Brexit & UK trade, Perspectives

Perspectives: Post-Brexit UK trade policy lacks innovation

In three months of full trade policy independence the United Kingdom has moved from initial excitement to the realisation of difficulties. Perhaps the most striking feature of Britain’s approach to trade post Brexit is its lack of innovation. 

Advocates of Brexit have persistently presented an independent trade policy with UK-specific trade deals as one of the major advantages of leaving the European Union.

Trade policy is also one of the cornerstones of ‘Global Britain’, a nebulous concept, but one which is often seen as moving beyond the EU and back into the world.

Initially most EU preferential trade partners agreed to replica – or ‘continuity’ – deals with the UK. This led to excited headlines in media sympathetic to Brexit, to the extent that no country had completed so many deals so quickly, rather forgetting that no other country had ever risked losing so many.

Progress has inevitably slowed since the UK formally left the EU’s customs union and single market last January.

The UK has applied to join the Comprehensive and Progressive Transpacific Partnership. There is considerable bilateral activity including for new and renegotiated free trade agreements, for new, looser, partnership arrangements, and negotiations to resolve the Airbus-Boeing dispute over aircraft subsidies.

However optimistic timescales have drifted. Global Britain now looks more like a long haul, with the same domestic and international challenges faced by all countries.

New trade deals will take time

The centrepiece of post-Brexit trade policy plans was to be a UK-US free trade agreement, – not least given long-standing ties between some UK ministers and US Republicans. This would also demonstrate the UK moving away from the EU sphere of influence.

The year 2020 had long been identified as the year the UK-US deal could be done, ahead of the US presidential election. However, with a delayed exit from the customs union and single market and a US administration not evidently in a hurry, this became too optimistic. The election of US president Joe Biden and the expiry of Trade Promotion Authority mid 2021 now puts the deal on the backburner until Washington decides on its next steps.

Joining CPTPP is now seen as the UK’s number one trade policy priority, with new FTAs with New Zealand and Australia to help pave the way. These aims seem achievable but are likely to take some time.

Most notably both Australia and New Zealand wish to gain the maximum possible market access for agriculture through both bilateral deals and CPTPP, which is a concern to UK farmers. Questions over whether the UK is willing to change food standards compared to the EU are also relevant and domestically controversial.

This is part of a wider problem of poorly defined UK interests. The uncertainty over those defensive interests in agriculture is matched by similar vagueness over offensive interests.

It is unsurprising therefore that provisional economic impact assessments for Australia and New Zealand FTAs show little economic benefit, and it is unlikely that those for the CPTPP will be much better.

Little innovation

One of the more inexplicable parts of the Brexit process between 2016 and 2020 was the failure of successive UK governments to determine what they might actually do with Brexit freedom, in terms of new trade deals or other policies.

In trade policy there have been suggestions of focusing on digital trade, the wider services sector more, or non-tariff barriers – but traditional issues like tariff reduction have remained central. This led to the bizarre spectacle of the UK government celebrating the inclusion of more Geographical Indications in a marginally revised trade deal with Japan – borrowing a key EU interest.

As the world’s second largest services exporter we might expect particular UK focus in this area, particularly given the weakness of typical trade agreements. However, beyond some enhanced regulatory dialogue and free flows of data – useful but of uncertain value – there has been little to show. The UK has declined to show interest in the New Zealand-led Digital Economy Partnership Agreement, though it may negotiate something similar with one of the parties, Singapore.

There are persistent rumours that the UK may join another New Zealand led plurilateral, the Agreement on Climate Change, Trade and Sustainability. There was also the welcome recent sight of the UK joining the Ottawa group of pro-reform countries at the WTO. However, overall this seems some way short of government free trade rhetoric.

Navigating the major powers remains the biggest challenge

The language of Brexit advocates was typically that of UK leadership, inspiration and flexibility. The more prosaic truth for all countries is having to navigate an uncertain global environment, struggling international institutions, and in particular the three main trade powers US, EU and China.

The UK’s relationship with the EU was always liable to be strained having left. The idea that this would be compensated by deeper US relations was optimistic – given the always tough approach of the United States Trade Representative. The new threats coming out of Washington of retaliatory tariffs if the UK introduces its planned digital sales tax, made so soon after the temporary lifting of Airbus-Boeing related Scotch Whisky tariffs, are a reminder of this reality.

Meanwhile UK relations with China are at their lowest point for many years.

Given Britain’s geography, history and existing trade patterns, relations with the EU and US will most likely raise the biggest trade policy question for many years to come. These will in turn affect how the UK’s domestic economic policy is reflected in trade choices. This is indeed what we have already seen within three months of Britain leaving the EU orbit.

On such a reading, joining CPTPP or new agreements with Australia or New Zealand are interesting propositions – but barely material. New trade dialogues with India and Thailand, and probably slightly enhanced trade agreements upcoming with Mexico, South Korea and Canada are also not significantly going to change the UK’s trade performance.

Perhaps it was always to be expected that the UK would need a period of time to see the realities of trade policy before working out how to make it successful.

But that wasn’t in the Brexit brochure, and the tensions between the pictures of sunlit uplands and the realities of structures under construction are likely to be increasingly evident.

 

 David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.

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