If we are to believe all the ballyhoo surrounding Keir Starmer’s recent ‘trade deals’ with the US, India and the EU, anyone could be forgiven for believing the Prime Minister has solved our economic future by taking a couple of long-haul flights and welcoming Ursula von der Leyen to a jolly in London.
Sadly, the real story for the country is significantly different from the overblown Government spin. The US deal is not a free trade agreement; it is a series of commitments with many details still to be concluded and even then could face cancellation at short notice.
The exact levels of US tariffs appear as tangible as Scotch mist and just as transparent. While the advantage of not facing even higher tariffs from being inside the EU remains real, the propensity of Donald Trump to change his mind – by announcing then withdrawing new tariffs with great regularity – only confirms that much remains to be agreed before hammering this confected wobbly blancmange to the White House cabinet table.
The Indian deal is a genuine Free Trade Agreement, and although having some controversial elements such as the concession on employers’ national insurance payments for Indian Visa employees, it promises to reduce tariffs by large amounts on many luxury goods that Britain excels at supplying. That exports to India’s fast growing economy could be higher than official estimates is a happy prospect for British consumers who will enjoy lower prices on goods we no longer manufacture.
That brings us to Starmer’s reset with the European Union, much of it – like the ambiguous Youth Experience Scheme – is not about trade at all and remains to be finalised. Indeed, the whole reset resembles a very thin ‘Heads of Agreement’ handshake with the real negotiations to come – and this is where the real danger lies.
With the EU, ‘nothing is agreed until everything is agreed’ – this is a negotiating technique that means what you have already conceded can be reopened and fresh concessions demanded. The EU will always offset attempts to alleviate inspections for goods crossing the Irish Sea by one of its member state proxies demanding, say, the manning of Gibraltar border checks or maintaining access to our fisheries. This time round it will cost us £1 billion of fish lost to foreign boats – £12 billion until 2038.
This points to the failure of the British public and media to realise it is not tariffs (which have been removed by the EU-UK trade and co-operation agreement), but the EU’s non-tariff barriers that represent the greatest problem when dealing with the bloc.
Among the most obvious of these barriers is the European Union Deforestation Regulation (EUDR), which gives clear preference to EU farmers – whose forests were cleared from mediaeval times to build navies, construct cities or supply fuel. Although postponed until December 2025 for medium and large companies, the EUDR still presents a significant threat to international trade, having been identified by the US Trade Agency as an unfair trade practice that could prevent of US exports to an value of $8.6bn p/a.
While the EU portrays its regulations as being intended to reduce forest degradation, it has conveniently ignored primary forest losses in its calculations. Subsequently, all 27 EU member states were placed in the low-risk category, enabling them to benefit from much lower administrative hurdles on their products.
Countries placed in the standard and high-risk categories will suffer not just higher compliance costs, but also face their exports being tainted with deforestation. The products covered include those containing coffee, cocoa, palm oil, soy and beef – the large majority of supermarket products.
Equally concerning is the Corporate Sustainability Due Diligence Duty, which forces companies to police sustainability rules and human rights throughout their supply chains. This intrusive legislation requires businesses to scrutinise their partners’ adherence to environmental and social standards – an administrative nightmare that Germany’s Chancellor Friedrich Merz called to be scrapped.
Completing this regulatory trifecta is the Corporate Sustainability Reporting Directive, which mandates exhaustive reporting on corporate environmental and social impacts. While the EU has proposed some ‘simplification’ measures and delays, these tokenistic concessions fail to address the fundamental flaws in this regulatory approach.
As Mario Draghi, the former President of the European Central Bank, reported last year, the reality is that the EU cannot and does not innovate. All it can do is regulate, and its regulations just wrap businesses in constricting red tape, kill innovation and halt productivity gains – leading to its citizens becoming progressively poorer.
In contrast, while the EU pursues its regulatory agenda, other nations such as Malaysia have demonstrated that sustainability can be achieved without sacrificing economic growth or imposing excessive burdens on business. Having once been the bête noir of environmentalists, in the last decade Malaysia has maintained over 50% of its land under forest cover while developing its world-leading palm oil sector – proving economic development and environmental protection can coexist.
By capping total oil palm plantations at 6.5 million hectares, Malaysia has decreased their total area by 4.2% over the past four years. This stands in stark contrast to other vegetable oil producers like Brazil, which has increased its soybean area by 6m hectares – equivalent to Malaysia’s entire oil palm area accumulated after a century of cultivation. Likewise, the country’s ambitious reforestation target of planting 100m trees has been met ahead of the 2025 deadline. This is larger than China’s programme of 70m trees and Brazil’s 73m.
What’s this got to do with non-tariff barriers you may ask?
Well, when the EU Commission announced its EUDR rankings to determine the regulatory burdens countries will face, Brazil and Malaysia were both placed at standard risk even though Brazil lost 2.8m/ha of primary forest last year (its 2nd highest in 20 years) when Malaysia lost only 68.9 thousand/ha (its lowest in 20 years).
The whiff of punishing Malaysia while helping Brazil was pungent, bolstering claims by Trump that the EU’s non-tariff barriers, along with China’s, provide one of the main causes of large trade imbalances and real poverty in developing nations.
European policymakers need to recognise their regulatory non-tariff barriers are unsustainable and counterproductive. By offering to roll back its green non-tariff barriers as part of comprehensive trade negotiations with the US, the EU could not only improve the prospects of global trading relationships, it could also lead to more effective, market-driven approaches to environmental protection.
More likely, however, is that the EU will plough on and Starmer will eventually adopt these environmental barriers disguised as conservation measures in the cause of seeking dynamic alignment. By taking the UK back into the EU’s regulatory orbit, Starmer will commit us to erecting barriers to trade, raising the costs of imports and preventing them from certain countries altogether. And while he’s at it, blow any chances of concluding a proper trade agreement with the Trump administration.
Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.
