CPTPP, Latest news, Perspectives, UK trade policy

Perspectives: ‘Global Britain’ is dead – long live a realistic UK trade policy 

The Tory ‘Global Britain’ mantra is likely to disappear with their expected election defeat in early July. Despite some policy successes – most notably their accession Comprehensive and Progressive Agreement for Trans-Pacific Partnership – London’s policy was driven by far too much wishful thinking. That is now ending. 

In the aftermath of the 2016 Brexit referendum officials inside the United Kingdom government were upbeat about embracing an independent trade policy. 

Freed from the European Union’s internal processes, some thought the UK could be quicker in concluding trade negotiations. Although the UK lacked the EU’s heft to secure concessions, there would also be fewer British asks on its partners. 

A generally supportive population would allow the UK to be a relative free trade beacon. 

What nobody knew in 2016 was how toxic the Brexit debate would become. Demands in the Conservative party for the minimum possible EU relationship corrupted trade policy. 

Government advisers were required to believe that new trade barriers with the EU would have no economic impact. This led to a focus on tariff reduction in trade agreement negotiations. 

There was some success. CPTPP accession is a significant political achievement – even if its economic value is disputed. It reflects the development of a reasonably functioning trade policy team. 

In general, though, Global Britain failed – given that traditional free trade agreements have not compensated for lost EU trade. 

Gravity won – there is little evidence that UK trade has become more diversified.  

Supply chains also won – given that UK goods exports performed poorly. 

Interestingly, the Conservative’s manifesto abandons the previous target of having 80% of trade covered by FTAs. One major factor was the failure to reach a deal with a United States, which has turned against trade.

Not surprisingly, the opposition Labour Party, which is expected to form the next government, is also making few commitments to negotiate new agreements. 

In truth, there was a level of innocence right from the start.  

Undeniable post 2016 trade policy achievements 

In 2016, the greatest challenge was replicating the existing EU trade agreements to which the UK was a party. This was largely achieved thanks to the eleven-month transition period in the customs union after the UK formally left the EU. 

There was little UK-specific enhancement to these deals. Helpfully, in most cases, third countries allowed for cumulation of origin with the EU, although sometimes with a time limit – thus limiting supply chain trade disruption. 

The deep single market or customs union-based relationships with countries from the European Economic Area and Turkey were replaced by simple new trade agreements. 

New FTAs were agreed with Australia and New Zealand. These were always seen as the likeliest and they paved the way for a successful accession agreement to join the CPTPP.  

Those who feared that CPTPP accession would force the UK to change its food regulations found their concerns to be misplaced. A potential clash on patent rules with membership of the European Patent Convention was also avoided. 

Interestingly, the same senior official led both the FTA replica process and CPTPP accession. 

There have been a handful of other achievements: new digital trade agreements with Singapore and Ukraine, and mutual recognition of financial services with Switzerland. 

Though these were widely derided and not traditional trade deals, memoranda of understanding with US States showed some level of initiative. 

Assembling and training a team of around 700 staff for a brand-new Department for International Trade – now Department for Business and Trade – has also taken a considerable amount of effort. 

Naivety in the face of complexity 

After 2016, Conservative Ministers of Trade thought trade deals would be automatically popular in the UK. They gave little thought to preparing stakeholders for the unpopular decisions that might be required to achieve them. 

They also failed to understand the keenness of Australia to be the UK’s first new free trade agreement partner was another.  

Then there was desperation to sign a first FTA – to show a Brexit dividend.  

All of these mistakes came together in a deal widely seen as heavily favouring Australia. Such was the pushback among farmers that the agreement has since in effect been denounced by Cabinet Ministers involved, including now Prime Minster Rishi Sunak. 

Although unlikely to gain power, the Liberal Democrat party pledged to renegotiate the agreement with Australia. 

There were other mistakes.  

Failing to understand the difficulties of negotiating with the US and India led to public statements that were never likely to be met. In particular, ministers struggled to handle US demands to talk about agricultural regulations. 

Hopes that an independent Trade Remedies Authority would depoliticise issues of trade defence were also dashed. There had to be a revision of how this body works with government ministers

Scepticism of carbon border pricing among advisers led to an unrealistic attempt to avoid following the EU when it launched its carbon border adjustment mechanism. This policy too had to be reversed. 

The UK has not developed a new investor protection policy, as this proved too difficult. 

Before 2016, the UK was one of the governments that adjusted best to the difficulties of trade deals that emerged around the Transatlantic Trade and Investment Partnership negotiations between the EU and the US. Ironically, these lessons were not learnt. 

Opportunity cost, no discernible benefit 

All reputable pre-Brexit forecasts suggested that global trade deals would not compensate for the economic loss of erecting barriers to the EU. These have proved to be broadly accurate. 

More surprisingly to those modelling economic impacts is the recent finding that there has been no great increase in the share of trade with non-EU countries. 

A more predictable outcome of post-Brexit trade modelling is that goods exports have suffered more than the traditionally strong British services sector. 

There is as yet little evidence that new trade deals have had any significant impact on trade. 

Reclaiming the UK’s independent seat at the World Trade Organization has proven equally ineffective. Though it has won praise for being well-meaning, the UK operation in Geneva has seemed to have no discernible objective. 

The UK did not join the Multi-Party Interim Appeal Arbitration Arrangement, the replacement for the appellate body. This decision is seen as a low point with no credible explanation.  

UK trade policy is scheduled for a WTO review next year, which will be a challenge for the new government. 

Neither the Labour or Conservative party are now offering a significant program of trade agreements in their manifestos.  

For Labour – although India is mentioned – the focus is most likely to be on the neighbourhood. 

Ultimately the failure of Global Britain was the lack of recognition that regional and global trade are not opposites.  

Expect a much more modest approach from the next government, though naivety on what can be done realistically has perhaps not completely disappeared. 

 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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