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Britain faces long road to post-Brexit trade deals

[September 07, 2016] By Kylie MacLellan

LONDON (Reuters) - Prime Minister Theresa May wants to make Britain a global leader in trade after Brexit, but former negotiators say the country faces a long slog despite warm words from some world leaders over forging new relationships.

With other countries reluctant to get involved in detailed discussions until Britain's future ties with the European Union are clear, and a lack of negotiators in London ready to begin talks, any firm deals could be years away.

While the government says it can do the groundwork, Britain cannot formally sign trade agreements until it leaves the EU, and European Commission President Jean-Claude Juncker has said EU member states should not even negotiate deals while still part of the bloc.

"Nobody with any sense from China, the U.S., Brazil or wherever is going to engage with the UK other than a friendly drink in the bar until the UK has a regime with the EU," retired British trade negotiator Roderick Abbott told Reuters.

"That gives them the yardstick against which you negotiate," said Abbott, who during his more than 40-year career worked on trade for the British government, the European Commission and the World Trade Organization (WTO).

May and her team strike an optimistic tone, highlighting nations which have said they are keen to do deals. But behind the scenes, countries are pragmatic.

A senior diplomat from a developed country with which Britain has suggested negotiating a deal said the EU was a more important partner, so any deal with Britain would depend on how it affected his country's trade with the EU.

"They want to talk to us. We're always happy to talk trade. But frankly there isn't much we can seriously talk about in detail, which is really what trade deals are all about, until we know what their relationship will be with the EU," he said, on condition of anonymity due to the sensitivity of the subject.

Japan has expressed concern over uncertainty surrounding Britain's future EU relationship, including its access to the bloc's single market, while U.S. President Barack Obama quashed the prospect of a fast-track deal.

Australia said on Tuesday that it would focus on pursuing a free trade agreement with the EU while it waited for Britain to be able to negotiate formally.

PRESSURE FOR DEALS

According to government figures, Britain's total trade exports for June were worth 24.9 billion pounds ($33.3 billion), with the U.S. its biggest export market by value.

The government has said 3 million British jobs are linked to trade with the EU, while the EU estimates a further 3.9 million in Britain are supported by EU exports to the rest of the world.

May has promised to deliver Brexit after 52 percent of Britons backed leaving the EU at a June 23 referendum.

But she has also said she will not trigger Article 50, beginning the formal two-year divorce process, this year in order to allow the government time to prepare.

While Article 50 refers to "taking account" of the departing country's future relationship with the EU, many say detailed talks will have to wait until Britain has left, meaning it could be 2019 before substantial trade negotiations begin.

"It is after Brexit that the UK ... would formally negotiate with the EU new arrangements on its relationship, such as trade, participation in the single market, and movement of labour," Jean-Claude Piris, former head of the legal service of the Council of the European Union, wrote in the Financial Times.

Britain's Brexit minister, David Davis, said on Monday it was nonsense to say that the negotiations could not run in parallel.

With a British election due in 2020, May could feel under pressure to get deals done. At her first international summit this week, she said Australia, India, Mexico, Singapore, China and South Korea had all welcomed talks about post-Brexit trade.

For now, the work of Britain's new Department for International Trade will likely be largely focused on diplomacy and, crucially, amassing a team of experts after decades of relying on the EU to negotiate its trade deals.

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British Prime Minister Theresa May arrives for a news conference after the closing of G20 Summit in Hangzhou, Zhejiang Province, China, September 5, 2016. REUTERS/Damir Sagolj/File Photo

Before the department was created, then business minister Sajid Javid said he wanted to have 300 experts in place this year, up from around 40. A spokeswoman for the trade department said it would not give a running commentary on recruitment.

Negotiators say there are usually teams of 20-25 in the room for talks and many more involved in support and preparation. Deals, involving detail on thousands of goods, take years to agree and Britain will want to pursue several simultaneously.

"We are going to be very short of capacity," said Alan Winters, director of the UK Trade Policy Observatory at the University of Sussex in southern England.

INTENSIVE TRAINING

Options include hiring experts from law firms, banks or consultancies, something which is likely to prove expensive.

Then there are the Britons who work in the EU's trade directorate, although according to the European Commission website only 32 of the directorate's 596 staff are British.

The government has also talked of using foreign negotiators, and Commonwealth allies such as Australia have offered to loan experts. But Britain has also been clear negotiators would not be involved in talks with their own home nations.

"Are we going to see cohorts of Australians, Canadians, Japanese walking in to Whitehall to carry on our international trade negotiations for us? Of course we're not," former UK government trade negotiator Michael Johnson told Reuters.

"With the prospects so uncertain I don't see many other administrations being prepared to second people. So we'd better train up, you'd better have some pretty intensive crash training programs for indigenous Britons."

Keen to secure its first post-Brexit trade deal, Britain will be negotiating from a position of relative weakness, say trade experts.

"Certainly the UK is going to need a free trade deal more than the other side because the UK market isn't going to be as attractive as the EU one used to be," said former negotiator Abbott.

One of its biggest challenges will be incorporating substantial agreement on services -- around 80 percent of Britain's economy -- as trade deals tend to be more focused on goods.

The EU's recently concluded deal with Canada only included limited provision for services and maintains some restrictions over financial services access, a crucial area for Britain.

"Services is just technically more complicated ... just very, very difficult to work out what the value is, how much is it worth that you change your regulation a bit?," said Winters, adding that regulators would likely need to be involved in talks.

"It is going to be a major issue for Britain. These are frictions, they are not always complete barriers ... they just become a matter of extra cost, but in a competitive world even a bit of extra cost is a big problem."

(Additional reporting by Alastair Macdonald in Brussels; Editing by Keith Weir)

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