Selected Analysis

UK trade negotiations: to strike better deals, hand a veto to nations and regions

By Renaud Foucart /The Conversation/ – The UK and EU have just resumed negotiations over a post-Brexit deal on free trade. Major stumbling blocks over issues like road haulage, fishing rights and state subsidies will need to be ironed out quickly if a deal is to be ratified in time for the end of the Brexit transition period on December 31.

Similarly, the UK is trying to swiftly reach trade deals with the likes of JapanCanada and the US. In all these negotiations, the UK is denying itself an important procedural trick that many competitors use to their benefit.

This is the fact that countries can improve their negotiating position by giving different entities within the state a right of veto or some other voting power over the deal. The more power such entities have, the better the deal must be for the country in question before it can be accepted.

Canada vs US

In 1988, Canada was negotiating a free-trade agreement with the United States that later became part of NAFTA. The US had decided to negotiate using “fast-track authority”, a time-limited delegation of power to President Reagan in which congress gives up the power to amend the agreement.

This was a strategic move designed to enhance US negotiators’ credibility and increase the likelihood of an agreement. However, critics point to a major downside, which is that fast-track gives the executive a blank cheque to make concessions to the other side. So it proved with the 1988 negotiations.

In Canada, the agreement faced fierce opposition. The senate had a different majority than the lower house, and threatened to reject what was on the table. The last hurdle was Canada’s demand for a binding arbitration mechanism to settle trade disputes between the two countries.

US negotiators considered this an unacceptable loss of sovereignty, limiting the historic power of congress to oversee international trade. But on the very last day of Reagan’s fast-track mandate, the US negotiators gave in.

Canada’s negotiators had been able to credibly inform their counterparts that without accepting their request, they could never get the deal through both houses. On the other hand, Reagan’s total responsibility was such that withholding approval would mean taking the huge decision to forsake all other benefits from the deal.

EU flexibility

The European Union enjoys the best (and worst) of both worlds, sometimes keeping power in negotiations central and sometimes not. If an agreement is given exclusive EU competence, only the approval of the European parliament is necessary for it to be ratified. When it is of “shared competence”, it requires the participation of all member states. This often means both parliamentary chambers in each country, or in Belgium’s case, three regional parliaments.

Shared competence gives negotiators a credible way of extracting concessions – in Canada’s free-trade negotiations with the EU from 2009 to 2016, Wallonia used this power to put pressure on the Canadians. At the same time, decentralisation of power can make it hard to reach a deal. The approval procedures in both Canada and the EU are often mentioned as a key reason for the deal taking seven years.

Every shared agreement signed by the EU needs to simultaneously benefit German car makers, French farmers, Cypriot cheese producers and all other national interests. And many free-trade agreements signed by Canada must involve its provinces, and all their varying objectives.

The UK position

The role of devolution in the UK, particularly on the international stage, is very limited. International trade agreements can be ratified by the government 21 days after they have been laid before parliament, without a debate or vote. The only possible intervention is for a majority of MPs to block it. We saw this happen when parliament gave itself a “meaningful vote” on the EU withdrawal agreement, but the current government has rejected the idea of extending such a vote to post-Brexit trade deals.

Once again, concentrating such power in the central executive is useful if the objective is agreement at any cost. If the nations of the UK had the right to veto, for instance, the EU withdrawal agreement would not have got past the Northern IrishScottish, and Welsh parliaments.

The obvious drawback is that potential partners are well aware of this centralised power. This makes it difficult for British negotiators to claim to have any intangible red line. For instance, the UK-Japan trade deal is reportedly getting held up by Stilton cheese. The UK cannot credibly threaten to walk out of negotiations on this issue. But if any deal needed the agreement of, say, a group of councils in the East Midlands, where Stilton is made, it would be another matter.

Decentralising power in this way is not only a valuable asset in international trade. It is equally useful in negotiations over things like environmental policy or international security. The fact that defence remains a national prerogative of member states has made it easier for the EU to make its apologies and provide a significantly lower contribution than the US to military investments such as NATO. Similarly, because environmental policy is largely the choice of individual states in the US, it has helped make Washington a very tough negotiator in this area.

More broadly, there are also benefits in geopolitics. Faced with opposing requests from China and the US, the EU can maintain good relations by pointing out that different member-state preferences make it hard to make tough choices. In such instances, the UK has to make one superpower unhappy to satisfy the other.

If the UK is serious about being an independent negotiator on the world stage, it would thus be a good idea to rethink its devolution model. It might be through giving more power to the nations, or reinventing the House of Lords as an upper assembly of the regions. Without its competitors’ flexibility, the UK will always find itself at a disadvantage.

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  1. The demand of the UK for the right to subsidise certain industries, (or effectively to “dump” UK manufactured products on the other party) when negotiating a trade deal, obviously could never be accepted. The negotiators are clearly either ignorant or have no intention of reaching an agreement.

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