Analysing the UK’s new and independent trade policy with non-EU countries

Posted in WTO and international trade

On 9 October 2017 the UK Government published a paper: “Preparing for our future UK trade Policy” in which it reiterates three strategic objectives for its future relationship with the EU: ensuring UK-EU trade is as frictionless as possible, avoiding a ‘hard border’ between Ireland and Northern Ireland and establishing an independent international trade policy.

The paper focuses on the main elements of the new and independent trade policy to build a ‘truly Global Britain’ with ambitious relationships with its trade partners around the world. Those elements are: to support a rules-based global trading environment, boosting trade relationships, supporting developing countries to reduce poverty and ensuring a playing level field.

The paper is rather light on detail and specifics, and it is devoid of any quantitative analysis. However, the Government has set out some new information on intention – after Brexit – to support the rules-based global trading environment established under the WTO.  Here, at least, this paper we have some specifics – the Government says the UK will take specific steps to ensure it remains part of the Government Procurement Agreement (GPA), emphasising the importance of guaranteeing that UK businesses will have non-discriminatory access to a public procurement market of around £1.3 trillion per year. This objective was also recently reiterated yesterday in a letter submitted by the Permanent Representatives of the EU and the UK in Geneva to the WTO members. Furthermore, the Government has also stated that it supports the conclusion of the Environmental Goods Agreement (EGA) - that seeks to eliminate tariffs for a number of products supporting environment and climate protection objectives – and the Trade in Services Agreement (TiSA) that aims at further liberalisation for trade in all services sectors.

Maintaining membership of GPA and supporting other WTO plurilateral agreements, such as those mentioned above will be an important step for the UK once outside of the EU as these arrangements further advance trade liberalisation, although that EGA and TiSA are still under negotiation.

In order to champion free trade, a global Britain will need to boost its trade relationships with both the EU and the rest of the world. For that purpose, the paper confirms that the Government will look to transition EU third country agreements (to UK-bilateral trade agreement), negotiate and implement new trade agreements, improving bilateral trading relationships and deepening trade links and promoting standards.

Concerning UK’s trade policy with non-EU countries, as stated in the paper, besides continuing working in international organisations and bodies such the WTO, UN, OECD and others, the UK ‘will seek to transition all existing EU trade agreements and other EU preferential arrangements’.

The paper however does not give us any information concerning how the UK intends to pursue that transition.

A partial answer perhaps was given by the Secretary of State, Dr Liam Fox, who in evidence to the Commons’ International Trade Committee, said on the transitional adoption of those agreements: “we have made it very clear to countries that we would like to see a transition of their agreements to a UK agreement at the point that we leave the EU. So far, we have not yet had a country that did not want to do that. That is a lot easier as a process than negotiating a new FTA because it simply means changes to the current treaty framework, in other words, removing references to EU institutions, for example, but also disaggregating any quotas that exist within that. We think that from our initial contacts with countries that they are likely to do so”.[1]

It would certainly be easier to agree a grandfathering mechanism of some sort with those third countries that currently have an FTA with the EU so that the agreements becomes bilateral with the UK post-Brexit. However, it might not be straightforward to ensure continued the preferential trade regimes after Brexit or to avoid negotiating the agreements, particularly with respect to tariff rate quotas.

If there is no agreement with those third countries on the continuation of the preferential trade relationships, on day one after Brexit, the UK will lose access to the preferential market access in those 60 countries that currently have some trade agreement with the EU. If that were to happen, the UK’s trade relationship with those countries will be governed by WTO rules. That is also part of the cliff-edge of hard Brexit. Hence, the importance for the UK Government to find a way to keep preferential market access conditions in those countries and to secure continuity afterwards.

Another issue that might need to be considered is that, before entering into a bilateral agreement with the UK, third countries might be interested in waiting, to see both the level of tariffs the UK might set under WTO rules but, no doubt more importantly, the detail of any Brexit trade deal that is negotiated between the UK and the EU 27. In particular, the extent of concessions agreed between the two sides will be a good starting point for third party countries wishing to  achieve better preferential trade arrangements with the UK.

The UK will also need to balance the transition of existing EU trade agreements and the negotiation of new FTAs with other relevant trade partners which do not have a trade agreement with the EU, such as the US and China. Insofar as the Government has stated that it is seeking to achieve continuity in trade and investment relationships with third countries, it would seem to be a logical first step to concentrate initially on those existing arrangements.

In that regard, it is of interest to note that of the 10 working groups established by the DIT (covering with 15 countries[2]) to explore the potential for post-Brexit trade agreements, only five are with countries party to an existing trade agreement with the EU: Israel, Turkey, Norway, South Korea and Turkey[3]. This might suggest that the Government has reached out to other countries such as Canada and Singapore in other ways, and is confident that the existing EU agreement with each can be easily transitioned to a UK-bilateral deal. 

The paper also confirms that the Government is working on all the necessary legal structures that will enable it to operate a functional trade policy, including for the continuity of the UK’s current trade and investment relationships and that the Government will continue to work with business to identify key market access barriers they encounter in export markets and prioritise action on those that make the most difference to exporters.  One has to assume that these activities are already well advanced given the legion of technical issues, and the training and systems that will need to be undertaken before Brexit.

The key question remains: will the UK be able to achieve continuity of the preferential market access and conditions it currently enjoys through existing EU FTAs and if so, how? An answer to this question will certainly be useful to business and all trade actors that will be affected by Brexit.  Time will tell.

Footnotes

[1] House of Commons Library: “Brexit: trade Aspects”. Number 7694, 9 October 2017- Page 28

[2] IBID. Page 30

[3] IBID. Loc. Cit. As of July 2017, DIT announced 10 working groups with 15  trade partners: Australia • China • Gulf Co-operation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates) • India • Israel • New Zealand • Norway • South Korea • Turkey • US

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