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Heads you win, tails I lose

27 July 2016 By John Foley

Who needs Europe? British politicians are racing around the globe in search of new trade deals to replace existing agreements negotiated by the European Union once the United Kingdom finally leaves the bloc. China could be a quick win for new Prime Minister Theresa May. Rapidly concocted ties, though, can bind rather than benefit.

British finance minister Philip Hammond has already zeroed in on the People’s Republic as a potential ally. No wonder: China’s love of trade deals, which cover the destinations of 37 percent of the country’s exports, is well known. New Zealand, Switzerland and Singapore are among its rich-world partners. Shacking up with Britain would be strategically alluring for Beijing, since partners must first publicly acclaim China as a “market economy”, something the EU has so far refused to do.

Free trade, though, isn’t equally free for both sides. Switzerland’s deal with China, which kicked off in 2014, called for the European country to remove tariffs on almost all products right away, whereas China had up to 15 years to follow suit. Banks like UBS and Credit Suisse don’t get anything like the access to Chinese financial services that domestic rivals enjoy. Watches, a major Swiss export, are still subject to a whacking great luxury tax.

With no hard and fast rules about what’s up for grabs, whichever country wants a deal more will typically get less. Britain, detached from the EU, would have a particularly weak hand. China is likely to want unfettered access to goods and technology markets, and freer movement for its people. Britain would struggle to limit imports of highly subsidised goods like solar panels and steel. Services – crucial to Britain’s economy – are unlikely to get much of a leg up in China. The country’s financial markets are bound up in red tape, with ownership restrictions for foreigners. Britain currently exports more financial services to Denmark than to the People’s Republic.

The theory that something beats nothing isn’t entirely silly. As well as showing Europe that Britain has other options, putting some trade deals in place could act as a buffer if reaching an accord with the EU’s other 27 disorganised states drags on. Besides, even with China, speed is relative. Britain can’t sign anything until it formally leaves Europe, which could take years. That could be the best defence against striking a deal the UK later regrets.

 

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