Brexit & UK trade, Free comment

In 2021, the UK must fill the Europe-shaped hole at the heart of its trade policy

For the United Kingdom, the year 2021 is ‘terra nova’ – its first year as an autonomous trading entity outside of the EU’s single market and customs union. The challenges ahead by Chris Horseman.

Britain has a brand new Trade and Cooperation Agreement with the EU, brought into force on New Year’s Day after negotiations were concluded on Christmas Eve. But it is already crystal clear that the tariff-free deal eventually reached with the EU is no kind of replacement for the frictionless relationship which it previously had as a member state.

All eyes in the early part of January are on the UK’s new customs borders with the EU, and in particular on the English Channel and Irish Sea ports. Here, for the first time in decades, traders are having to deal with customs declarations, SPS controls, rules of origin restrictions, and other bureaucratic processes which are now hampering EU-UK movements of goods.

The same rules apply for trade in both directions, but the UK government is phasing in border controls over time in the interests of minimising border friction and avoiding an excess of post-Brexit chaos.

On the EU side, where no such political considerations apply, the rules have been applied in full right from the start – with, so far, highly problematic results.

Can the UK get out of confrontation mode?

Across the whole spectrum of trade in both goods  and services, therefore, 2021 will be a year in which the UK government and the European Commission will tentatively examine possible ‘improvements’ to the Trade and Cooperation Agreement between the two sides, under pressure from frustrated businesses.

But if there is to be any significant improvement in the new trade relationship, the UK government will need to quickly get over its post-Brexit Euro-phobia and seek cooperation, not confrontation, with its European ‘friends and partners’ – to use the phrase invariably deployed by prime minister Boris Johnson.

Will the TCA be enough to convince the guardians of the true Brexit faith within the UK government that the always-specious threat of being forced to yield its sovereignty to Brussels has now receded?

If it is, then Johnson’s government may yet realise that there is a Europe-shaped hole at the heart of its liberal global trade strategy, and regard the EU as a market to be traded with, rather than as an existential threat. But it may be some while yet before the scars of Brexit heal to that extent.

Financial services and data adequacy

At any event, a key priority in 2021 will be financial services, a sector which was largely ignored in the TCA negotiations which concluded last December.

The EU has promised to give its verdict by March on whether or not the UK financial regulatory system should be classed as ‘equivalent’ to that of the EU. Such a ruling would be a big boost for a City of London which has already lost both jobs and trading assets to European rivals, albeit not in huge volumes.

But there appears to be no great incentive for the EU to make life easier for the UK in this sector, especially as EU firms have already been given the green light to operate within the UK.

By June, the EU will also need to decide whether it is prepared to give an ‘adequacy’ ruling to the UK and its data privacy rules, allowing for the free flow of data between tech companies in Britain and the EU.

The TCA includes a so-called ‘bridging mechanism’ which basically allows the pre-Brexit status quo to be preserved, but this has a shelf-life of only six months.

The expectation is that adequacy will be granted to the UK, as the free flow of data is seen as vital for businesses on either side of the Channel. But the issue may yet become hostage to fortune if there are tensions in other areas of the EU-UK relationship.

Northern Ireland review deadlines

There are other interim deadlines hardwired into the Northern Ireland protocol which governs the unique trade status of that region – still within the EU single market, yet part of the UK customs union.

On April 1, the current grace period exempting NI businesses from requiring official certification for products of animal origin brought in from Great Britain expires – and this will present a further challenge to GB-NI trade which has already been impacted by the paperwork introduced at the start of the year.

By the end of June, the current temporary authorisation allowing GB businesses to move processed fresh meat products such as sausages into Northern Ireland is due to expire. This politically tricky negotiation could coincide with wider efforts to streamline sanitary and phytosanitary requirements for UK agri-food exports into the EU.

New FTA negotiations continue with US, Australia and New Zealand

Meanwhile, the UK will face a real test of its trade policy strategy as it pursues brand new trade agreements with the US, Australia and New Zealand, as well as accession to the Comprehensive and Progressive Agreement on Trans-Pacific Partnership.

The Department for International Trade sees Australia, New Zealand and CPTPP as the key priorities for 2021.

Negotiations with the UK’s antipodean partners are set to resume straight away. A third negotiating round with New Zealand is scheduled to begin on 25 January, while Round 4 of the negotiations with Australia is pencilled in for the end of February.

These talks are viewed in London as being more likely to yield early results than talks with the United States.

The latter are actually at a more advanced stage, with five rounds completed so far. But the US is about to undergo a trade policy reset with the arrival of the Biden administration, and the policy challenges involved remain substantial – the chlorinated chicken issue, for example, has not gone away with a change of president.

CPTPP and rollover enhancements

As far as CPTPP is concerned, the UK is planning to submit a ‘formal notification of intent to accede’ in the early part of this year, with publication of a negotiating mandate, an economic impact assessment and consultation response shortly afterwards.

Formal negotiations, via CPTPP accession Working Groups, are expected to begin in the Spring.

Negotiators are also committed to re-visiting several of the successfully rolled-over EU FTAs in early 2021, with a view to negotiating updated or revised versions of these agreements.

This is the case for the FTAs with Canada, Norway and Iceland in particular.

A test of UK influence

More generally, 2021 is the year when the UK will need to flesh out its vision of what sort of player it wants to be in the global trade policy stage.

With the World Trade Organisation in a parlous state, the UK has the chance to play its part in building a healthier trading system for the future, perhaps by using its still-substantial diplomatic clout – and its presidency of the G7- to nudge the United States and others towards playing a more constructive role.

Its recent announcement of modest sanctions on companies trading with those exploiting oppressed minorities in China offers a glimpse of what International Trade Secretary Liz Truss has described as a ‘values-led’ trade policy.

But the UK will not succeed in achieving what it would like to achieve unless it learns that it is now safe once more to cooperate with the European Union.

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