Brexit gives the UK the chance to pursue an independent trade policy for the first time in over 40 years. Many Brexiteers argue this is one of the major opportunities offered by Brexit. It could enable the UK to focus more on fast-growing markets outside the EU.
What is trade policy?
While much attention is given to trade agreements, there is much more to trade policy than this. It also includes tariffs (taxes on imports) and quotas, regulation of product standards, trade defence (action against imports sold at unfairly low prices), help for developing countries and the UK’s position at the World Trade Organisation (WTO).
Trade agreements now cover a wide range of issues in addition to tariffs on goods. These include services, digital, intellectual property rights, investment and rules relating to labour, competition, consumer and environmental standards. While these more comprehensive deals can bring greater benefits, it also means trade deals can be controversial, as they have implications for public policy.
EU trade agreements
While it is still a Member State, the UK is party to the EU’s free trade agreements. These are likely to continue during the transition period if there is a Withdrawal Agreement. The UK has succeeded in ‘rolling over’ a number of these agreements, so many of their provisions will continue after Brexit. Some important EU trade deals have not been rolled over, however, including those with Japan and Turkey.
Until Brexit, the UK’s trade policy is largely determined by Brussels. This gives the UK the advantage of being part of a large trade bloc. However, it also means that the UK’s objectives have to be balanced against those of other EU countries. Outside the EU, the UK will be able to focus exclusively on its own priorities, such as trade in services.
The UK will be able to set its own tariffs and pursue its own free trade agreements. The Withdrawal Agreement negotiated by the Johnson Government would enable the UK to negotiate, sign and ratify international agreements during the transition period. These cannot come into force during the transition period unless the EU agrees.
Trade agreements can bring benefits by removing barriers to trade and improving access to other countries’ markets, benefiting UK exporters. But they can also benefit consumers at home by lowering the price of imports. The Conservative manifesto prioritised agreements with the US, Australia, New Zealand and Japan. The US is the UK’s largest export market after the EU (see Chart 1).
Labour’s manifesto said it would negotiate a new Brexit deal including a customs union with the EU. This would limit the scope of an independent trade policy, especially for goods. This deal would then be put to a second referendum. The Liberal Democrats’ policy of revoking Article 50 would have kept the UK in the EU. As a result, the UK would have been part of the EU’s trade policy.
Agreeing a trade agreement with the US is likely to be challenging. The EU and the US failed to reach agreement during their recent trade negotiations on TTIP (the Transatlantic Trade and Investment Partnership). The US Government has also set out an extensive list of negotiating objectives for a deal with the UK (PDF 500 KB).
These objectives include specific goals on access to UK food and pharmaceutical markets which are likely to be sticking points in the negotiations. While the UK has historical and cultural links with Australia and New Zealand, these countries account for only 2% of UK exports between them.
The UK will be negotiating its first new trade agreements for over 40 years. It will be up against trading partners with much more experience of negotiating these deals, such as the EU and the US. This raises the issue of whether the UK has sufficient capacity and expertise in trade negotiations, especially if several negotiations are happening at the same time.
A May 2019 report by the National Audit Office on preparations for trade negotiations said that overseeing a number of trade negotiations simultaneously would be “a complex task, requiring different skills, resourcing levels and engagement with multiple bodies at different stages.”
Trade agreements can be controversial
Decisions on trade policy can often raise difficult trade-offs, as they create winners and losers. Lower tariffs benefit consumers (including businesses which import components or raw materials) but lead to greater competition for domestic industries. Trade policy can also be controversial, as trade agreements now extend well beyond tariffs to include product standards and regulations. Food standards (chlorinated chicken, for example) and the cost of medicines are cases in point.
Global trade tensions
Finally, it is worth pointing out that the UK will be embarking on its independent trade policy at a time when the global trading environment is quite challenging. The WTO recently downgraded its forecasts for global trade growth in 2019 and 2020 to 1.2% and 2.7% respectively as a result of growing trade tensions and a slowdown in the global economy. By comparison, world trade grew by 4.6% in 2017 and 3.0% in 2018. This is a reminder that UK trade performance depends on a range of factors, many of which are outside the control of the Government.
- Will the UK benefit from an independent trade policy? Institute for Government.
- UK trade policy transparency and scrutiny (PDF 579KB), House of Commons International Trade Committee
Insights for the new Parliament
This article is part of our series of Insights for the new Parliament. This series covers a range of topics that will take centre stage in UK and international politics in the new Parliament.