EU trade partners demand concessions for Brexit transition rollover

During a transition period, the UK must abide by EU trade agreements but has no guarantee that third countries will do the same.

British Brexit Secretary David Davis arrives at 10 Downing Street in London on January 29, 2018 | Jack Taylor/Getty Images

Key global trade partners want concessions from Britain if the U.K. is to retain the same benefits it currently enjoys under EU trade deals during a post-Brexit transition period.

U.K. Brexit Secretary David Davis asserted last week that maintaining the status quo “is also in the interests of countries who have signed those trade deals with the European Union.” But it appears some trading partners around the world demand a price for Davis’ proposal.

At a briefing for EU27 diplomats Wednesday, European Commission deputy Brexit negotiator Sabine Weyand said that London will need permission from all of Europe’s more than 40 trade partners to stay in agreements during the post-Brexit transitional period. She revealed that two countries — South Korea and Chile — had already raised objections, three diplomats said on condition of anonymity.

A South Korean official told POLITICO that it was “difficult” to accept Davis’ proposal before having held more detailed discussions with London, but declined to provide more detailed comments. A Chilean official said that Santiago was “in principle in favor of preserving the commercial flows” with Britain during transition but demanded concessions in the agricultural sector, which would apply to a future U.K. accord with the South American country.

“The U.K. is simply not powerful enough to make such demands on its own” — Samuel Lowe, trade researcher at the Center for European Reform

Britain and the EU aim to agree a standstill transition deal by the end of March, under which the U.K. will remain bound by the bloc’s rules for around two years, although it will have legally departed the bloc. During this period it will have to abide by all the EU’s international agreements, including free-trade agreements, but there is no guarantee that third-country trading partners will do the same.

As EU chief negotiator Michel Barnier put it at a press conference Monday: “Our partners around the world may have their own views on this.”

For the U.K., the situation could be particularly unfortunate because the risk of emerging trade barriers is one-sided. EU directives adopted this week — that will be converted into Barnier’s instructions for negotiating a transition period — envisage that Britain will stay in the EU’s single market and customs union during the transitional period. That means London will have to grant lower tariffs to all EU trade partners — without the guarantee of receiving the favor in return.

“We risk a worst-case scenario where U.K. exporters lose their preferential access to third countries while companies from those states can still export to the U.K. under preferential conditions,” said Guillaume Van der Loo, a trade researcher at the CEPS think tank, who has given evidence to MPs on the British parliament’s trade committee.

Two EU diplomats said that it was “perfectly plausible” that more countries would raise objections to Davis’ plan of keeping EU trade deals. “They will keep their free trade in anyway, it’s really the British who stand to lose out here,” one said.

‘Good leverage’

South Korea has already indicated that it wants to address its trade deficit with the U.K., which was particularly high between 2012 and 2015, before granting Britain continued market access during transition, EU diplomats and business people said.

“Exports are South Korea’s credo No. 1, and trade balance is their credo No. 2,” said Christoph Heider, president of the European Chamber of Commerce in Korea, who is in close contact with the government in Seoul. “I expect that Great Britain will have to make concessions if it wants to stay in the trade deal during the transition.”

Trade threats during the transition period might provide extra leverage to third countries on future deals, potentially forcing longer-term concessions on the U.K. in return for maintaining trade in the short term.

“South Korea will use each and every possibility to renegotiate,” said one EU diplomat involved in the discussions. The trade ministry in Seoul did not respond to a request for comment.

Chile has also indicated it wants to use its leverage over the U.K. to push for more favorable conditions in a future trade deal: “Chile has a very big export interest in the agriculture sector,” said the official from the Andean country, adding that the EU-Chile trade deal includes safeguards such as tariff-rate quotas that Europe had enforced to protect sensitive agriculture sectors.

“Those sensitivities were raised by Southern European countries,” the official argued, saying that there was a clear “expectation” that Britain would allow higher exports of fruit, meat and biofuels from South America once it concludes its individual deal with Chile.

On the plus side, for London, it has received encouraging signals from Japan and Canada: “Our main interest is to keep the status quo,” said a Japanese official, stressing that any renegotiation of British terms of market access would be too time intensive.

A spokesperson for the Canadian government referred to the recently concluded EU-Canada trade deal and said that Ottawa wanted to “preserve” a “stable and predictable trading relationship” with the U.K.

Samuel Lowe, a trade researcher at the Center for European Reform, said that Britain would need to ask for the EU’s help to get all trade partners on board for the transitional plan.

“The U.K. is simply not powerful enough to make such demands on its own,” he said. If Brussels was going to assist London in convincing trade partners, this would come at a cost, he said: “This gives the EU some good leverage.”

A spokesperson for the U.K.’s Department for Exiting the EU declined to comment directly but said that Davis’ remarks in a speech on transition negotiations last Friday “speak for themselves.”

In that speech he said: “Since the terms of trade between the U.K. and EU will not have changed, a simple step forward is for all parties … to agree that the United Kingdom will continue to be party to these agreements while we continue to work on ensuring they maintain their effects in perpetuity.”

Tags: