Barnier sinks argument that we can have frictionless trade after Brexit

The key points of the speech by the EU’s chief Brexit negotiator Michel Barnier this week in Brussels are worth reading in full, rather than relying on press summaries.

He explains clearly why the ‘frictionless’ trade promised by some Brexiteers cannot work.  After all, the whole point of having a customs union to eliminate tariffs and a single market in which common rules (on consumer protection, environmental standards, technical norms and fair competition) mean that any product can be sold without further ado throughout it, is precisely to eliminate friction. If you leave them, you will have friction. Friction means delays, obstacles, costs and a weakened ability to defend your interests against protectionism. It ultimately means a weaker economy with job losses and a hit to public finances.

This is the key part of what Mr Barnier said:

Whatever the outcome of the negotiations will be, from midnight on 29 March 2019, as things stand, the UK will be a third country which therefore will not have the same facilities or the same rights as a Member State. That is the UK’s choice, not ours.

This is true across all areas, and in particular for trade, which will never be as fluid for a country that chooses to leave the single market and the customs union. I think it is worth looking at this point more closely for a moment.

Why do our Member States benefit from ‘frictionless’ trade in goods with other Member States?

  •  Because they form part of the internal market. This has made it possible to harmonise rules and ensure their mutual recognition, guaranteeing that goods legally produced in one Member State can be sold in all the others without any other formal requirement.
  • But also because, as members of the EU, they form part of our customs union, with a common external tariff and no customs controls at all between our countries.
  • What would be the point of not having customs duties if, at the same time, divergent national rules prevented the free movement of goods?
  • It is clear that only the combination of the customs union and the rules of the internal market allow this free, ‘frictionless’ trade between our States. One does not go without the other.

By choosing to leave the Union, you move to the other side of the external border that delineates not only the customs union but also the area in which the rules of the internal market are adopted and implemented.

Only the combination of the internal market and the customs union guarantees the free movement of goods:

  •  The internal market without the customs union – in other words the regime of the European Economic Area for Norway, for Iceland, for Liechtenstein – still entails a system of procedures and customs controls, among other things in order to check the preferential rules of origin.
  • Conversely, a customs union agreement without the internal market – as in the case of Turkey – does not allow the free movement of goods either, since it also implies a system of procedures and customs controls, including controls to check compliance with European standards.

Lastly, I would add that a trading relationship with a country that does not belong to the European Union obviously involves friction.

  • For example, third-country traders do not benefit from the same facilities as Member States with regard to VAT returns.
  • For a third country, 100% of imports of live animals and products of animal origin, I speak as former Minister of Agriculture, are and would remain subject to EU border controls. This is one of the challenges that we have to address in the particular and unique case of Ireland, without recreating a hard border. Moreover, before these products can be exported from a third country to the European Union, the sanitary and phytosanitary conditions for these exports to take place would have to be established. One sees clearly, to speak frankly, the constraints that this entails for the agri-food industry.

And these constraints also apply to all companies which draw their strength and vitality from the integration of production centres in Europe.

The success of the Airbus factory in Broughton, in North Wales, is largely owing to its ability to attract qualified engineers and technicians from all over Europe. And to the ease of the procedures for certification and for delivery to assembly sites in Hamburg or Toulouse.

Ladies and gentlemen,

So, even if we secure the agreement we are working towards, the UK’s decision to leave the Union will have significant consequences. It is my duty to say this; since at the start I said that we should say the truth.

For these negotiations to succeed, and we sincerely want them to succeed, we will have to move through the successive stages one by one and keep our calm. There will never be any aggressiveness or arrogance on my part. And I recommend all to adopt the same attitude.

But we must face the facts.

And we want to be ready for all eventualities, including ‘no deal’, a possibility that has been mentioned again recently by several British ministers.

What would be the consequences of that scenario?

Here also, I want to be very clear: in a classic negotiation, ‘no deal’ means a return to the status quo. In the case of Brexit, ‘no deal’ would be a return to a distant past.

  • ‘No deal’ would mean that our trade relations with the United Kingdom would be based on World Trade Organisation rules. There would be customs duties of almost 10% on vehicle imports, an average of 19% for beverages and tobacco, and an average of 12% on lamb and also fish, for which the vast majority of British exports go to the EU.
  • While leaving the customs union would in any case involve border formalities, ‘no deal’ would mean very cumbersome procedures and controls, without facilitation, which would be particularly damaging for companies that operate on a ‘just in time’ basis.

For a manufacturer of sports equipment or industrial parts based in the UK, whose products are at present shipped to the single market immediately, this would mean in practical terms:

  • keeping their products in stock for 3 or 4 days instead of a few hours,
  • renting warehouse space,
  • an increase in transport costs, with a greater logistical risk.

In practice, ‘no deal’ would worsen the ‘lose-lose’ situation which is bound to result from Brexit. And I think, objectively, that the UK would have more to lose than its partners.

I therefore want to be very clear: to my mind there is no reasonable justification for the ‘no deal’ scenario. There is no sense in making the consequences of Brexit even worse.

That is why we want an agreement. That is why the 27 Member States and the European Parliament want an agreement. To my British partners I say: a fair deal is far better than no deal.

For instance, in the great port of Zeebrugge, where I will be going shortly for a working visit and for which the UK is the primary market with 17 million tonnes of roll-on roll-off traffic in 2016, I cannot imagine, in the well-understood interest of the UK, Flanders and Belgium, an interruption of supply or a highly efficient organisation being called into question.

Ladies and gentlemen,

Mr President,

The best way of reaching an agreement is to create a climate of trust by tackling in the first instance three topics which we regard as priorities and which are inseparable because these are the condition of the orderly withdrawal that the UK has chosen: citizens’ rights, the financial settlement and the border issue, especially the Irish border.

I hope that rapid and sufficient progress will be made on these three topics together – and I mean on these three topics together – so that we can begin work as early as this autumn on the preparations for building our new partnership which, I hope, will provide a framework for economic exchange and cooperation between the UK and the EU on various matters of common interest, including security, fight against terrorism and defence.

Once we have a clearer picture of the form this new relationship will take, we will be able to discuss the possibility of transitional measures.

March 2019 is 20 months away. Time flies. Whatever the outcome of these negotiations, the message I would like to share with you, that I would like you to convey on the ground is this: the real transition period began on 29 March 2017, the day on which Theresa May presented the notification letter.

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