The UK and Europe
Post-Brexit trade strategy
Oliver Ilott / May 2017
Dr Liam Fox MP, UK Secretary of State for International Trade. Photo: Shutterstock
Brexit means that the UK is taking back control of its trade policy. But unrealistic expectations may leave its fledgling Department for International Trade struggling to make the most of this opportunity. That’s why a new Institute for Government report sets out how government should approach this task.
The experience of other countries suggests that the department will be able to run 3-5 trade negotiations at once. Any more, and it will grind to a halt. That means that the department has to prioritise its activity – a long shopping list of trade deals will be the enemy of effectiveness.
In the short term, the focus should be on replicating the EU’s existing FTAs. In some instances, these can be nodded through after a simple substitution of “UK” for “EU”. But others will require renegotiation. The most valuable of the EU deals are with Turkey, Switzerland, Singapore, South Korea and Canada – these should be a priority.
Once these deals are carried over, the UK will start looking for brand new partners. The government should ignore those voices who call for the UK to leap into negotiations with countries like China, India or Brazil. Brazil (as part of the MERCOSUR regional bloc) has been in on-off negotiations with the EU for 20 years. No one has managed to agree a serious FTA with India. As Theresa May found out last year, one of India’s key demands for any deal is the ability to trade in what is called “mode 4 services”: the ability for Indian nationals to use work visas to come over and deliver services in the UK. India sees it as an export. Some in the UK will see it as migration.
It is true that Australia and New Zealand have secured deals with China. But more than half of Australia’s exports to China come from ores, slag and ash. In New Zealand, two-thirds of goods exports to China consist of dairy, wood, meat and fish. Neither of these examples would provide the basis for a UK–China negotiation.
Switzerland, whose well-developed services sector makes it a closer analogue for the UK, does have a China deal. But 89% of Swiss firms felt that the FTA had had no effect on their trade, and more than 40% of those that had made use of the FTA had encountered problems. They have a deal, but not a good one.
Instead, the UK needs to build experience by engaging smaller economies with a strong track record of striking deep and meaningful trade deals. That puts countries like Australia and New Zealand at the top of the list.
But the UK’s trade strategy will always have a European flavour. Trade deals give countries an edge: a cheaper form of access to foreign markets than that enjoyed by their competitors. This means that nearby economies frequently mimic one another’s trade strategies in an attempt to ‘Keep up with the Joneses’. For instance, out of Canada’s 19 trade agreements that are in place or under negotiation (and do not directly involve the USA), 11 are with partners that already have deals or have started conversations with the USA.
For the UK, this means that its trade strategy will always have to have one eye on the EU, making sure the European gains in market access are matched by UK. The UK may be developing an independent trade policy – but it is not developing trade policy in a vacuum.