General Election: Are quick trade deals now off the agenda?

18 May 2017
Adam McGiveron from law firm Shakespeare Martineau

Adam McGiveron from law firm Shakespeare Martineau

Just when Brexit negotiations were all set to start, the surprise announcement of a snap election has thrown yet more political uncertainty into the mix. Does this mean quick trade deals are now firmly off the agenda? Adam McGiveron, a partner at law firm Shakespeare Martineau, investigates.

UK businesses need clarity about whether EU trade deals are likely so they can plan ahead and prepare for the end of zero-tariff trading relationships in a strategic and sustainable way. In the current climate of uncertainty, many manufacturers have been basing their plans on a scenario without trade deals, where World Trade Organisation tariffs apply.

Based on a series of recent events, it seems that quick trade deals are becoming less and less likely.

Prior to the EU referendum, a key plank of the Brexit proposition was that German car manufacturers would push for a deal giving them access to the British market and the rest of Europe would follow their lead.

At the time, David Davis said: “We are too valuable a market for Europe to shut off. Within minutes of a vote for Brexit the CEOs of Mercedes, BMW, VW and Audi will be knocking down Chancellor Merkel’s door demanding that there be no barriers to German access to the British market.”

We now know of course that Brexit is really about two negotiations: The separation agreement and the future arrangements. In her Lancaster House speech, the Prime Minister stressed the importance of running both parts of the negotiation in parallel and this message was repeated in her Article 50 letter. This is because the prospects of a trade deal are greatly reduced if we have to get the difficult separation issues (including the politically-toxic separation bill) out of the way first.

The EU Council’s negotiating guidelines, which were confirmed on 29 April, take a particularly hard line on the plan for negotiations and make the EU’s position clear that it will only operate on a phase-by-phase approach. Trade negotiations will not begin until sufficient progress has been achieved on the separation agreement. If the tone of the guidelines is anything to go by, trade deals are unlikely to be secured until well after Brexit.

There is also the EU Parliament’s resolution on what they expect from negotiations. This matters because the EU Parliament has a right to veto the final vote. The EU Parliament resolution has also taken a hard line, setting out the position that ‘substantial progress be made towards a withdrawal agreement’ before talks can begin on possible transition arrangements or the future trading relationship.

Significantly, the resolution was passed by a very large majority of MEPs; suggesting that the whole of the EU is shaping up for a hard line negotiating stance.

Turning back to David Davis’ stance that German vehicle manufacturers would be pushing for a barrier-free deal, it is worth looking at how the German MEPs actually voted. In fact, 80 out of the 96 German MEPs voted in favour of the hard-line Brexit resolution. These are the same MEPs who represent the constituencies in which Mercedes, BMW, VW and Audi are based. Based on this, Mr Davis’ pre-referendum assessment now seems overly optimistic.

The snap General Election, which has been called for on 8 June, brings further uncertainty. It also means we are going to lose at least another two months from the time available to complete a trade deal before the 29 March 2019 deadline approaches.

With the clock ticking and the prospect of quick trade deals moving further away, manufacturers should continue to plan for an end to zero-tariff trading and the assumption that no trade deals will be completed before Brexit.

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