Latest news, Perspectives, UK trade politics

Perspectives: Britain shifts to a more realistic trade policy stance

Recent political debates show that British politicians are finally starting to grasp the nature of trade-offs inherent in trade policy whilst stakeholders eye a future Labour government for change in policy direction.

Rishi Sunak’s arrival as prime minister has heralded slightly warmer words towards the EU, and a slight cooling of ardour regarding the pursuit of trade deals. One cannot expect dramatic shifts in policy, however not least because of the suspicions of large numbers of his backbench MPs.

Trade and policy analysts were thus somewhat surprised by a Sunday Times front-page story on November 20 that the UK government was mulling ‘Swiss-style’ relations with the EU. The paper is often a conduit for the thoughts of leading ministers, and there was widespread belief that the story came from the office of chancellor Jeremy Hunt.

Unsurprisingly the story brought strong responses from the wing of the Conservative Party hostile towards the EU and against seeking closer ties with the next door neighbour. The government quickly denied that it had any intention of changing the country’s EU relationship, in particular regarding regulatory alignment.

Controversial briefings, soon denied, are common in British politics. There is however usually some broader purpose to them.

In this case, there seem to be links to the publication of disappointing economic forecasts, to the need to resolve issues around the Northern Ireland Protocol, and a fading trade policy agenda. Only a few days before the brief, former agriculture minister George Eustice publicly criticised the UK-Australia FTA.

Among some ministers it seems that some of the difficulties of the UK’s trade policy position are finally becoming apparent.

“Swiss-style”: code for recognising that EU trade relations must be improved

Jeremy Hunt’s fiscal statement of November 17 announced tax rises and spending cuts against a backdrop of impending recession. Looking again at whether EU relations could be improved was a natural reaction to such poor forecasts from both UK and international bodies like the International Monetary Fund.

It seems entirely possible that the Chancellor wanted to test how far a shift in general UK political perception towards EU relations extended to his own party, and ‘Swiss style’ was the label used.

Unfortunately for Hunt, the answer was loud and clear from many within his party: the UK should not yield on key Brexit concepts such as regulatory independence. Compromise to deliver stronger trade relations with the EU remains unacceptable.

But even the small amount of recognition from some in the party on the need for improvement is significant. Disappointing post-Brexit trade figures are becoming a fact politicians cannot fully ignore.

Slow shift in political debate on free trade agreements

Former secretary of state for the environment, food and rural affairs George Eustice’s criticisms of the UK-Australia Free Trade Agreement in parliament, where he described it as “not actually a very good deal for the UK” particularly given “that the UK gave away far too much for far too little in return” were not broadly acclaimed.

Many questioned his own record in this affair, and his criticism of Crawford Falconer, current interim permanent secretary at the Department of International Trade, seen as unfair to an official.

Overall however, the remarks were widely reported and often grudgingly accepted across the political spectrum. There is now some agreement that the Australia deal does not offer much for UK exporters, is a precedent for other countries, and could pose a risk in particular to lamb production.

More recently The Observer newspaper reported that exports to Japan had fallen despite the government having made big play of signing an amended deal to that inherited from the EU.

There were again misgivings about the story, for the relationship between export levels and the actual FTA was not obvious. But a broader point was demonstrated, namely that trade deals are turning out not to be the often-claimed panacea for the UK economy.

That the UK establishment now feels different, thinking about consequences – compared to the excitability of Liz Truss as Secretary of State – is overall very much welcome.

Focus turns to Labour

Stories of disappointment and splits are symptomatic in the UK of a party in government that is losing control. It is difficult for them to undo previous actions and long-held positions on too many issues relating to trade.

Hence it will not be easy for the government to make progress where compromise is required, whether on CPTPP accession, the Northern Ireland Protocol, or India trade talks.

There is now widespread expectation that the Labour Party will be in power after the next election, which will be held before January 2025. If this were to happen, it would remove the issue of precedent and the reality of difficult hardcore Eurosceptic backbenchers in particular.

UK stakeholders are already preparing for this change.  This week the Tony Blair Institute for Global Change published a paper on fixing Brexit. More will certainly follow.

Underlying questions for future trade policy will not, however, just disappear under Labour. Removing barriers to trade with neighbours will require some degree of regulatory alignment with Brussels as well as EU agreement. There will still be arguments on the balance of FTAs and about conceding on agriculture to make gains elsewhere.

By that time, Labour might be grateful that some realism has entered these debates.

 

 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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