Most media coverage of Brexit has focused on the country´s free trade agreement with the European Union (EU). This is natural as the EU is the UK´s biggest trading partner. Between 2016-2019, UK total EU trade in goods and services was 44% and 53% of total exports and imports and seven EU member states rank in the top ten of the country´s most important trade partners. But five months since the end of the transition period, what´s the situation with trade agreements signed with non-EU states?
When the UK was part of the EU, trade agreements the bloc signed automatically applied to the UK. Out of the EU, the British government has been busy concluding new arrangements with countries in all parts of the world. Since January 2021, the government´s main aim has been to reduce any disruption to trade in goods and “replicate, as far as possible” the agreements the UK enjoyed as part of the EU. However, whilst many deals have been agreed, several do not have the status of a free trade agreement.
There are different types of international agreements that trade deals with non-EU states fall under. These include deals that have been fully ratified and those that are subject to different legal or political frameworks, such as bridging mechanisms, designed to signal strong political commitment and more practically, to allow trade to continue and avoid a cliff-edge.
Public Affairs Experts is analysing existing and future trade arrangements as part of a future report on the UK after Brexit and Covid-19. Three insights to share so far are:
Trade with non-EU states has increased in both volume and relative terms for the last twenty years, peaking at a high of £743.9 billion and 52.91% of total trade in 2019.
To date, deals have been agreed with 62 countries as part of 31 trade agreements (approximately 32% of countries in the world). Of these, 24 agreements are bilateral pacts and 7 are with trade blocs or custom unions, such as with Panama and Costa Rica as part of the Central America association. However, bilateral trade relationships are eclipsed by arrangements with the 7 trade blocs that account for almost 61% of total UK trade deals in force since January. These trade pacts are with groups of countries who, for the most part, act as collective trade blocs. They are Central America; the Andean countries; Eastern and Southern Africa; Pacific States; Iceland and Norway; Southern Africa Customs Union and Mozambique (SACUM); and CARIFORUM.
In 2019, UK exports to non-EU states peaked at 57.4% as did imports at 48.2%. The top five biggest export partners with the UK outside of the EU were the United States (27.01%), China (9.4%), Switzerland (4.59%), Japan (3.59%) and Norway (3.47%). Of these, the Johnson government has signed three bilateral or continuity agreements with Japan (which includes goods and some services), Switzerland (most services are excluded) and Norway (it covers only goods). However, trade deals with its two biggest non-EU trade partners – the US and China – are unlikely to be agreed anytime soon and negotiating these raise significant political problems for the government.
The UK has also strengthened its trading relationship with The Commonwealth, which accounted for about 9.1% of the UK’s total trade in 2019. To date, deals have been signed with 53 independent states and several British Overseas Territories. In addition, several types of trade or investment agreements are agreed or close to being signed with all of its top five trading partners in the Commonwealth: India, Canada, Australia, South Africa and Singapore.
A central pillar of the government´s philosophy is “Global Britain” which is a slogan for its focus on expanding British business, skill and talent around the world as one pillar of its post-Brexit economic strategy and belief in free trade. Good progress has been made on signing non-EU trade agreements but most of these cover goods and not services. This matters as the economy is heavily reliant on services, which account for approximately 80% of its gross domestic product and 46% of its exports. Also, services do not feature significantly in the EU free trade agreement, the country´s largest services trading partner.
The majority of independent economic forecasters predict a negative economic impact for the UK economy in future years, in part because of new barriers to the trade of services with the EU. The government plans to strike agreements on services with some of the non-EU states it already has deals with such as Turkey, Canada and Mexico. Moreover, the UK is seeking to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade club including Japan, Australia, Canada, New Zealand, Vietnam, Singapore, Malaysia, Brunei, Mexico, Chile and Peru. Whether this has a significant impact on reducing the loss of trade from the UK´s departure from the EU is another question, but there may be some benefits for UK services over time.
Trade policy is one of the cornerstones of the UK post-Brexit, with many challenges lying ahead and new business conditions and barriers when trading with third countries. If you would like to discuss the future of trade policy or the implications for your company, please contact us and we are happy to discuss this and exchange views.
Public Affairs Experts - May, 12th 2021
Image: Cabinet Office, OGL 3, via Wikimedia Commons