For those of us with a professional or personal obsession with the minutiae of trade policy negotiations, April was another interesting month. In the UK, with the terms of the separation agreement broadly done, attention has turned increasingly to the details of the future customs relationship between the UK and the rest of the EU, critically important for the trade in goods. This is turning into a tortuous political exercise for the UK government which is trying to balance the two camps of Remainers and Brexiters in the conservative party.
At BAB, we would clearly like to see an outcome that provided tariff-free and friction-free trade at the border between the UK and the EU; it seems to us, as an organization that believes in free trade, to be unnecessary for financial or other barriers to be erected when none exist now, and when neither the EU or the UK will benefit from their imposition. This, of course, is a much easier position to hold in principle, than to negotiate in practice!
Unfortunately, from our perspective at least, it looks like the EU is determined to insist that the trade aspects of the EU are inseparable from the political project; this means that the UK is likely to have no choice but to be outside of any customs union proposed by the EU to satisfy the requirement for returned sovereignty demanded by the result of the referendum. Membership of a customs union, which restricts the UK’s ability to agree on deals with third party countries like the USA and which binds the UK to the rules of the union but excludes the UK from being involved in setting those rules, is just not going to fly politically.
I was in London for two weeks in April and met with many of our BAB members while I was there. The mood was much more upbeat than I had expected and continues the theme of executives being much more optimistic about the UK in private than in public. US financial services companies in London have completed, and are triggering, their contingency plans, assuming that passporting rights will go. So far, in practical terms, the number of jobs that will physically move to EU locations looks small. I hear time and again that businesses will move as many jobs as necessary but no more. Service companies feel unaffected but there remains a great deal of uncertainty around manufacturing businesses with complex international supply chains. For these firms, moving is not a short-term option but there is a sense that UK executives of multi-nationals are having a harder time competing for growth capital from their head office than they would have had in the past.
Despite the ongoing noise and chaos of the ‘presentation layer’ of the Trump administration, there is not much to report on the US side of the fence; the moratorium to the threatened implementation of steel and aluminum tariffs has been extended again and the general sense of discomfort that this administration has with the EU’s approach to limiting competition from outside its borders through tariff and regulation should not be ignored… it is real!