The EU’s future trade hinges on Brexit terms

Danuta Hübner is Chair of the Constitutional Affairs Committee in the European Parliament, and was European Commissioner for Trade (2004) and Regional Policy (2004-2009)

As Theresa May and her new government prepare to trigger Article 50, many questions have been raised over how the UK’s exit will affect EU trade policy and the fate of ongoing external trade negotiations. These issues are intrinsically connected to the formation of the UK’s future trade relationship with the EU, so until the withdrawal agreement is finalised, there will be no change in the formal negotiating strategy of the EU. But despite this best intention, Brexit may have several unintended ill effects.

Initially, the European Commissioner for Trade, Cecilia Malmström, sought to provide reassurance that everything will proceed normally. The UK is – and will for at least another two years formally be – an EU member state. It is, however, questionable whether negotiators can ignore the elephant in the room. A well-noted issue is the UK’s traditionally open and liberal approach to trade. Politically, it is unacceptable for the UK to continue shaping EU trade policy. But losing this voice will certainly have an impact, with the balance of power in the European Council shifted and the types of mandates the European Commission receives from member states altered.
We should also take into account the possibility that the UK’s economic structure may change depending on what kind of economic and trade policies the British government seeks to pursue outside the EU. And this is on top of the broader EU trade issues such as the growing popular opposition to trade deals and the recent decision to make the Comprehensive Economic and Trade Agreement (CETA) with Canada a so-called “mixed” agreement. This, and several other issues, will diminish the confidence of external partners in the EU as a reliable trade and negotiating partner.

Talks on the Transatlantic Trade and Investment Partnership (TTIP) are progressing, but with significant hurdles still to be overcome. The UK is, in general, one of the member states most willing to show openness in overcoming the many hurdles that block the way to a deal. Its absence may dampen hopes of concluding a more comprehensive agreement soon. The US trade representative has already indicated that the negotiations will need to be adjusted to account for Brexit. That could change the final agreement. The British market’s importance to the US is undeniable, so it’s difficult to imagine this issue not being addressed by American negotiators.

The EU may need to adapt its strategy accordingly. There may be options for including the UK in a future deal, such as by opening up TTIP for other countries to join. Another solution could be that the UK negotiates a parallel US trade deal modelled on TTIP.

The EU’s negotiations with the Association of Southeast Asian Nations (ASEAN) have been suspended since 2009, but bilateral free trade agreements with individual ASEAN members are being pursued. Brexit or not, I don’t think this situation would have changed. ASEAN countries’ trade relations with the UK may alter, depending on the future EU-UK relationship and the fact that the UK is an important trading partner for several ASEAN members. The UK will prioritise free trade deals with ASEAN countries, so depending on the individual agreements, this may influence
future negotiations that the EU conducts. Free trade negotiations that have already been concluded are unlikely to be affected at this stage.

The UK’s withdrawal may have greater consequences for the eventual content of the EU’s bilateral deal with India. The negotiations have ground to a halt, and recent attempts to breathe new life into them seem fruitless. One of the sticking points – wines and spirits – may be influenced by the UK’s withdrawal due to the relevance of whisky for bilateral trade relations, as British producers
seek to tap into one of the world’s biggest consumer market for the spirit. But Brexit may also help the EU-India talks progress, as the UK’s concerns over “Mode 4”, covering the movement of skilled workers, could cease to be an obstacle.

The EU’s negotiations with Japan have similarly stalled of late. At this May’s G7 summit in Ise-Shima, leaders expressed their willingness to resume the negotiations, but ultimately we will have to see how this develops, especially after Japan’s recent upper-house elections. Outstanding issues still need to be resolved, and as with other trade deals, the removal of UK interests in an EU trade deal with Japan could impact the way negotiations move forward, especially considering Japanese business interests in the UK.

At this stage, these questions revolve around a highly uncertain and theoretical issue. The key, in terms of impact on EU trade negotiations, will be the type of relationship negotiated between the EU and the UK. If the UK retains full access to the EU’s single market, the impact could be minimal as market access conditions for external trading partners wouldn’t change, or at most only to a small degree.
The EU would retain its negotiating power and its attractiveness as a partner. In my view, Britain’s withdrawal negotiations must start as soon as possible to remove uncertainty from current and future EU and UK trade negotiations. This will be instrumental in ensuring that the EU remains a credible, strong and reliable negotiating partner