EU won't back trade deal if UK chooses 'Singapore-on-Thames'

Ambassador Marc Vanheukelen says failure to find a deal would see trading relations governed by WTO rules, meaning that the EU could apply 10 per cent tariffs on imports from manufacturers in Britain such as Nissan Motor.
Ambassador Marc Vanheukelen says failure to find a deal would see trading relations governed by WTO rules, meaning that the EU could apply 10 per cent tariffs on imports from manufacturers in Britain such as Nissan Motor.PHOTO: REUTERS

GENEVA (BLOOMBERG) - European Union states are unlikely to ratify a post-Brexit trade deal with the British government should the United Kingdom seek to recast itself as a regulation-light "Singapore-on-Thames," according to the EU's ambassador to the World Trade Organisation.

"They don't want a free-rider on their doorstep," Ambassador Marc Vanheukelen said in an interview in Geneva. The EU's 27 member states and 34 national and regional parliaments would balk at such a plan, he said.

UK Prime Minister Theresa May has said she would rather have no deal than a bad deal with the EU, in part because "we would have the freedom to set the competitive tax rates" aimed at luring foreign businesses and investors. Failure to find a deal - "the cliff edge" - would see the U.K.'s trading relations with the EU governed by WTO rules, a scenario that would cause turmoil, particularly for British companies, said Mr Vanheukelen.

"It would lead to a fantastic disruption of the supply chain," he said on Tuesday. "There would be tremendous red tape."

Falling back on WTO rules would also mean the EU could apply 10 per cent tariffs on imports from manufacturers in the UK such as Nissan Motor and Jaguar Land Rover. A recent UK parliamentary report found that the combination of increased tariffs and lost access to Europe's highly integrated supply chain would increase costs for all aspects of the country's automotive production.

Mr Vanheukelen said the next two years of Brexit negotiations, given more than four decades of shared history and 20,000 EU rules, would be an unprecedented battle. That's already causing ill will across the English Channel.

"We are now only thinking about the EU-27," said Mr Vanheukelen. "Like any divorce, you no longer care about the well-being of the other."

Ms May and Donald Tusk met in London earlier this month to look for ways to ease tensions as Britain leaves the EU after a senior member of her party discussed the possibility of war with Spain over Gibraltar. Another sticking point is whether security cooperation should be part of the negotiations.

There is a "major asymmetry" in Brexit negotiations, with almost 44 per cent of UK exports going to the EU, and just 15 per cent being shipped the other way from the bloc's other 27 nations, Vanheukelen said.

"They need us far more than we need them," he said. "The have-your-cake-and-eat-it line of Boris Johnson is simply wrong."

While the UK has already started wooing countries from India to the Philippines to secure post-Brexit trade deals, those can't be finalized while it's part of the European customs union, Mr Vanheukelen said.

"How can the U.K. negotiate on regulatory matters when they don't know what their sovereignty will be once they leave?" he said.

With the UK still a member of the EU, the bloc's trade talks with countries such as Australia could also become a "sensitive matter" as Britain mulls similar pacts once Brexit is completed in 2019, he said.

While Ms May officially triggered Brexit negotiations at the end of March, substantive talks can't begin until May 22, when EU governments are set to approve the final negotiating directives. In draft guidelines circulated to the bloc's 27 other capitals, Mr Tusk said a free-trade agreement can only be finalized after the U.K. has left the bloc.

The next two years will be arduous, Mr Vanheukelen said.