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Brexit: What would a Canada-style free trade deal with EU mean for the UK economy? Brexit: What would a Canada-style free trade deal with EU mean for the UK economy?
(35 minutes later)
The European Union’s chief Brexit negotiator, Michel Barnier, has said the UK is likely only to get a trade deal with the EU “along the same lines” of what the EU has concluded with Canada, South Korea and Japan.The European Union’s chief Brexit negotiator, Michel Barnier, has said the UK is likely only to get a trade deal with the EU “along the same lines” of what the EU has concluded with Canada, South Korea and Japan.
He said that the UK’s own “red lines” on Brexit – no freedom of movement, no jurisdiction for the European Court of Justice, the right to sign independent UK trade deals with third countries etc – ruled out anything more extensive. He said that the UK’s own “red lines” on Brexit (no freedom of movement, no jurisdiction for the European Court of Justice, the right to sign independent UK trade deals with third countries etc) ruled out anything more extensive.
But what would this kind of deal entail? And what would the implications be for the UK economy?But what would this kind of deal entail? And what would the implications be for the UK economy?
What sort of deal do Canada and South Korea and Japan have? What sort of deals do Canada, South Korea and Japan actually have?
The EU-South Korea free trade deal was concluded in 2009 and came into force partially in 2011. It’s essentially a tariff-reduction trade deal covering goods such as cars, textiles, electronics, chemicals and some agricultural products. It is described by the EU as the bloc’s most ambitious overseas trade deal so far. The deal also relaxes Korean foreign ownership rules in telecoms and liberalises rules on environmental and shipping services.The EU-South Korea free trade deal was concluded in 2009 and came into force partially in 2011. It’s essentially a tariff-reduction trade deal covering goods such as cars, textiles, electronics, chemicals and some agricultural products. It is described by the EU as the bloc’s most ambitious overseas trade deal so far. The deal also relaxes Korean foreign ownership rules in telecoms and liberalises rules on environmental and shipping services.
The EU reached a Japan free trade deal in principle earlier this year. This agreement also liberalises the bilateral goods trade, primarily agricultural exports. For instance tariffs on EU beef and pork will be reduced. For EU cheese the tariffs are eliminated altogether. There’s also some opening up of the Japanese market to EU services firms in the telecoms and transport sectors.The EU reached a Japan free trade deal in principle earlier this year. This agreement also liberalises the bilateral goods trade, primarily agricultural exports. For instance tariffs on EU beef and pork will be reduced. For EU cheese the tariffs are eliminated altogether. There’s also some opening up of the Japanese market to EU services firms in the telecoms and transport sectors.
The Canada-EU deal, known as CETA, provisionally came into force in September. Again, its focus is on the reduction of goods tariffs. Agricultural products benefit greatly. Tariffs on cars, clothing, chemicals and machinery are also slashed to zero. On services there is some opening up in financial services, telecoms, transport and post. The Canada-EU deal, known as CETA, provisionally came into force in September. Again, its focus is on the reduction of goods tariffs. Agricultural exports benefit greatly. Tariffs on cars, clothing, chemicals and machinery are also slashed to zero. On services there is some opening up in financial services, telecoms, transport and post.
What is not covered?What is not covered?
The difference between these free trade deals and the EU’s single market and customs union is immense. The goods tariffs under these various deals are reduced or sometimes eliminated but in the customs union they disappear entirely as a matter of law.The difference between these free trade deals and the EU’s single market and customs union is immense. The goods tariffs under these various deals are reduced or sometimes eliminated but in the customs union they disappear entirely as a matter of law.
Shipments to the EU from South Korea, Canada and Japan all have to be (and will continue to be) checked by EU customs authorities that they are actually from those countries and they conform to local safety rules, even if no tariffs are due. Within the EU customs union, goods cross borders without any checks at all. Shipments to the EU from South Korea, Canada and Japan all have to be (and will continue to be) checked by EU customs authorities to ensure they are actually from those countries and that they conform to local safety rules, even if no tariffs are due. Within the EU customs union, goods cross borders without any checks at all.
The single market in services also goes far beyond any liberalisation of cross-border service provision in these other trade deals. The single market specifically targets non-tariff barriers, such as local regulation rules. The goal of the single market (although it is not yet achieved in services) is for it to be as easy for a firm to do business in any single currency at all in the entire bloc. The single market in services also goes far beyond any liberalisation of cross-border service provision in these other trade deals. The single market specifically targets non-tariff barriers, such as local regulation rules. The goal of the single market (although it is not yet achieved in services) is for it to be as easy for a firm to do business in any country in the entire bloc.
Single market members also entails the rights for EU citizens from any country to work in any other country as of right. This freedom of movement does not exit (and will no exit) for EU citizens as regards the Canadian, Japanese and South Korean labour market. Single market membership also entails the rights for EU citizens from any country to work in any other country as of right. This freedom of movement does not exit (and will not exit) for EU citizens as regards access to the Canadian, Japanese and South Korean labour markets.
So what happens to our economy if Brexit means we end up with one of these deals?So what happens to our economy if Brexit means we end up with one of these deals?
Before the referendum various teams of respected economists analysed the likely long-term economic impact of the UK getting a Canada-style free trade deal and versus staying in the single market and customs union. Before the referendum various  teams of respected trade economists analysed the likely long-term economic impact of the UK getting a Canada-style free trade deal versus staying in the single market and customs union.
Oxford Economics and the National Institute for Economic and Social Research estimated damage of 2 per cent of GDP, or around £1,300 per household.Oxford Economics and the National Institute for Economic and Social Research estimated damage of 2 per cent of GDP, or around £1,300 per household.
However, the London School of Economics was more pessimistic, estimating a 6.3 per cent hit to GDP by 2030, or around £4,300 per household. However, the London School of Economics team was more pessimistic, estimating a 6.3 per cent hit to GDP by 2030, or around £4,300 per household.
The consensus view of credible trade economists is that the larger the trade barriers that are erected between the UK and the EU - including non-tariff barriers, which are particularly important for the services firms that account for around 80 per cent of our economy - and the larger the economic damage. The consensus view of credible trade economists is that the more significant the trade barriers that are erected between the UK and the EU (including non-tariff barriers, which are particularly important for the services firms that account for around 80 per cent of our economy) the worse the economic damage.