ifo President Fuest Supports Longer Deadline for FTA with UK
The ifo President Clemens Fuest has spoken out in favor of a longer deadline for the European Union’s free trade agreement with the United Kingdom. “All the indications are that it will be extremely difficult to reach an agreement within eleven months. Consequently, if it will take one or two more years to work out a free trade agreement, the UK government should abandon its plan to end the transition period at the end of 2020,” Fuest said in Munich on Thursday.
“While the UK conducts about half of its foreign trade with the EU, the EU conducts only 9 percent of its foreign trade with the UK. Trade barriers harm both sides,” Fuest added. According to estimates by the ifo Institute, a free trade agreement would permanently increase the UK’s gross domestic product by more than 1 percent. For the EU, the gain would be around 0.2 percent. These calculations are conservative estimates because they do not account for the impact that the agreement would have on the intensity of competition and on innovation.
The UK has explicitly ruled out a customs union with common tariffs for third countries; it wants to pursue its own trade policy. “This decision is regrettable, as a customs union would greatly facilitate trade,” Fuest said. Above all, it would be unnecessary to request proof of origin for products exported from the EU to the UK; for example, to confirm that they were manufactured in the EU and not imported from third countries via the EU.
The issue of level playing field could prove a key obstacle to a free trade agreement. The EU is concerned that the UK could try to get an advantage through targeted tax breaks for companies or financial sector deregulation. The UK in turn fears that overly restrictive social standards could be imposed which harm its economic development. There is a risk that protectionist groups on both sides could abuse the level playing field issue to undermine the free trade agreement.
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