John Bruton

Opinions & Ideas

Category: Trade Agreement

WHAT STICKING POINTS IN UK/EU TRADE DEAL?

The UK government will shortly begin the negotiation of a free trade agreement with the European Union. The deal Leo Varadkar made with Boris Johnson, on the location of border controls, will be vital in keeping the UK close to the EU.

 Before the negotiations start, the EU will have worked out a detailed negotiating mandate, drawing on its experience of previous international trade agreement into which it has entered, of which there are many. 

Once finalised, the EU mandate will become public, making any departure from its terms difficult. 

This is especially important if, as is likely, the final agreement has to be approved by the national parliaments of each of the 27 member states. If the eventual agreement goes beyond a bare bones trade agreement covering goods, and includes services as well, ratification by all national parliament will be likely to be required.  

On the UK side, it is assumed that similar work is now under way. But the task for the UK is bigger than that of the EU.

 The UK also needs to negotiate replacement agreements with all the other countries, with which it now has agreements as an EU member, but which will lapse once the UK leaves the EU.

 In addition, the UK will also be hoping to negotiate an agreement with the US. 

The demands of the other countries, with which the UK will be negotiating trade agreements later, will not necessarily be compatible with what the EU will want in its agreement with the UK.  Chlorinated chicken from the US is a case in point. 

The UK will probably have to conclude it deal with the EU first, because of the very tight timelines that the UK has chosen to impose on itself in the Withdrawal Agreement. The UK may find itself having to make concessions to the EU at the expense of other potential future trade partners. Alternatively, the UK may gamble on getting a better deal from the US or someone else, and thus sacrifice markets in the EU, in favour of a yet to be agreed deal with the US, or someone else. In this, agriculture will be a key battleground, with vital Irish interests at stake.

 It will be high stakes poker played against a tight deadline. Until the negotiations are under way, it will not be clear exactly where all the difficult choices, may be.

The Agreement that the EU has with Canada is a model that may be followed. This Agreement provides for free trade in most goods, but not services. It has detailed chapters, accompanied by principles and dispute settlement mechanisms, on issues as diverse as technical barriers to trade, dumping, subsidies, public contracts, state enterprises, competition policy, intellectual property, environmental standards, telecoms, water quality, fisheries and agriculture.

As an EU member, the UK has settled understandings on all these matters with its 27 EU partners. Tt the end of this month, that will change.

Outside the EU, the UK will have the freedom, unilaterally, to depart from its present EU based standards, and make its own rules. Boris Johnson has said this is the “whole point” of Brexit.   

 The EU has no way of knowing what changes this, or a future, UK government might make in social, environmental, or product rules. Political assurances from the present UK government will be of little value. The EU side will demand legally binding assurances that will tie the UK down, no matter who is in power in Westminster. All sorts of hypothetical situations will have to be anticipated. Appropriate penalties will have to be agreed in principle.

Both sides will need to make new rules from time to time, as new challenges emerge.

 As an EU member, the UK has had a democratic say in new EU rules. Outside the EU, the UK will have  to rely on diplomacy, rather than democracy, to protect its interests. 

 If the EU/ Canada Agreement is a guide, a multiplicity permanent committees of EU and UK officials will have to be set up, on a permanent basis, the iron out disputes if standards diverge.  Arbitrators and judges will be needed. 

“Taking back control”   will not turn out to be as clean, or as simple, as Brexiteers expected.

 A huge challenge will be that of ensuring there is a “level playing field” between UK and EU firms, doing business in one another’s markets. If either side changes its labour, social or environmental standards in future,  in a way that reduces costs for its firms , there are liable to be complaints that the playing field is no longer level. The playing field will not be level if the value of sterling is kept artificially low, or if the UK allows the importation of cheap inputs, that the EU had banned.

 Level Playing field issues, like these, arise in every trade negotiation, especially between close neighbours. For instance, the US has recently insisted on changes the Mexican labour rules to protect US car makers from Mexican competition. It has complained about Chinese currency policy.

 Permanent adjudication mechanisms will be needed established to decide if the playing field has, in fact, been skewed unfairly. Issues that are now ironed out informally in the EU Council of Ministers, or inside the Commission, may, in future, become the subject of high profile disputes. This will mean more uncertainty for business and may inhibit investment. Many of these disputes may involve Ireland.

The best hope of reducing disputes is if UK policy stays close to EU policy. The more UK rules diverge from EU rules, the more severe will have to be the controls that the UK will have to impose , within the UK itself but across the Irish Sea, on goods entering Northern Ireland, which might   eventually enter the EU Single Market through Ireland. The UK will want to avoid this. The UK government will have a strong political incentive to minimize the scale of these barriers within the UK .  

So thanks to Leo Varadkar’s deal with Boris Johnson in the Wirral, the UK will have a strong incentive to adopt standards close to, the same as, those of  the EU. That will be the ONLY way to avoid trade barriers within the UK. If so, Leo Varadkar will have earned an important place in European history.

UKRAINE NEEDS ECONOMIC REFORM AND A TRULY IMPARTIAL LEGAL SYSTEM

The economy of Ukraine is a mess. It’s income per head is only half that of Russia.

Yet it has a balance of payment deficit of 8% of GDP. In other words, even though it has a low standard of living, it is not earning enough to pay for what it consumes.

Its government also has a deficit of 8% of GDP. The Government  pays subsidies to its coal industry and subsidizes gas consumption. But its pension payments are in arrears and it has not the money to meet its immediate debt repayments. Tax collection is poor.

There has been substantial embezzlement of government funds, and public contracts have not been allocated to the lowest bidders.

These problems were there when the Mrs Timoshenko was in power, and were not tackled then.

They must be tackled now, or any aid the EU, the IMF or the US might give will simply go down a black hole. Any aid programme will involve tough conditions, which will further reduce living standards in the short term, and living standards are already low.

Much is made of the ethnic conflict between Russian speakers and Ukrainian speakers. This should be put in proportion. When Ukraine voted originally to leave the Soviet Union, the proposition got 90% support, so the pro independence voters included a lot of Russian speakers.  The issue should not be seen in Cold War terms, as a sort of “Russia versus the West” struggle.

I heard the new Ukrainian Prime Minister, Arseniy Yatsenyuk speak at a conference in Poland a few months ago.

He spoke out strongly for a truly independent Public Prosecutors office and an independent judiciary. He was against selective justice. He must live up to that now, and ensure that any prosecutions of members of the former regime are dictated solely by legally justifiable, and non political considerations, and that any law breaking by his own supporters is pursued with  similar vigour.

He also insisted that Russian should not be an official language of the country, alongside Ukrainian. Given that Russian is the first language of so many Ukrainian citizens, this seems to be an unproductive line to follow. Eastern Ukraine is Russian speaking, and the Crimea is predominantly ethnically Russian as well as Russian speaking.
It is also important to acknowledge that Russia may have some legitimate concerns of its own. For example, many Russians believe that Russian gas, transiting through Ukraine on the pipeline, is being stolen.

The  proposed  EU/Ukraine Association agreement is not a military alliance. Its value lies in the fact that  it will require Ukraine to overhaul its system of government in a way that will dramatically reduce corruption,  improve the rule of law, and improve growth prospects.  The Agreement does not prevent Ukraine  having a trade agreement with Russia, as well as with the EU.


There is no reason why the proposed EU/Ukraine Agreement should not benefit Russia too. A prosperous Ukraine will help the Russian economy, and  an unstable and impoverished Ukraine would be bad for ALL its neighbours.

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