Brexit Bulletin: The Elusive Prize

(Bloomberg) --

What’s Happening? U.K.-EU trade talks could  be one of the hardest negotiations in a generation.

The U.S. and British governments are sounding keen to seal a deal that could reduce tariffs, eliminate non-tariff barriers and increase market access between the two nations.

Brexit has unshackled British negotiators and created a golden opportunity to forge a U.S. trade deal that Brexiteers have long touted as a key benefit of leaving the European Union. America is already the U.K.’s largest trading partner after the EU, with annual two-way trade totaling more than $230 billion, according to data from the U.S. Trade Representative. 

What’s more, the U.K. and the U.S. are aligned in their frustration with what they see as Brussels’ heavy-handed approach to trade and commercial regulations and are eager to craft new rules that better suit their domestic needs.  So a modest trade deal between London and Washington should be relatively easy to conclude, particularly if the political will to do so remains strong.

The U.K. said it will not give ground to the U.S. on politically sensitive issues like healthcare or chlorinated chicken. American trade chief Robert Lighthizer shrugged off the U.K.’s concerns on Monday, telling the Oxford Union they weren’t actually all that contentious. “I don’t think either of those are going to be what sinks us.”

In contrast, political pressure, economic trade-offs and a tight timeline may well increase the possibility of failure in U.K.-EU talks, leaving them to trade according to World Trade Organization terms on Jan. 1 next year. The effort to avoid that will entail sprawling talks covering myriad critical regulations regarding tariff lines, quotas, subsidies, border controls, data and cross-border services.

In that case the U.K. would become subject to an abrupt economic shift with its largest trading partner that results in potentially more cumbersome customs checks and increased average EU tariffs of 12% on U.K. agricultural exports and 4.2% on non-agricultural goods. A U.S. agreement is unlikely to cushion the blow of that no-deal Brexit scenario. Currently the U.K. exports 46% of its goods to the EU and 13% of its goods to the U.S.

So, yes, a modest trade deal with the U.S. would be good for Britain. But a comprehensive accord with the EU is the far bigger prize.

A version of this article was originally published in Bloomberg’s Terms of Trade newsletter, our daily guide to global trade.

Beyond Brexit

• The Federal Reserve cut interest rates by half a percentage point in an emergency move aimed at protecting the U.S. economic boom in the face of the coronavirus threat.
• Russia’s fifth-richest person is trying to work out how to pass $17 billion on to his children.
• One of China’s most ambitious projects has become a $62 billion corridor to nowhere.

Brexit in Brief

Wait and See | The French owner of British automaker Vauxhall used the shaky start of trade negotiations between the European Union and the U.K. to warn about the future viability of its Ellesmere Port plant in England. 

Get Ready | Irish Prime Minister Leo Varadkar said he sees “a growing possibility” of a no-deal Brexit at the end of 2020. “We need to make sure we are fully prepared at our ports and airports to institute whatever checks are necessary,” Varadkar told reporters. 

Early Casualty | The U.K. has pulled out of a pan-European patent dispute court it spent years fighting to set up. The Unified Patent Court was sacrificed due to the Johnson government’s aim to ensure it makes a clean break from European institutions, Suzi Ring and Joe Mayes report. “It’s a small indication of a wider theme that I’m sure we will see play out over the next few months,” said Tim Powell, a London-based intellectual property lawyer.

Sword of Damocles | The Brexit talks deadlock is worrying even seasoned observers. But that doesn’t mean a deal is impossible, Gideon Rachman writes in the Financial Times—and the tight timescale might even help.

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To contact the editor responsible for this story: Adam Blenford at ablenford@bloomberg.net, Guy Collins

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