Trading Places: Britain’s Post-Brexit Trade

(Photo: The Conversation)

By James Pitt – Contributor

As we entered the new year, the UK also entered a new trading relationship with the EU, having left the bloc at the end of January 2020. Whilst the UK-EU Trade and Cooperation Agreement ensures tariff-free trade, it is still fairly basic and a number of key UK industries, namely financial services are not sufficiently covered. As such, it’s likely that Britain and the EU will be negotiating various aspects of trade not yet covered for years to come. The government was also quite set on being tied to EU rules and institutions as little as possible, particularly the European Court of Justice. As such the UK has not remained part of the Single Market, the development of which Britain played a leading role in. The reasoning behind this is the government’s ‘Global Britain’ ambitions, wishing to act and be seen as an ‘independent’ nation playing a global role, separate from European neighbours.

One key aspect of the Global Britain project is securing free trade agreements (FTAs) with other key states around the world, to strengthen trade ties with traditional non-European allies and to diversify our trade, with an emphasis on Britain’s ‘tilt to Asia’. Another key theme is the importance given to digital trade, with particular focus on increasing digital and tech exports to the Asia-Pacific

Asides from achieving a deal with the European Union, which is of most consequence for British businesses and people, given that UK exports to the EU were worth £294 billion in 2019 (making up 43% of all UK exports), there has been a big focus on securing deals, both new and rollover (the same terms as the EU), with the US, Japan, Australia, New Zealand, Canada and Singapore. The latter five are all members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a regional free trade agreement which Britain has now formally requested to join, with deals already struck between the UK and Japan, Canada and Singapore.

Whilst certainly no substitute for EU trade, joining the CPTPP would be beneficial for the UK, as it attempts to grow strategic influence and engagement in a dynamic, fast-growing Asia-Pacific, joining the third largest regional trade agreement in the world. But with CPTPP accession a little further down the road, the main focus now is on securing FTAs with the US and Australia in 2021. How are these shaping out and what comes next?

Prior to Britain joining the European Community, trade links with Australia were strong, administered under the Commonwealth trade preference system, and currently the UK is their 7th largest trade partner (3rd largest services trading partner) and their second largest source of investment. Australia does not have an FTA with the EU at present, so bilateral trade between the two countries has been a casualty of EU membership.

FTA negotiations between the UK and Australia began in June 2020, and some progress has been made, with three rounds of talks so far. Leaders have repeatedly voiced their desire to further strengthen trade ties, with Boris Johnson having raved about the joys of Tim Tams (Australian biscuits) and international trade secretary Liz Truss talking of a “gold standard” agreement.

The objectives of an FTA between the UK and Australia are significant tariff reductions, along with various ‘behind-the-border’ barrier reductions, such as alignment on environmental or regulatory practices, and freer movement.

The Trade Secretary is looking to increase access in Australia for British services (including financial, legal, engineering, architectural), investment, and food and beverage, and shape the future on digital trade, with the aim of increasing market access for British small and medium enterprises (SMEs).

Some progress has been made and, as mentioned, intent is there in abundance from both countries – although Liz Truss has said that a US FTA is the greater priority. Given the drive for the UK to strengthen ties with Anglophone Five Eyes partners (US, Australia, Canada and New Zealand) and gain sponsors for CPTPP accession, and Australia’s deteriorating relations with China, including in the realm of trade, an FTA should be agreed fairly quickly in 2021.

Further increasing the chances of a fast-tracked Australia FTA is the appointment of Tony Abbott, former Australian Prime Minister, in September to the Board of Trade, a group with an advisory role to the British government on matters regarding international trade, consisting of ministers and representatives of various key sectors.

He has been remarkably outspoken, both prior to and since his appointment to the role, on UK-Australia trade, lobbying the British government repeatedly to prioritise signing an FTA with his home country, maintaining that one may be achieved by the end of the year. He has a very close relationship with senior Conservatives in government and back home in Australia, his party is also in government, which may allow him to act as an unofficial go-between, building up support for an agreement both in the UK and Australia, to drive it forward. This may be needed as it seems Liz Truss has prioritised an FTA with Japan previously and is now likely to prioritise an FTA with the US, perhaps seeing an Australian FTA as an easier, less urgent task, and so putting it on the backburner.

There are, however, a handful of sticking points to bilateral free trade between the UK and Australia. The primary barrier is difference in agricultural standards, particularly with regards to meat products.

An FTA with the US has come to be seen as the potential ‘jewel in the crown’ for post-Brexit Britain, although it would be more of a symbolic or political victory rather than an economic victory, given that America is already its largest trade partner (if the EU is broken down into individual states) and both imports and exports have been steadily rising in recent years.

The UK may have a tough time quickly securing an FTA with the new administration, however. The new President, Joe Biden, has stated that, in foreign policy, he will be focussing on healing ties with Europe, which may not work in the UK’s favour. Biden has very publicly not been a supporter of Brexit or Boris Johnson, as his predecessor Donald Trump was, and so much of his rhetoric towards Britain so far has been one of scepticism and warning. He has also said that new trade deals, including an FTA with the UK, will not be a priority of his as he comes into office. Managing the COVID crisis and beginning to heal the division felt in the US at present will instead be his immediate concern.

But rhetoric does not necessarily represent reality. The UK is undisputedly one of America’s closest allies, sharing much by way of security, culture, history, finance and business. Boris Johnson was supposedly the President-elect’s first call to a European leader and as Biden tries to regain America’s image for leadership and multilateralism, and as he tries to counter an ever-more powerful China and tackle global problems like climate change, the UK will be a crucial partner. His appointment for US Trade Representative, Katherine Tai, has also stated her intentions to rebuild important alliances and partnerships, and so forging a more resolute trade relationship with Britain may seem attractive to her. Liz Truss told the House of Commons recently that she has sought an early meeting with Tai. We may soon see some indicators as to how things will shape out but perhaps there is some hope after all.

But ‘Global Britain’ is a long-term project and there are discussions being had about what Britain’s long-term aims, interests and strategy are regarding international trade and commerce. China is one of the fastest growing, and by some measures the largest economy in the world so there has been some talk of increasing trade ties with Beijing. However, relations between China and the UK look somewhat frosty at present and given deep, growing tensions between the US and China, any sudden move from the British government to cosy up to Beijing and to increase trade would be baffling.

India, on the other hand, seems to be very much part of the plan, as British ministers, especially the Foreign Secretary Dominic Raab, have spoken about. India is the world’s sixth-largest consumer market and is also, along with China, one of the world’s fastest growing economies. Strategically, as the UK tries to engage more with Asia and balance a more powerful China, increasing cooperation on trade along with other aspects of the relationship is a prudent course of action.

India also seems keen to improve bilateral relations, including in respect to trade. Despite the Prime Minister’s planned January visit to India now cancelled due to the urgency of the COVID crisis in the UK, Boris Johnson had been invited to India’s Republic Day celebrations by Indian PM Narendra Modi as the Chief Guest. Such a cordial gesture is promising for the future of Anglo-Indian relations and trade, which is an exciting and hopefully lucrative prospect for both countries.

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