In the grip of Covid-19, and in the wake of its resultant economic tsunami, British-based businesses might be forgiven for not taking much interest in the UK’s new trade deals – primarily with the EU over our replacement ‘partnership’, but also with a host of other world economies.
There are however real opportunities in these new UK deals for post Covid-19 recovery and prosperity that firms should be embracing now, even if to avoid stern shareholder questions later over missed opportunities. For while trade deals create a framework for deal making, it is businesses that do the trading.
Having worked on EU free trade agreements for 10 years, I would be the first to accept trade deals don’t change the world. You don’t need a trade deal to trade, and most nations operate within global WTO (World Trade Organisation) rules anyway as WTO members, but it does make trading much easier, simpler and less costly.
So, yes, free trade agreements (FTAs) are the icing on the cake – but it is some cake! The UK is the sixth largest economy in the world, bigger than Russia despite its enormous size, and only just behind India, despite India’s population being just shy of 1.4 billion. The USA remains the number one economy in the world too.
Yes, trade deals can be very technical, legalistic and complicated, but they aren’t as scary as they first look and real benefits can be argued for and built in with the right approach. But our negotiators need to know what matters to business and what to ask for from the other side. Don’t ask, don’t get!
Trade deals are not now confined just to taxes on imports or exports, such as tariffs, or volume restrictions such as quotas. They embrace an increasingly wide number of topics including Data (do we escape the onerous GDPR the EU imposes making it easier to trade with the non-GDPR US?), Technology, Financial Services (which regulations should we work with: UK, US or EU, or a combination?), Telecommunications, Energy, International Transport, skilled Immigration (Mode 4 service personnel), SMEs, Government Procurement contract openings, or SPS (Sanitary/Phytosanitary meat and plant health) measures.
They stretch to Investment, Mutual Recognition of Professional Qualifications (want more quality staff from Australia, USA, South Africa?), Electronic Commerce, State Aid & market Competition (‘State Enterprises, Monopolies and Enterprises’), Intellectual Property, Sustainable Development, Labour Rights, and the Environment.
Measures negotiated could well concern your business, either providing new openings and opportunities or, conversely, throw up significant new threats, costs or restrictions. Are you sure you won’t lose market access, with serious effects on the bottom line, or will your competitors be ahead of you in new export markets?
Ongoing UK trade deals include Japan imminently, the USA this year, and India, Australia and New Zealand are all in the pipeline. Already 20 negotiated EU deals have been ‘rolled over’ successfully into UK-only deals preserving the benefits, and for big and rich economies such as Switzerland, Norway, South Korea, Eastern and Southern Africa (ESA).
The gains are generally pretty much cost free – the ability to sell more into a given market with less price and non-price barriers, and thereby to grow the U.K. economy and national wealth and wages through higher quality jobs.
The costs of easier access to our market for trading partners can be in part more controversial for a very select number of producers, but generally mean less costs for consumers and thereby less pressure on wages, and reductions in production pricing. Parts for manufacturing can be made cheaper, since so many parts come from the Far East and beyond Europe, so that cost savings are achieved.
Take a look at the USA trade deal, for example. The U.K. Government estimates a deal could increase trade between both countries by £15.3bn in the long run (on 2018), increase exports to the US, already high, by up to 7.7% and increase U.K. wages by £1.8 billion through helping the creation of higher value jobs. These are likely to be understated.
We actually have a trade surplus with the US, in contrast to a massive deficit (£96bn in goods normally) with the EU. The US currently levies £451 million a year tariffs on British goods – a tax US consumers pay on U.K. goods. It also penalises or even bans many agricultural products such as beef, salmon and haggis.
It doesn’t help when the US is currently in a trade war with the EU; which we now have the chance to escape. I have a friend in Los Angeles reluctantly switching away from Glenmorangie whisky and Bushmills under tariff pressures – 25% ‘punishment’ tariffs over the Airbus-Boeing dispute. It hurts UK steel, cars, textiles and agricultural products. Nor does it help our consumers to be paying 12% EU tariffs on California wines, 12% on US jeans and 10% on jeeps.
Services represent 70-80% of major Western economies, and a US trade deal makes it easier for U.K. service companies to sell into the USA at state as well as federal level; something the EU failed to do – as its TTIP trade deal was abandoned. U.K. service sales to the USA already have doubled between 2007 and 2018 from £49bn to £94bn showing the massive potential that exists with even less barriers to trade in services built on strong common bonds, laws and language.
The US is particularly interested in more cooperation over future technology – such as Artificial Intelligence, software and robotics, rather than in wickedly forcing chlorinated chicken or hormone-fed beef on us.
The new UK-Japan free trade agreement is being fast tracked on both sides and goes further than the more agriculturally protectionist EU, with estimates of a 21.3% increase in exports and £1.5 billion more GDP. Not just British pork will see significant opening, but UK made cars and automotive parts too – Nissan UK exports to Japan now – whilst we can import more fine Kobe beef and Japanese-built cars at less cost.
As for the replacement EU trade deal, are we going to get a deal or leave end of the year to follow WTO terms – and what does that actually mean? This is a topic all by itself.
The new ‘partnership’ being discussed is essentially a big package of smaller agreements around a central free trade agreement – agreements, for example, on continuing to participate in EU programmes such as its research programme, Erasmus exchanges for students, or the Northern Ireland Peace Programme. An aviation deal will keep the planes flying and a road transport deal the trucks trucking. Then cooperation on police, justice and fighting terrorism, etc.
Do I think we will get a deal? On balance, yes. I don’t think the two parties are in reality so far apart, and August is a helpful month free of political interference for ongoing negotiations. The main sticking points – fishing waters access, regulatory harmonisation (the so-called ‘level playing field’), State Aid, and who judges disputes (an independent body not the European Court of Justice) should be solvable with enough creativity, brainstorming and political realisations.
Whilst it is a common mistake to think the EU is in the driving seat because it is bigger, in trade terms the UK will become the EU’s second largest market after the USA once we leave the EU Customs Union and Single Market, and if no deal occurs the EU would pay £12 billion tariffs on its BMWs, French wine and Spanish tomatoes, while the UK only pays £5 billion.
Now is the time for businesses to take trade deals seriously, to maximise their benefits and to mitigate their costs, and to ensure that trade can play a valuable part in helping to drive post Covid-19 recovery.
David Campbell Bannerman is a Senior Adviser to Political Insight, and a former member of the European Parliament between 2009 and 2019, serving on the International Trade Committee.