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A Tariff Negotiation Is Not An Adequate Brexit Concession

15th May 2020

An article by Alex Stojanovic

Published 14 May 2020 a the Institute for Government.

Alex Stojanovic argues that the government's suggested offer of some UK-EU tariffs is unlikely to provide a breakthrough moment.

Michael Gove has suggested that the UK would be happy to accept some tariffs on exports to the EU as a compromise for not accepting its demands for some regulatory alignment. But the prospect of a tariff negotiation, in addition to the ongoing future-relationship talks, will hardly "show leg" (in Gove's words) to the EU. Instead, it serves more to show how far apart the two sides are. The EU and the UK will need to look in a different direction to find a possible compromise.

Tariffs cannot address the EU's main concerns on the level playing field

Until now, the two sides have agreed on a desire for a free-trade agreement that removes all tariffs and quotas. However, the UK is seeking minimal ‘level playing field' (LPF) commitments - common rules and standards that are used primarily to prevent businesses in one country undercutting their rivals in others. The EU wants strict LPF commitments. It argues that the size and proximity of the UK's economy make these a necessity for a deal that is fair and palatable for its members.

But while both LPF commitments and tariffs are forms of protection from economic disadvantage at the hand of the other signatory, they are not interchangeable - you can't simply increase one to decrease the other. In fact, doing so would only make the deal even less economically attractive, while doing nothing to address the EU's main concerns: the LPF.

In any case, under the World Trade Organization’s rules, free trade agreements must remove tariffs on "substantially all trade", so tariffs could only apply to a small number of products. The EU is unlikely to view these as an adequate trade-off for weakening one of its strongest negotiating aims.

There is no time to conduct a line-by-line tariff negotiation

There is also not enough time to conduct that kind of negotiation Gove’s proposals would require. Doing so would require both sides to go through some 13,000 types of goods, line by line, to discuss the tariffs to be applied. It is not as simple as copying and pasting the contents of the EU’s deal with, say, Canada or Japan (referred to repeatedly in the government’s mandate). What Canada wanted to protect will be different to what the UK wants to protect; and, in turn, the EU will see the UK as a very different ‘threat’ to Canada and will want to protect different industries as a result.

If there are going to be tariffs, there will be more - and more complex - negotiations. The shared ambition for a zero-tariff deal when composing their draft mandates in February in part reflected necessity - there was no time to agree a deal that included tariff negotiations. With time and capacity lost on both sides to the response to the coronavirus, there is even less time now.

The UK and EU must find viable concessions - outside of tariffs

Addressing the EU’s concerns does not mean simply accepting its demands. Nevertheless, a compromise is far more likely to be found, and a breakthrough reached, by focusing on what obligations the UK could commit to, rather than by attempting to swerve the issue with talk of tariff negotiations.

The UK will have to give up on the idea that the EU will treat it like a standard third country; the EU has strongly signalled that such a deal is not on the table. But the UK could, and should, be able to find obligations that go beyond precedent but that do not substantively restrict its future autonomy.

At the same time, the EU should also recognise that the threat of tariffs in the event of a no-deal outcome doesn’t offer it much leverage. If the big concern is a de-regulated UK with tariff-free access to the EU single market, a similarly liberated UK subject to tariffs after no trade deal – which would average only 2.4% on industrial goods – is scarcely much better. It is in the EU’s interests to make any significant obligations more attractive than no deal.

A compromise may be possible, and indeed will be needed. Starting a tariff negotiation is not the way to achieve it. Political leaders in London and Brussels must instead decide on viable concessions.

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