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Trade deal process fraught with risk

EU leaders lukewarm to British PM's Brexit plans

LONDON: Prime Minister Theresa May has finally outlined what Brexit really means for her: Britain going it alone, fully disentangled from the European Union (EU) while hoping the bloc will agree to a comprehensive trade deal.

Britain will exit the EU's vast internal market and will instead try for a "bold and ambitious" free trade agreement (FTA), rejecting the kind of arrangements some other European countries, such as Norway and Switzerland, have for trade with the world's biggest economic region.

In her speech on Tuesday, Mrs May called for a deal to be done within two years, emphasised cooperation with the bloc and called for a "phased-in" transition to Brexit.

But there was a lukewarm reception from political leaders in EU countries, a reminder that agreeing the kind of trade deal Mrs May wants will be an arduous - even painful - task.

"Where is the give for all the take?" asked the Czech Republic's secretary of state for EU affairs, Mr Tomas Prouza, on Twitter. Ireland's government said it was under no illusion about the scale of Brexit.

Aiming for a comprehensive FTA means she can enter negotiations with an almost blank canvas, largely free of politically unpopular compromises.

But the process of agreeing an FTA is fraught with risk.

Mrs May has said she wants to agree Britain's future relationship with the EU within two years, followed by a period of implementation.

"(The) prolonged uncertainty over forming agreements will present a significant challenge to the economy and one from which consumers cannot be called upon to buy our way out," said Mr Jagjit Chadha, director of Britain's National Institute of Economic and Social Research.

Getting rid of barriers to trade in services, the dominant sector in Britain's economy, is also likely to be hard, although those backing Brexit argue barriers already exist within the EU.

Supporters of the FTA option argue this would allow Britain to trade with the EU largely as before while also leaving it free to agree trade deals directly with other countries such as the United States, its biggest individual export partner, and emerging markets such as Brazil and India.

Brexit supporters also point to Britain's large goods deficit with the EU - a record £8.59 billion (S$15 billion) in November last year. They say the bloc could not afford to cut it off.

BARGAINING CHIP

Mrs May seems to see this as a bargaining chip, stating in her speech that no deal is better than a bad deal - effectively acknowledging that Britain could resort to World Trade Organisation rules, which set upper limits on tariffs countries can impose.

In such a scenario, Britain would face barriers on services, particularly in highly-regulated sectors such as finance.

That would be a "very dangerous path", according to JP Morgan economist Malcolm Barr.

"One might expect a successful negotiating strategy to have ambitious objectives and a credible fall back position.

"Mrs May certainly has the former. But we doubt the prime minister has the latter," he said.

Tellingly, just as she was setting out her pitch for an internationalist Britain built on cooperation, her finance minister Philip Hammond told parliament that Britain could get tough if a comprehensive FTA with the EU is not forthcoming, and slash business taxes.

He said: "If we don't (get a sensible Brexit deal) the people of this country are not simply going to lie down and accept that they will be poorer.

"We will do whatever it takes to maintain our competitiveness and protect our standard of living." - REUTERS

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