|
|
In public, the remaining 27 EU countries insist they will keep trade talks with the U.K. off the agenda until they have finalized the core elements of the divorce settlement: citizens’ rights and Britain’s multibillion-euro departure bill. Behind the scenes, however, EU trade attachés are already liaising at an informal level on how the EU27 can leverage their superior economic muscle in trade talks.
Trade diplomats from four EU27 countries said the idea gaining the most traction in early discussions was a transitional deal with the U.K. in which the two parties would pay zero tariffs on each other’s goods. This would take effect immediately after Britain leaves the block in March 2019 as a prelude to a full free-trade agreement, which would probably take many more years to negotiate. Two of the diplomats said the team of European Commission Brexit negotiator Michel Barnier had floated the idea.
A zero-tariff deal on goods has immediate attractions for the U.K. but it is no silver bullet because other regulatory barriers such as compliance paperwork could be severe. Cars from Japanese factories in Britain, for example, could still face trade restrictions because of EU demands about “rules of origin.” Brussels would be likely to argue that not enough of the parts and technology used to build the vehicles qualify as British. This means car exports from the U.K. would not necessarily enjoy the same free access they had while Britain was a full member of the EU customs union.
The omission of services raises even bigger problems for London: Companies from banks and insurers to budget airlines like easyJet and Ryanair could find themselves shouldered out of the all-important EU market.
One trade attaché said a transitional tariffs-only trade accord would avoid “falling off the cliff-edge” but the U.K. would still be notably “worse off” because of the blow to its service sector and other regulatory challenges. The diplomats added that the zero-tariff offer was unlikely to be possible if the initial divorce talks failed to reach a settlement.
Both London and the remaining EU countries want to avoid a devastating hard landing in 2019 if Britain crashes out of the single market without a transitional trade arrangement in place. Some of Europe’s most influential industries — German carmakers and the French and Italian food sectors — want to avoid tariffs between the EU and the U.K. that would ramp up their costs. [...]