Interview: Britain should examine its options for post-Brexit trade deal

LONDON, Dec. 18 (Xinhua) -- Brexit talks between the European Union (EU) and Britain have moved to a new phase that will see trade discussed for the first time.

There are several options for a trade deal that Britain could present to the EU, according to a report issued Monday by the Institute for Government (IFG), a London think-tank with close ties to the British government structure.

About 43 percent of British exports in goods and services went to other countries in the EU in 2016, which was about 240 billion pounds (about 321.2 billion U.S. dollars) out of the total export income of 550 billion pounds, according to Office of National Statistics (ONS) figures.

EU goods and services make up 54 percent of British imports, making it a significant export market for the EU, which it would want to preserve.

European Commission figures for 2016 showed that Britain was the second largest market for EU goods exports, slightly behind the United States.

This makes a trade deal a desirable goal for both parties.

THREE TYPES OF DEAL

The IFG identified three possible deals -- the Canada Deal, the Norway Deal, and the Reverse Ukrainian Deal, which could be used as templates for a future EU-Britain deal.

In its report the IFG cautioned that there was no precedent that offered an immediate solution and that adopting any of these models would need detailed and swift negotiation between Britain and the EU.

"The EU sees it as down to Britain to put forward what it wants. That doesn't need to be detailed or absolute," Joe Owen, one of the IFG report authors told Xinhua on Monday afternoon.

"But it does need to sketch out in much more detail than has already been done what this relationship will look like in Britain's eyes."

Owen identified three plans in the report titled "Trade after Brexit":

An EU-Britain Economic Area, known as Bespoke Norway deal: Britain broadly accepts Single Market rules and parallel institutions, but negotiates a new arrangement on freedom of movement and greater input on devising regulation, though it would not have a final say.

An EU-Britain Deep and Comprehensive Free Trade Area, known as Reverse Ukraine: This would allow participation in the Single Market in sectors which remain aligned and subject to oversight. Non-harmonised sectors would face barriers.

An EU-UK Comprehensive Free Trade Agreement, known as Canada plus: This would be modelled on the EU-Canada Comprehensive Economic and Trade Agreement (CETA), but with the aim of agreeing better access for services and provisions for enhanced regulatory co-operation, to try to minimize trade barriers where possible.

The IFG report noted that Britain had said it did not want the "stark and binary choice" between the Norway and Canada models, and wanted a bespoke free trade agreement.

British Prime Minister Theresa May had rejected the Norway model on the grounds that becoming a rule taker with no formal vote would be politically unsaleable, said Owen.

The Canada was also not a model that could be adopted, because it did not cover much of the services sector, an area which makes up 45 percent of British exports.

There would need to be concessions from both parties to reach an agreement, Owen said, with the EU sticking to its principles of no access to the single market without agreement on rules and regulations and on who made and implemented those rules.

"If you look at precedent and trade deals the EU has signed, there is a consistent trend that for more access to the single market and the EU market the more you have to accept an integration within their regulatory model and an acceptance of supranational institutions," said Owen. "These are a prerequisite for access."

"If you refuse to have those things, like supranational institutions, regulatory alignment and harmonization these are the keys that unlock the single market, and without them access is just not possible," Owen added.

Both side are under pressure from the timetable created by Prime Minister May when she formally began the Brexit process at the end of March, known as the Article 50 process.

Article 50 fixed a two-year time limit for talks to reach a deal, meaning Britain will leave the EU at the end of March 2019.

"The UK and EU need to agree terms on how the UK exits. The withdrawal agreement, which has been the focus of talks so far -- money, and the Irish border," said Owen.

"The other time pressure is that the UK government wants to have a future relationship agreed by the time we leave the EU in March 2019. That will inform what the relationship will look like, which allows both sides to implement what is required."

UNIFIED EU IN TALKS

The EU has been unified to date in talks with Britain, and its members have been consistent over the Irish border issue, over citizens' rights and over the amount of money Britain needs to pay in its "divorce" settlement.

With the talks now moving into a new phase, the landscape for discussion becomes more complex.

Owen said: "The EU would like access to be as free and frictionless after Brexit as possible, but they will not allow Brexit to challenge what they see as fundamentals of the EU project. They have spent decades building the single market."

The EU had been firm in agreements with other countries that there are four indivisible freedoms around goods, services, capital and people, said Owen.

For the EU, it's a case of either being in the club, or outside it, in which case Britain would trade like other outside countries.

"The EU priority will be what they call 'maintaining the integrity of the single market'," said Owen.

"You can infer from that that it means if you want the benefits of the single market you need to accept the commitments that come with that. That will be their priority."

FINANCIAL SERVICES KEY ITEM

Britain and especially the City of London, which is the heart of the financial sector, is recognized as a global hub for finance, with deep pools of liquidity and a depth of expertize.

Owen said: "There is an interesting question around what happens to the City of London and financial services. This is a particularly strong area for Britain.

"Services is the area where Britain has a trade surplus with the EU and where it gets the most economic benefit from the relationship."

Financial organizations, for example the complex global insurance market known as Lloyd's of London, have chosen to open branch offices within other parts of the EU as result of Brexit.

In the case of Lloyd's the office is in Brussels, but other institutions and banks have set in motion to move some jobs to Amsterdam, Dublin, Paris and Frankfurt.

The number of job losses for the City of London is in the low thousands, according to figures from the Financial Times, out of a financial sector workforce of just under 400,000 workers employed in about 15,000 firms, according to a Center For Cities report in 2015.

The jobs total is small, but still desirable for cities within the EU.

Owen said: "The EU recognizes that Britain and London is a global player when it comes to services and financial services.

"Having such a strong player within the EU's sphere of influence is in the EU's interests. So, the closer Britain stays to the EU the closer London stays to the EU's sphere of influence, which is of benefit."

"There will be member states who think that breaking up London a bit and getting some of the action will be beneficial."

Owen said the EU recognizes the importance of the City of London as a financial center but would not want to damage the integrity of the single market.

"There are a few conflicting interests around the City and financial services, which is why the next phase of talks is going to be so interesting because there will be different interests across Europe when it comes to what it wants its future relationship to Britain to be."

European nations could be more divided over this in the coming talks than they have been so far, said Owen.

"Europe has been remarkably unified in its approach to date. They have had a very unified position on citizens' rights, on Ireland, and on the money but it is yet to be seen if there are slightly different interests when it comes to the much broader, more expansive future relationship talks." (1 pound = 1.34 U.S. dollars) Enditem