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The EU needs a strong trade agreement with the UK, but it will be a struggle to get one

Justin Protts, 1 September 2016

As UK government ministers met yesterday to discuss the future deal they hope to reach with the remaining members of the EU, the EU was once again trying to save the reputation of the Trans-Atlantic Trade and Investment Partnership (TTIP) as it tries to conclude negotiations before the end of the year.

But over the summer TTIP appears to have suffered several fatal blows. This week, as France moves into election mode, Matthias Fekl, French trade minister, said he would call for a halt to formal TTIP negotiations with Francois Hollande saying an agreement will not be reached anytime this year. Austrian Vice-Chancellor Reinhold Mitterlehner suggested halting negotiations and starting the ‘entire process afresh’ after the US elections. In a similar tone, the German economic affairs minister, Sigmar Gabriel, and the Dutch Minister, Lilianne Ploumen, have clearly suggested that the talks have at least stalled, if not failed, as the US and EU seem unable to compromise.

Despite reassurances from the European Commission that talks have not failed, assurances from the US are less certain. Both US presidential candidates have signalled they aren’t happy with the current plans, so if talks are not concluded prior to the US election the deal will likely be dead.

For the EU this trade dilemma is not unique. The EU is struggling to make progress on any trade deals. The new trade deal with Canada, CETA, despite being agreed has not been ratified and it is unlikely that progress will be made anytime soon. France effectively blocked further negotiations on a Mersocur trade deal due to concerns over agricultural competition from the South American countries. More still, plans for an EU-Australia agreement are already under pressure as Australia is looking to introduce higher anti-dumping measures against Italian tinned tomatoes in a move seen as a test case for introducing tariffs against the EU in response to the EU’s agricultural subsidies.

For those that supported the UK leaving the European Union, it gives credibility to the claim that the EU is damaging to trade prospects and does not provide the ‘clout’ needed to strike beneficial trade deals around the world. It also suggests that protectionism is creeping further into European mainstream politics. However, it is also a worrying sign of what is to come in the EU-UK negotiations.

It became clear yesterday that the UK government is seeking a bespoke deal with the EU, and that current free movement of people is a ‘red line’. This rules out maintaining the current sort of integrated relationship with the single market that EEA members have. This leaves the UK with the option of either a comprehensive trade deal, with likely add-ons, or trading under WTO rules.

Given the EU’s current reluctance to get any new deals off the ground, a new comprehensive trade deal with the UK will not be an easy sell. However, the knock-on effects of the EU and the member governments failing to come to an agreement with the UK may well be worse for the remaining EU states.

If the EU cannot secure a comprehensive new trade deal with a country that currently conforms to all EU market regulations then it will signal to the world that the EU is an increasingly impossible institution to deal with. Countries seeking to boost trade will see an increasingly protectionist economy and will turn their attentions elsewhere.

The EU is perhaps more in need of a strong trade deal than the UK, but it will be a struggle to get one.

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