Brexit: UK in global trade, a new reality
By Elizabeth Morgan
“From Australia to Canada, the well of goodwill toward the U.K. is tangible. Yet it is more than matched by bemusement at the notion that a more “global Britain’’ can be more successful outside the EU than it was as a leading member of the richest trading organization on the planet. The widespread lack of understanding for the U.K.’s chosen path suggests that trade deals may be harder to strike than May’s government is currently promising.” [Isabel Reynolds, Bloomberg, February 7, 2019]
Seven weeks to Brexit; still no deal.
In the Brexit debate, there are many seeking to give the impression that the United Kingdom (UK/Britain) was a member of the European Union (EU) with limited influence. They want us to believe that the European Commission (EC) has been a distant Brussels based bureaucracy imposing rules and regulations on the UK, which contributed large sums of money, while passively towing the EU line. In my view, this is a false impression.
The UK abandoned the Commonwealth to become a full Member of the European Economic Community (EEC) in 1973. For the UK, the EEC was its natural trading partner with which it was easier and cheaper to trade given its proximity. The Commonwealth Members were geographically widely dispersed and transportation costs were high. The Commonwealth became a political association.
The UK in 45 years of EU membership has been one its five (5) most influential Members.
In trade, the UK, as a party to the 1957 Treaty of Rome and subsequent EU Treaties, agreed to be bound by the Common Trade Policy. Under this Policy, they agreed that the Members would deal with international trade issues jointly. The EC would represent the Union at the multilateral and bilateral levels. This did not mean that the Commission was autonomous. At the World Trade Organization (WTO), all the EU Member States have been represented along with the Commission.
In both bilateral and multilateral negotiations, the EU Member States, including the UK, had to approve the negotiating mandate through the European Council and the European Parliament. In the interest of transparency, there were prior consultations with the public. Throughout the negotiating process, the Commission had ongoing consultations with Member States. At the conclusion, the Member States approved the agreements at the national level and implemented them after ratification. The UK, therefore, could not have been a passive by-stander in EU trade negotiations. In fact, the UK was important in the negotiations as many countries saw it as a gateway into the Union, a market of 508 million with a GDP of US$17.9 trillion. The UK International Trade Secretary, Liam Fox, acknowledged that the UK was deeply engaged in the negotiation of the EU/Japan Economic Partnership Agreement (EPA) which just entered into force.
The UK is party to 36 EU free trade agreements (FTAs) covering about 60 countries. It is reported that the bulk of the UK’s trade is under EU agreements, about 44% with the Single Market, and another 16% under EU FTAs covering in total about 60% of UK trade.
The EU was also negotiating other trade agreements in the WTO, e.g. the Trade In Services Agreement (TISA), and with other countries and regions such as the Southern Common Market (MERCOSUR), the Gulf Cooperation Council (GCC), USA (Transatlantic Trade and Investment Partnership), Australia, New Zealand and India. There were also the EPAs with countries of the African, Caribbean and Pacific (ACP) Group.
Regarding ACP, we must not forget that when the UK joined the EEC, it brought its former colonies, Commonwealth developing countries. The UK facilitated their entry into a trade and development relationship with the EU.
In leaving the EU, the UK is having to reestablish its individual membership of the WTO with its own trade schedules. If there is a no deal Brexit, the UK could be trading with everyone under WTO Most Favoured Nation (MFN) preferences. Clearly, this is not desired by the UK private sector as free trade access would be limited with increasing cost from customs duties being applied. Therefore, UK priorities must be to address its trading arrangement with the EU27, then the 36 EU FTAs, and negotiating new agreements with other countries, such as USA, India and China.
In a recent speech, Secretary Fox outlined an optimistic outlook for the UK in global trade. It seems to me that the UK has a daunting task to reestablish itself as an independent player in global trade. Statements from UK Ministers and media reports confirm that the UK is already engaged in trade negotiations in preparation for March 29 in order to secure its WTO plus preferential market access for imports and exports.
The UK has been working with the Caribbean ACP Forum (CARIFORUM) to rollover/continue the preferences of the CARIFORUM/EU EPA. Continuity agreements have been reached with East and Southern Africa, and product specific agreements with the USA, Chile and New Zealand.
As Bloomberg has stated, re-establishing its WTO schedules, negotiating FTAs, and even other continuity arrangements may not be so easy for the UK, which will now be bringing to the table a market of 66 million, GDP of US$3 trillion, and a government very anxious to strike trade deals. Some countries see a weakened partner and an opportunity to demand further concessions. US stakeholders are already signaling that they would want agriculture standards lowered.
The UK is clearly interested in strengthening trade relations with countries in Asia, seen as the future centre of economic power. For a start, the UK wants to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Australia, a Commonwealth member, did not sound too enthusiastic about this UK aspiration.
In a Commonwealth/ACP context, the UK has been working to strengthen relations with Africa, having expressed keen interest in this region demonstrated by Prime Minister May’s visit there last summer and the completion of continuity agreements. While still working on their rollover agreement, the UK’s relationship with the Caribbean seems a bit strained given the Windrush Affair and other issues. UK Caribbean dependent territories are also seeing an uncertain future post Brexit. The convening of the 10th UK/Caribbean Forum is still pending. With support from New Zealand, the UK is strengthening diplomatic relations with the Pacific islands. Within the Commonwealth, work is continuing to promote trade and investment links, but doubt remains about whether this 53 Member group can realistically be returned to a significant trade and investment forum and become a strong global advocate allied to the UK. For example, the Commonwealth does not function as an interest group in the WTO.
Although a member of very influential global organizations, in trade negotiations post Brexit, the UK may find itself facing a whole new reality. In the interim, the Government is still seeking a path out of the EU which will be acceptable in Parliament and will not fuel further domestic discontent.
Submitted by Elizabeth Morgan, Specialist in International Trade Policy and International Politics.