trade deal will set a precedent for talks with other countries with even mightier farming lobbies, including the U.S. That’s undoubtedly the case. And yet the alternative is a slippery slope to a protectionism that Britain can’t afford now that it has struck out on its own. Brexit delivered control — but for a purpose.
A transition period and some non-tariff measures may be needed to shove the deal over the line, but Johnson’s government should be careful not to dilute the agreement too much. There are no doubt difficult discussions about the level of protection and how much the state should pay to support a painful transition for many farmers. Similar is being done for the fishing industry, which was also given false assurances about Brexit.
This would hardly be the first trade deal to come unstuck over agriculture, but it doesn’t need to fail. Britain’s reputation has been damaged by the Brexit process. Backing away here would make anyone doubt the country has a strategy for its new place in the world. Johnson’s instincts have always been liberal rather than protectionist. He just needs to stick by them.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Therese Raphael is a columnist for Bloomberg Opinion. She was editorial page editor of the Wall Street Journal Europe.
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