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Now that negotiations with the EU are entering a critical stage, businesses are getting a sense of the main areas of contention and should be preparing for each possible scenario. This is an essential task, given 47 per cent of UK trade is conducted with our EU neighbours.
But what about the other 53 per cent, undertaken with the rest of the world? The UK government’s aspirations for ‘Global Britain’ appear to be taking shape, with bilateral trade negotiations underway with new partners for the first time in over 40 years.
I discussed these trade negotiations with former special adviser at the UK’s Department for International Trade, and now member of Deloitte’s Brexit Insights team, James Caldecourt:
The destination, set out in the Conservatives’ manifesto, is to secure free trade agreements (FTAs) with countries covering 80 per cent of UK trade by 2022. No mean feat, since that means reaching agreement with the EU, signing a new FTA with the United States and replicating over 40 EU trade agreements to which the UK is currently party. The government has also announced its intention to join CPTPP – the Pacific trade agreement, and sign FTAs with Australia and New Zealand.
Taken together, the UK is currently negotiating agreements covering some 70 per cent of all trade. Scarcely has a country ever taken on so many negotiations at once.
The government started work in 2016 on replicating the EU trade agreements to which the UK was party as a member state – together amounting to around 11 per cent of UK trade. At the time of writing, 19 agreements coming into effect in January 2021 have been signed with 47 countries. There are 20 or so more to be concluded, with negotiations progressing at a different pace with each. Of these, the largest trading partners are Canada, Turkey and Mexico – which stand to face new UK global tariffs if agreements can’t be reached soon.
A special case is Japan, where the UK is negotiating a new FTA which builds on the existing EU deal, rather than seeking to replicate it with minimal change. There is scope to deepen the relationship in the areas of financial and business services trade, which already account for £6 billion of UK exports. Recognising each other’s qualifications and more generous terms on the movement of professionals would go a long way to supporting these sectors. Stronger data and digital provisions would make doing business easier for tech firms on both sides – and in goods trade, the textiles and automotive sectors are expected to benefit from reduced tariff and regulatory barriers.
The extent to which each side is successful in these aims remains to be seen. Intensive negotiations began at the beginning of June and the two sides are on a tight timetable for new arrangements to be agreed and implemented in January 2021. The Japanese are already expressing reservations on available bandwidth, preferring to instead prioritise renegotiating elements of the existing agreement. Watch this space.
Negotiations with the US were the first to get underway in May. The US is Britain’s number one bilateral trading partner, largest inward investor and the destination for 20 per cent of all UK exports. Economic forecasts suggest an FTA could result in £15 billion extra trade in the long run and add as much as £8 billion to UK GDP.
A deal would likely mean lowering or eliminating tariffs in some sectors and removing a range of other barriers to trade, including some avoidable regulatory hurdles faced by businesses selling trans-Atlantic. British negotiators will be pushing for improved trading conditions in a number of key sectors, including automotives, ceramics, food and drink, textiles and chemicals.
But closing a deal will not be without its challenges. The US is often perceived as defensive in a number of key markets, including government procurement, aviation and shipping. There are also offensive interests in tricky areas for the UK, such as intellectual property and agriculture. Britain is keen to sell more of its farming produce, such as cheese (subject to tariffs) and lamb (banned entirely). But there will need to be some degree of reciprocity to US suppliers in a sector where tariffs are currently high and the regulatory environment aligns closely with European markets. The UK has been categorical about not lowering its existing standards across the board and has announced the establishment of a Trade and Agriculture Commission to help find a way through.
So far the mood music is positive, but progress will have to be rapid to conclude a deal before the impending US presidential election in November. The UK will have to balance the occasionally competing demands of US and EU negotiating partners and confront some big decisions which will shape British industry for years to come.
Australia and New Zealand
The UK has more recently entered into negotiations with Australia, and talks with New Zealand kick off on 13 July. Among Britain’s oldest and closest allies, combined trade last year amounted to £21 billion. Both nations are eager to conclude agreements quickly and progress is expected particularly in digital and financial services. But as with the US negotiations, the UK faces pressure from both countries in market access for their agricultural goods, including beef, lamb, sugar and dairy products.
“Bilateral trade agreements with Australia, New Zealand and Japan have a wider strategic purpose in acting as stepping-stones to joining CPTPP, the Pacific trade agreement between 11 countries, representing over 13 per cent of global GDP. CPTPP has resulted in 95 per cent of goods being traded duty free between its parties, and accession would allow British businesses to increase market access in areas of strategic importance, such as data, digital trade, financial and business services. The final decision to negotiate membership is some way off and depends largely on the progress of the immediate bilateral negotiations.”
The ’80 per cent strategy’ does not represent the limit of the UK government’s ambitions. As UK trade policy develops, new prospects could emerge with the world’s largest and fastest growing economies in Africa, Asia and South America. Today’s main focus is rightly on the future relationship with the EU – but Brexit marks the beginning of a process which will permanently reshape flows of trade and investment over the coming years.
Business of all sizes and locations are being encouraged to actively engage with the UK’s Department for International Trade now to learn more about the UK’s new global trading framework and how they can be involved.
Amanda leads Deloitte’s global Brexit insights team based in the UK and co-ordinates Deloitte’s Brexit expertise across the global network of firms. She advises businesses on the spectrum of Brexit related issues, assessing the scale of potential impact under various scenarios and helping clients to plan mitigating actions to minimise impact and maximise opportunity. Amanda is also an International Tax Partner advising on supply chain and trading chain models. She mainly works with the technology, telecoms, media, consumer retail and manufacturing industries. Amanda has held a wide number of roles during her career; including leading client relationships, global representative to the OECD, mentoring, non-executive board roles and trusteeships.
James is an adviser to Deloitte based in the Global Brexit Insights team. He advises the firm and its clients on a spectrum of issues relating to the UK’s international trade agenda and the wider political landscape. He helps businesses understand what the UK’s evolving economic, foreign and trade policy means for them, how they can capitalise on opportunities and mitigate risks. James was formerly a political adviser to the Conservative Party and worked for then Chancellor George Osborne. More recently he was a director at a Westminster-based political consultancy and a special adviser at the UK’s Department for International Trade.