What Brexit Means for Europe’s Trade Deals

At a Glance

  • CETA and TTIP negotiations have slowed
  • Sentiment towards trade deals in Europe has shifted

The first in a three-part series on global trade negotiations.

Like a massive iceberg sheering off from a glacier, the UK’s decision to leave the European Union has left the trade landscape dramatically altered and set in train a series of incalculable consequences.

Global agreements that seemed a part of the firmament only six months ago are being redefined in the light of Brexit as trade deals that were all but ratified in early 2016 are now seen as dangerous seagoing shoals that threaten to sink any government that sails too close.

The Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU, agreed but not ratified, is likely to make slow progress now that it has been deemed a “mixed competency” agreement to be decided by each of the EU’s 28 member states rather than fast-tracked by the executive of the European Commission.

Meanwhile, the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the U.S. is unlikely to conclude with the U.K. until Britain has first sown up its deals with the remaining EU countries.

Hosuk Lee-Makiyama, director at the European Centre for International Political Economy, says that while the trade deals might better be termed a “trade mess,” it’s not all bad news.

“You could even argue that Brexit has made it easier for TTIP to be concluded,” Lee-Makiyama says. “One of the most sensitive sectors for the U.S. has always been financial regulation and the key proponent for discussing this within the scope of the TTIP has been the U.K.”

While the French may have multinational banks such as Société Générale and Spain Santander, their focus is diffuse compared with the City of London which has a strong interest in gaining favorable terms for a sector that provides more than 10 percent of the U.K. national output.

Lee-Makiyama says that compared with other sectors such as agriculture, machinery and processed foods, European concentration on financial regulation is likely to be less intense.

A Seismic Shift

The decision by the European Commission to deem CETA a mixed competency agreement means the EU has relinquished its role as the sole negotiator on behalf of its member states, and marks a seismic shift in the operation of the EU as a political unit.

“At the risk of sounding like one of those Brussels Eurocrats, the decision to make CETA a mixed competency agreement has major implications,” Lee-Makiyama says. “Trade negotiations have been the exclusive competency of the European Commission and I would argue it was the only one that worked pretty well.”

With nothing in CETA that would compromise a national competence, for instance domestic copyright laws, Lee-Makiyama says the reasons for making the trade deal a mixed competency agreement are solely political.

“This is the biggest concession the European Commission has made since 1957. Even its own lawyers have said this is not a mixed agreement and that it has been done for reasons of anti-Brussels sentiment,” he says.

In The Wake of Brexit

Marianne Schneider-Petsinger, Geoeconomics Fellow, U.S. and the Americas Programme at Chatham House, says she was less pessimistic about the passage of CETA, saying hopes were high the deal could be finalized at the EU-Canada summit in October.

Despite this, she says that Brexit was still weighing heavily on trade agreements.

“(The commission) has assessed that it should be ratified as a so-called mixed agreement and I think that is very much in the wake of Brexit,” she said. “There’s a perception that the European Commission should not be entering into decisions that bind the whole EU.

“Political factors are playing much more of a role in making certain decisions.”

At the latest round of TTIP negotiated in July, both the U.S. and the EU member states stated they would like a deal by the end of the year, a timeframe that Schneider-Petsinger said is likely to be ambitious.

“I think that TTIP will most likely take more the form of a political agreement and it won’t necessarily be the comprehensive and ambitious trade agreement that was initially envisioned,” she says.

“Brexit has been taken, not necessarily as an excuse, but as the reason for doubling down to get a deal done. But how that will play out in reality remains to be seen.”

Despite the shifting landscape, she believes TTIP will scrape through bruised but largely intact.

“The U.K. had been a strong cheerleader for the TTIP deal, but with the British voice removed from European negotiations, the question remains over whether there will there be a push for advancing TTIP in the next couple of months or not,” she says.

Changing Public Perceptions

Ultimately, governments must now contend with a changing public perception of trade deals.

“It’s no longer about reducing tariffs primarily but about regulations and this raises fears about the ability of governments to regulate in the public interest,” says Schneider-Petsinger.

Even Germany and Austria, traditionally strong trading nations with strong support for free trade, have seen public sentiment turn negative on free trade agreements. In June, the French Prime Minister Manuel Valls slammed the TTIP as a “breeding ground for populism” and against the EU’s economic interests.

“Germany and France have elections also coming up in 2017 – I think we need to be much more concerned about what that will mean for trade agreements rather than Brexit,” said Schneider-Petsinger.  “It’s easy to blame the trade for some of the negative effects of hyper-globalization but oft-times it’s used as a bogey man.”

Peter Shadbolt is a writer based in London.

Additional Recent Articles in Economics