In an article written for The Telegraph in August and reproduced on his blog (HERE), Peter Lilley says a trade deal between the EU and the UK should "not take more than ten minutes" - but here we are a month later with the government pressing for continuous negotiations because, with eighteen months to go, time is short. You may find these two things are contradictory, that's probably because they are. I would have thought it would easily be possible to find ten minutes sometime in the next year or so to negotiate a trade deal, if that were the problem.
Unfortunately, it isn't. There are flaws in his argument, mostly stemming from his belief that leaving in 2019 without a trade deal and trading under WTO would not be a problem. In those sentiments he is in a very tiny minority. Most economists and certainly the CBI, the EEF and others in industry think it will be a catastrophe. He says the 4% average tariff would not present a cliff edge, especially as the pound has been 'boosted' by a 15% fall in its value. He is speaking about exports but forgets the 4% average tariff would exacerbate the fall in the pound's value on imports and raise prices here even more, particularly of cars and foodstuffs. And as many have pointed out it is mainly the non tariff barriers that are the problem. But let us for the moment assume we try for a free trade agreement.
Mr Lilley says, 'A free trade agreement with the EU27 would entail only two significant changes. First, the EU would introduce Rules of Origin.' The Rules of Origin (ROOs) he talks about are needed to confirm goods have specific amounts of local content, for example on cars it is 55% I believe. On regulatory standards he says initially these would be identical and we need only agree a process for divergence. Michel Barnier raised this in his closing remarks where he said we want to leave to have our own regulations but automatically have them excepted by the EU afterwards. This is, as he says, 'impossible'. Lilley claims that "Divergence processes are normal in trade deals. Given the precedents both parties have accepted in other agreements that should not take long to agree. Nor is there any conceivable transition to such a mechanism".
I suppose it's possible the EU might accept an arrangement where we 'lock' our regulations to those of the EU in law but one might then ask what the point of leaving actually is. What happens if we modify our regulations? We presumably want the EU to modify their standards and/or accept ours? This is clearly impossible. The EU will also insist we adopt their rules on Labour and employment rights, social conditions and the environment to avoid giving us an unfair advantage and prevent what they call dumping.
The next problem is what the dispute settlement mechanism should be.
Citing Canada and CETA does not help that much. A free trade deal with a nation 3000 miles away must be different to one with a country like the UK, much closer with far more intricately entwined trade. CETA talks about regulations converging rather than diverging. How much diverging will there be and in what areas? The EU will ask why we want to leave if there is not going to be significant divergence?
We will become a third country after we leave and nothing is going to change that. We may have a free trade agreement but this will without any doubt alter our relationship with the EU and we will be the worse for it.
