UK threatens ‘Australian Brexit’ if Canadian-style deal rejected
While a minimal trade deal is the likely outcome, there is a possibility of a hard Brexit
Boris Johnson is focusing this week on domestic politics with a significant Cabinet reshuffle expected on Thursday. However, the last week has been dominated by foreign policy with the prime minister ‘shadow boxing’ with Brussels over Brexit.
With London now having left the Brussels-based club, Johnson declared that he sees a ‘Canadian-style’ trade relationship with the EU as the best way to realise his ambitions of a “global Britain” into the 2020s. Yet, he threatened Brussels that he will alternatively go for an ‘Australia’ model, essentially akin to a no-deal exit, if the EU refuses a Canadian approach in what is a dramatic raising of the stakes.
Johnson’s speech underlines that the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada is increasingly seen by many Brexiteers as the best template for a future EU-UK deal. CETA, covering around a fifth of the global economy, took the best part of a decade to negotiate and was signed in 2016.
The various alternative models to the UK’s membership of the EU — from a ‘no-deal’ akin to Australia, to ‘harder Brexit’ like Canada, and ‘softer Brexit’ like Norway — all involve key trade-offs.
It saw some 98 per cent of all tariffs on goods traded between Canada and the EU-27 become duty free, and has been billed as “the most ambitious trade agreement Europe has ever concluded”. Most tariffs were removed when the deal came provisionally into force in 2017 with the key remaining step being full ratification which could potentially take several more years.
Of course, the EU has negotiated a wide range of trade agreements, but for many Brexiteers it is the ‘Canadian model’ that stands out. Part of the reason for this is that, in their eyes, it would allow the United Kingdom to diverge significantly from EU rules.
However, glorified as CETA is by these same Brexiteers, it would come with significant (at least short-run) costs for the United Kingdom given the different starting positions of London (a member of the Brussels-based club for over four decades, until January 31) and Ottawa, vis-a-vis the EU. Whereas CETA represents a net level of integration between the EU and Canadian economies, a similar deal would represent a sharp break (or “hard Brexit”) between the United Kingdom and EU.
Electronic checking to expedite customs clearance
Moreover, CETA, does little to enable some key business sectors. Take the example of financial services, a huge part of the UK economy, which sees neither Canadian nor EU firms getting so-called “passporting” rights which would allow their firms to sell their products in each other’s markets. CETA also does not eliminate border controls — although it does incentivise use of advanced electronic checking to expedite customs clearance.
While some Brexiteers also suggest that negotiating a Canadian-style deal would be relatively easy to secure with Brussels, this belies the challenges involved, especially in the less than eleven months now available. For instance, EU Chief Negotiator Michel Barnier said last week that a CETA-agreement requires “specific and effective guarantees to ensure a level playing field” so future EU-UK competition “remains open and fair” in areas like competition policy, subsidies, social protection, and environmental standards.
Limited ‘partnership agreement’
Yet, Johnson responded to Barnier that he refuses to adopt EU rules carte blanche in the areas proposed by Barnier, and threatened to pursue an even looser Australian model if Brussels refuses to ‘play ball’ with his demands. At the moment, trade between Brussels and Canberra is based on a limited ‘partnership agreement’ agreed in 2008, covering cooperation in a wide range of economic areas and agreements around principles such as mutual recognition of product standards, with negotiations on a fully-fledged trade agreement beginning in 2018.
UK critics have already hit out at Johnson here inasmuch as his suggestion of a deal with the EU like Australia’s appears very close to a no-deal Brexit. Indeed, the “Australian deal” language appears to be the prime minister’s new preferred term for a basic, WTO-style relationship with the EU, yet as Liberal Democratic Acting Leader Ed Davey asserted Monday, this would “deliberately hollow out our trade [and] is nothing short of a scorched earth policy for our economy”.
What this exemplifies is that all of the various alternative models to the UK’s membership of the EU — from a ‘no-deal’ akin to Australia, to ‘harder Brexit’ like Canada, and ‘softer Brexit’ like Norway — all involve key trade-offs. And this is why UK governments have since the Brexit referendum found it so very hard to find a single alternative model, which can secure consent from other key parties, that comes close to providing the previous balance of influence and advantages that Britain got from its previous status inside the union.
The stark reality is that, while the nature of bilateral agreements with the EU vary, all have key disadvantages, including no full access to services which accounts for 80 per cent of the UK economy. Take the example of Norway, an example of a “softer Brexit” at the opposite pole to Canada, which would provide full access to the Single Market. Yet, in exchange, Oslo is a ‘rule taker’ rather than ‘rule maker’ being required to adhere to EU rules without having a vote on them as EU member such as the United Kingdom do now; it must accept free movement of people; make contributions to EU programmes and budgets; and do customs checks on goods crossing into the EU.
Taken overall, the most recent bout of heated EU-UK rhetoric foreshadows a tough negotiation this year between London and Brussels. While a minimal trade deal still is the most likely outcome, there is a growing possibility of a hard, disorderly Brexit, especially in the tight time frames of the current end-2020 deadlines to secure an agreement.
— Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics