UK Brexit minister’s trade stance will need refining

14 July 2016. By Lewis Crofts & Duncan Lumsden.

David Davis won’t “budge” on demands to curb migration, and he sees regulatory culls as hitting market laws and not labor rights. Or at least he did earlier this week, before he got the job as UK’s minister for Brexit.

The politician’s vision for Brexit sets out some clear, if unrealistic, negotiating positions, but they will now be tested in London and Brussels.

Within hours of becoming prime minister, Theresa May had appointed the team of senior ministers who will guide the UK’s exit from the EU. It contains two prominent Brexiteers — Boris Johnson and Liam Fox — and implies a deeper split with Europe than some in Brussels would have envisaged.

Davis is the new “Secretary of State for Exiting the European Union” — expect that to become Minister for Brexit — and has already set out his negotiating stall. He did so perhaps unwittingly in an opinion article a few days before he got the trickiest job in Westminster.

He laid out the kind of positions that will please the loyal Leave campaigners, and make it clear the UK isn’t envisaging a cosy relationship closely allied to the tariff-free single market.

Rather, his wish-list includes some achievable aims but misses some crucial subtleties that will become the real battleground of Brexit.

Legislation

Davis thinks “regulation already in place will stay for the moment,” possibly giving some certainty to companies scared that the legal rug will be pulled from under their feet.

He makes it clear his eye is on the “flood of new regulation from Europe.” He says regulation should correspond to a company’s main export markets, and they shouldn’t be hit by EU laws if they’re not selling into Europe.

The bane of UK businesses has long been EU labor law, but Davis, surprisingly, says this isn’t on his hit-list. He doesn’t want to see workers rights eroded, particularly for the working class of Northern England who voted in droves for Brexit.

Instead, Davis is eyeing “all the other market-related regulations, many of them wholly unnecessary.” Other than saying these are laws on markets and products, he gives no hint of what may be earmarked for the dustbin.

Single Market

The rule for Europe’s trading partners is: abide by our rules and you get access to our market. The natural extension of that, in the immediate circle of countries beyond the EU, is: adopt our rules and be part of the single market.

That’s clearly not what Davis has in mind.

Doing away with EU market-related regulations from the national statute books could erase the automatic assumption that UK production can go to the continent without any checks. Applying EU rules or standards to exports only will require costly bureaucracy to police.

He wants “continued tariff-free access” to the EU market but he won’t “budge” on the UK’s desire to control its own borders. This is anathema to EU leaders who demand free movement of workers in return for full market access.

It all paints a picture of an endgame that, rather than being a step or two back from full EU membership, is instead a more distant relationship one or two steps closer than arm’s-length World Trade Organisation conditions.

Davis thinks other leaders will cave in and “want to talk.” After that a deal is just a matter of fine-print. At least, that’s how he talks down the non-tariff barriers which, in reality, can be much trickier for business and for negotiators.

“There may be some complexities about rules of origin and narrowly-based regulatory compliance for exports into the EU, but that is all manageable,” he says.

Davis seems aware, however, that this might not fly with EU negotiators. He says the UK needs to “work out what to do in the improbable event” of the UK finding itself without special access, forced to trade under global tariff rules.

Such an outcome could mean the UK bagging 2 billion pounds in levies on car imports, which Davis says the UK could then redistribute among British businesses as tax breaks or research support.

Davis’ negotiation tactic: publicize this strategy loudly and early in the negotiations. It will be an outcome EU partners wish to avoid.

EU trade negotiators are used to facing brinkmanship. But that’s usually based on an understanding of the broad nature of the desired relationship, and a notion of some of the specific positions on the table at the outset.

The onus is on Davis to provide both.

	Eliot Gao

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