BCN-03 Norway or Canada? Britain weighs post-Brexit trade ties

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Norway or Canada? Britain weighs post-Brexit trade ties

BRUSSELS, Dec 14, 2017 (BSS/AFP) – Brexit talks are set to enter their
second phase, and Britain faces historic choices on its future relations with
Europe, including a possible trade deal.

With the EU demanding “clarity” from Britain on what it wants before
embarking on full negotiations, here are the options floated by both sides so
far:

– The Norway option –

Energy-rich Norway opted against EU membership in 1994 and instead chose
to join the European Economic Area (EEA), enjoying all the benefits of the
EU’s single market without having a say in the rules that shape it.

As a member of the EEA, which includes all EU countries as well as Iceland
and Liechtenstein, Norway must allow the free movement of goods, capital,
services and persons with its fellow members.

These are the EU’s four fundamental freedoms as set out in the Treaty of
Rome, the cherished accomplishment of Europe’s drive towards peace and unity
after World War II.

EEA members must accept EU rules in many important sectors, including
competition, consumer protection and the environment, with rules updated
automatically in line with EU legislation.

The big advantage for Britain in the Norway model is that its financial
hub in London would remain undisturbed.

By remaining in the single market, the City of London would keep its
unfettered access to Europe and remain the launching point for US and Asian
banks into the EU.

But Norway, with just 5.2 million people, is a far smaller player than
Britain, and its model of ties with the EU is a no-go for Brexiteers.

Fuelled by anti-immigration sentiment, Britain’s vote to ditch the EU was
a clear rejection in particular of freedom of movement, making the Norway
option untenable as long as Theresa May’s conservative, pro-Brexit government
remains in power.

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The pro-Brexit camp also rejects any involvement of the EU’s European
Court of Justice, which holds the ultimate authority over the EEA.

But staying in the single market would be challenging for a pro-EU
government in Britain given the colossal loss of sovereignty involved.

– Canada ‘plus plus plus’ –

Barring the close alignment of the single market, Britain is keen to
strike a trade deal even more ambitious than the EU’s recent accord with
Canada, known as the Comprehensive Economic and Trade Agreement (CETA).

That treaty is considered a blueprint for the EU’s trade deals going
forward and was a model for the most recent talks with Japan.

UK Brexit negotiator David Davis has called for a “Canada plus plus plus”
while Belgian Prime Minister Charles Michel advocated the same, albeit with
only two pluses.

Unlike classic trade deals of old, the CETA pact touches on all aspects of
the economy, including health and safety norms, and not just the usual cuts
to tariffs and import quotas.

Both parties negotiate, sector by sector, an agreed level of regulatory
cooperation, with London especially keen for closely aligned norms for
finance, aviation and autos.

While they are ambitious for far-off Canada or Japan, an EU-UK trade deal
would in fact mean a signficant distancing between the UK and Europe, which
are now perfectly aligned with zero tariffs.

In a Brexit twist, the trade talks would decide where to impose barriers
and division — known in trade parlance as divergence — instead of the usual
practice of trying to remove them — known as convergence.

These future trade barriers, which may require customs checks, pose a
daunting problem with regards to EU-member Ireland, which insists on
maintaining a frictionless border with the UK’s Northern Ireland — and has
the backing of Brussels to defend this point.

But some have seen a back door to a possible “soft Brexit” through a
provision in last week’s Brexit divorce deal which says that if London fails
to come up with a better idea, there should be “alignment” between Britain
and Ireland.

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– WTO rules –

If neither of the above options prevails, Britain will inevitably revert
to “third country” status in the eyes of the EU, with trade relations
administered according to the rules of the World Trade Organisation.

The EU’s default position at the WTO involves tariffs and increased
barriers that could cripple the seamless supply chains that connect Britain
and the EU.

While the EU’s average tariff rate for third countries is low – around 1.5
percent — they are bigger in certain strategic sectors: for cars, the rate
is 10 percent.

Moreover, under WTO rules, also known as “hard Brexit”, it is unlikely
that British products could enter the EU without further checks at the
border.

The situation would grow worse as regulatory differences widened over time
— a prospect Ireland would surely refuse.

Researchers at the London School of Economics predict that the “WTO rules”
scenario is underestimated by hard Brexit proponents and would slash
Britain’s trade with the EU by a catastrophic 40 percent over ten years.

BSS/AFP/HR/0950