This week it was widely announced that the government has agreed in principle to pay a “divorce bill”, that could end up being as much as £50bn, to Brussels, in the hope that this will allow trade talks to begin next year. With the crucial EU summit due to begin in less than a fortnight, we’ve decided to talk to Julian Jessop, chief economist of the free-market think tank the Institute of Economic Affairs, for his take. Jessop has been following the twists and turns over the Brexit negotiations as the head of the IEA’s Brexit Unit.
There has been a large amount of disquiet on both sides of the leave/remain spectrum at the size of the bill. “I think Sam Allardyce might have done a better job of negotiating it!” agrees Jessop, only half-joking. Jessop “would have liked to see the money (or at least some of it) dependent upon on a comprehensive free trade deal at least as good as that offered to Canada”. However, he fears that “its too late now to add conditions”. Overall, “it looks like the UK will have to agree to pay the bill simply to start the next phase of talks, regardless of the outcome”.
Of course, there’s still a chance that the disagreement over the Irish border could derail any agreement. However, “the UK’s proposals for a soft border, based on technological solutions including ‘trusted trader’ schemes, is perfectly reasonable”, argues Jessop. After all, “it is hard to fix the Northern Ireland problem until you know what the future relationship is going to be between the EU and the UK as a whole”. The hard fact is that “the alternatives of either a hard border between the south and the north, or between Northern Ireland and the rest of the UK, are simply unacceptable politically”.
Speaking of the transition period, “ideally of course the UK and the EU would implement a comprehensive free trade agreement in March 2019”. But “realistically it will take longer than this to replicate those parts of the current relationship that both sides want to keep, and make alternative arrangements for the rest”. Ireland is one of the issues that could benefit from such a period. But Jessop cautions that any transition period should be limited to a maximum of two years, because the longer it is, “the greater the risk that it becomes permanent, especially if it extends beyond the next election”.
After any transition, the UK will be free to agree trade deals with third countries. The priority should be “those with whom the UK already has a free trade deal by virtue of its membership of the EU”, such as Canada. After these “the big prizes will be the large, fast growing emerging economies such as China and India”. However, “it will be quicker to do deals with Australia and New Zealand, and other smaller Commonwealth countries” which should “get UK negotiators back in the swing of doing trade deals again”. In any case, “we can, and should, lower some of our own trade barriers unilaterally”.
Of course, one of the most important potential trade deals is one with the United States. Some people have speculated that the recent behaviour of the US president has complicated matters, But this “doesn’t matter”, says Jessop. A deal can be negotiated within a reasonable timeframe, soon after any deals with the Commonwealth countries. After all, “even if Mr Trump is still president after Brexit, the economics will be more important than the politics or the personalities”. Jessop also notes that, “there is also wide support within the US for a trade deal with the UK, whoever occupies the White House”.
Looking back over the last eighteen months Jessop accepts that the UK has made some mistakes. “I think that the UK should have offered more reassurances on the rights of citizens from the rest of the EU who are already here, even if this meant acting unilaterally” he says. However, “the UK is playing a bad hand well”. Brussels also needs to share a large portion of the blame for the problems, as “many of the hiccups in the negotiations have been caused instead by the over-bureaucratic approach taken by the EU, such as the insistence on sequencing”.