Negotiating Mandates

This post describes the negotiating mandates for the UK’s future trade with both the EU and the US. The details reveal the real motives and agendas of the parties.

1917-2 It’s like trench warfare. Just as disputing the lands of France and Belgium was not the prime cause of the First World War (WW1), negotiators from the EU, UK and US go into battle over ground that is not the main concern. For the EU the battle is about preserving an idea of uniting the Continent in one super- managed family, secure and prosperous. For the UK it is about gaining freedom from a suffocating ideology and proving it has alternatives for what is at risk. For the US it is about securing its global primacy, or to “Make America Great Again” as Trump has promised.

If the UK Government succeeds in wrapping up a deal this December, or concluding the Transition Period without one, the battle with the EU will have lasted about as long as WW1 itself. It was this terrible conflict that inspired the idea of a single government for Europe to prevent a recurrence, but war did recur, largely due to an unfair treaty—Versailles. Whilst the current struggle is hardly as apocalyptic we should remember that unequal treaties seldom last and may lead to further conflict.

After WW1 the colonies of Turkey and Germany were not considered ready to rule themselves so ‘mandates’ to govern them were granted to the victorious allies by the League of Nations. It feels a bit like the remaining EU nations are in league to repeat the plan. The main difference is that the EU is worried that the UK might rule itself too successfully, at least for the good of the EU as it defines its own good. Such definitions include: “a level playing field”, “the integrity of the Single Market”, “regulatory compliance”, and so on.

The EU is a large trading block that loves inventing rules and it is sometimes argued that because so many others trade with the EU and have to satisfy its rules to ‘access’ its Single Market they might as well apply them everywhere [1]. This neglects two contrary factors: first, that the EU does not in practice apply its rules consistently either within its own territory or with third countries [2]; second, that the EU27 is fast-shrinking in global economic stature. Neither the UK nor the US want to be subjected to decisions made by Brussels alone.

At this stage there is inevitably much posturing so we won’t comment in detail on the negotiating mandates for either of the free trade agreements (FTAs). There are well-known and obvious points of difficulty in both; we mention a few but also some general principles that should be followed. The respective mandates can be downloaded from the links below [3].

gmo 2 Although they vary considerably according to sector, US-UK tariffs are presently around 2% by trade-weighted volume. Food (and clothing) prices matter most to the poorest people but can be much higher than world prices as a result of EU protectionist policies [4]. America sees Brexit as an opportunity for its agricultural products in the British market but farmers are worried by competition based on lower standards and the public has been alarmed by descriptions like ‘chlorinated chicken’, ‘hormone-injected beef’ and ‘genetically modified organisms’ – all forbidden under EU rules. Meanwhile the EU worries about such food entering its own market via the UK, directly or in processed products.

On animal and plant safety measures (sanitary and phytosanitary regulation in trade-law jargon) the WTO allows countries to set their own standards. But it also says regulations must be based on science; or as Johnson has said, British policy will be “governed by science and not by mumbo-jumbo“. To the EU this could be the thin end of a wedge for the US to gain the upper hand on setting standards and gain entry for its agricultural products, a major reason for the failure of the EU-US trade deal (TTIP).

We should not reject level playing field demands in EU negotiations while trying to impose them for the US on competition grounds alone; more efficient production methods should be welcomed, though transitional help or protection for local industry might be justified. All the types of food mentioned have been eaten in America for years without evidence of harm but most Americans think they ought to be labelled (it’s not mandatory there) and we agree that consumers here should have a choice not to eat food they are worried about. The effects on health, the environment or animal welfare conditions are all legitimate reasons to consider caution or regulation and pragmatically permitting their entry may complicate trade with the EU.

no deal 1 What then if there are no deals? The UK mandate itself includes an estimate that a free trade deal with the US would add only 0.16% to GDP, or £3.4 billion, lifting our imports a mere 0.13% and widening our negative trade gap. Perhaps the benefits of formal agreements are exaggerated—America is already our single biggest trade partner (by nation states rather than trade blocs) which shows how well-aligned we are already with respect to language, law, culture and history; this is also true of other Anglo-sphere countries. We do not need to prostrate ourselves to improve trade but we can be more nimble in future.

HM Treasury forecasts show far bigger losses from losing ‘access’ to the Single Market (SM) than gains from greater access to the American market, not that we trust Treasury forecasts further than we could throw George Osborne or Philip Hammond. Their guess depends on bigger EU GDP growth than history and present circumstances suggest is likely. The UK also trades proportionately less within the SM than other members and the SM is not well developed for the UK’s strongest sector, in services; Continental growth would not be equally reflected in the UK, had we remained in.

The third largest free trade area after the SM and NAFTA is CPTPP (the Comprehensive and Progressive Agreement for Trans-Pacific Partnership) which the UK Government says it wishes to explore joining, and which has been generally welcomed by its current members. CPTPP is a trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam; the US may even join if Trump changes his mind or losses office (he withdrew America from the previously proposed Trans-Pacific Partnership). Clearly the shape of world trade is evolving quickly. The Covid-19 pandemic may lead to a demand for greater self sufficiency, especially for food.

The UK-US mandate is far longer than the UK-EU mandate but both are effectively lists of headings of things the teams must remember to discuss with their opposite numbers, with mostly-bland text for each topic. The first was (mostly?) written under Liam Fox’s leadership during the previous UK administration and signed by him; the second had to be re-written quickly of course.

The UK-US mandate introduction makes this point: “According to the IMF, 90 per cent of the world economic growth over the next five years is forecast to come from outside the EU; and 54 per cent of the UK’s exports of goods and services are now traded outside the EU, compared with only 46 per cent in 2006.” There is far more discussion than in the UK-EU document of the presumed impact of agreement on many aspects of the UK’s future. It also includes an annex on “public consultations” – the EU Commission’s ways are infectious [5]. Those consulted were businesses (186), business associations (43), NGOs (45) and public sector bodies (11), plus individuals (5,770) – we weren’t consulted or didn’t notice the on-line survey hosted by Citizen Space [6]. The most common responses were ‘hands off our NHS’ and ‘don’t mess with our food standards’.

The most frequently recurring theme in the UK negotiating mandate is ‘following precedent’ as set in other agreements struck by Brussels with third countries. These are all explicitly mentioned: EU-Canada, EU-Japan, EU-Mexico, EU-Norway, EU-South Korea and EU-New Zealand. Each reference covers one or several areas such as: goods, finance, fisheries, law enforcement and judicial cooperation in criminal matters, transport, energy and others. There is also an emphasis on utilising recognised international standards. The UK mandate asks why the EU should impose greater restrictions than for other third countries; the EU mandate refers to the UK’s proximity to the EU as justification.

Independence The introduction to the UK-EU mandate states unequivocally, “The UK will fully recover its economic and political independence. The UK will no longer be a part of the EU Single Market or the EU Customs Union.” We’re pretty confident the second sentence will be true in treaty terms but in practice there may be some fudge and compromise.