7 August 2015

Trade is set to be a big battleground in the upcoming EU referendum campaign; supporters of membership will claim the UK benefits from the collective clout of the EU when negotiating with third countries while many critics of EU membership will claim that the EU is too slow, unwieldy and protectionist to fully benefit from the opportunities offered by trade with dynamic emerging economies (a third front will consist of protectionist-minded better-off-outers who see the EU’s relatively pro-free trade stance as an argument for Brexit).

With that in mind, this week has been a mixed bag. On one hand, the EU has concluded a comprehensive trade agreement with Vietnam, which will, over time, remove 99% of tariffs between the countries. On the other, India has indefinitely halted trade negotiations with the EU (which were due to restart in the autumn) after the EU withdrew authorisation for some 700 generic medicines made in India due to safety concerns after France’s medicines agency found systematic data manipulations of electrocardiograms during a site inspection. Admittedly, the negotiations with India (as with many of the EU’s other talks, see table) were already on the rocks, and had been for some time.

Via its EU membership the UK now has 57 trade agreements with third countries which, in combination with the EU single market, cover 60% of the UK’s exports. However, this only includes two out of the UK’s top 10 non-EU trading partners.

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These sort of stats rightly provide ammunition for those who argue that EU membership is holding the UK back from securing better terms with some of its key partners. Similarly, the seemingly endless negotiations over a trade deal with a close ally and highly developed nation in the form of the US raise doubts about an institution which many in the UK believe should be focused on facilitating trade. Likewise, many will argue that Brexit will be the only way for the UK to strike an ambitious FTA with India, a country with which the UK enjoys not only strong trading relations but also close ties with based on a shared language, legal system and cultural links.

Things are unlikely to get any easier anytime soon either. Suspicion of free trade itself as well as the nature of trade agreements is growing in Europe, particularly with reference to TTIP. Even in the UK, support for unrestricted free trade cannot be taken for granted – as the Labour party’s increasing scepticism to TTIP shows. Europe is not alone in its struggles in this area – in the US, the Trans Pacific Partnership is also experiencing similar problems with talks dragging on for some time. Generally, with tariffs worldwide in decline the added benefits from trade agreements come largely from reduction in non-tariff barriers and regulatory harmonisation. Such barriers are harder to find and breakdown, while doing so often has wider implications for sovereignty, and the balance of clear benefits versus economic and political trade-offs is increasingly harder to judge.

As such, the EU and the UK would do well to think how they can maximise the EU’s approach to trade in a changing landscape. David Cameron ought to therefore have trade in his renegotiation priorities, and his proposals could include:

  • Securing a political commitment to speeding up free trade negotiations with key economies;
  • Additional resources for the Commission’s Trade directorate (which employs fewer people than its Communication team);
  • Rather than sticking to the ‘nothing is agreed until everything is agreed’ principle, free trade deals could instead be concluded faster and only cover certain sectors of the economy – a proposal contained in our recent Mandate to the new Commission and our Blueprint for EU reform. Stepped or staggered agreements allow for low hanging fruit to be picked and benefits reaped while more contentious issues remain under negotiation; such an approach reduces the chance of huge agreements living or dying on small issues.

Ultimately, trade has always been seen as one of the key benefits – if not the key benefit – of EU membership. David Cameron would do well to come to the table with some ideas for how to maximise this aspect if he is hoping to put the UK’s membership on a sustainable footing for the long term.