Stephen Booth is Head of the Britain in the World Project at Policy Exchange.
This week marked the Department for International Trade’s (DIT) fifth anniversary. Established shortly after Theresa May took office as Prime Minister in 2016, its immediate task was to run to stand still. Five years on from the referendum, and with the UK now outside the EU’s economic structures, a distinct UK trade strategy is emerging. However, much of the hardest work is yet to come and will require greater coordination of domestic and international policies.
For over 45 years, the bulk of trade policy was contracted out to Brussels, with largely only competence for export and investment promotion retained by the UK government. Therefore, in the aftermath of the referendum, the newly created DIT was arguably the most genuinely pro-Brexit department, since regaining the full range of trade policy levers was only possible after leaving both the EU’s Single Market and Customs Union. This may also explain why DIT was established as a dedicated standalone department rather than developed as a function within the Foreign Office, which is a configuration that many other, although not all, countries have chosen.
The UK had to establish the infrastructure required to become an independent trading nation, including putting in place its own tariff regime on imports, which was previously governed by the EU’s Common External Tariff. The UK’s independent regime is more liberal than the EU’s, removing tariffs on many supply chain components and consumer goods, but retains the level of EU protections in several sensitive sectors such as cars, agricultural products, fish and ceramics. The rationale is both to offer continued protection for domestic industries and preserve bargaining leverage in negotiations for new trade deals.
Meanwhile, the UK has built the capacity to negotiate with several trade partners simultaneously. The success in rolling over previous EU free trade agreements (FTAs), should not be underestimated. With markets such as South Korea, Canada, Mexico, Vietnam, and Singapore this meant agreeing the same terms as the UK previously enjoyed under EU agreements. However, with Japan, negotiators sought to build on the existing EU agreement by including more liberal provisions on data and finance. In all, well over 60 deals were secured and virtually all the EU agreements replaced.
At the same time, the UK opened negotiations on entirely new agreements with Australia, New Zealand, the United States, and has taken the initial steps towards accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The UK has announced it is also preparing to launch negotiations to upgrade the rollover deals with Canada and Mexico – both of which, along with Australia and New Zealand, are also CPTPP members. Equally, the UK-India summit earlier this year set out the ambition to conclude a comprehensive trade agreement, which will be difficult but offers a huge prize.
The first of these new negotiations to bear fruit are those with Australia, which concluded with an agreement in principle last month. The negotiations with New Zealand are also expected to produce a result this year. These deals could be regarded as relatively easy wins, since they are similar economies of limited size, with deep cultural and political links, and shared legal systems. Nevertheless, the negotiations have revealed that trade policy inherently involves trade-offs between sectors and between producers and consumers.
In the referendum debate, much was made of the UK losing the EU’s collective strength in numbers in trade negotiations. This assumed that UK and EU interests were always the same. But it is clear that the UK economy is much more weighted to services than the average or even largest EU economies. Therefore, the UK is well placed to take advantage of the global trend towards faster growth in services trade and the increasing digitisation of international commerce. It should, however, be noted that manufacturing still has an important role to play, particularly since it is less concentrated in London and the South East than the most productive services industries tend to be.
Agriculture is always sensitive in trade negotiations and it is no surprise that it has been the biggest source of contention in the domestic UK debate. The sector was accustomed to relatively high levels of protection within the EU and attracts a political romanticism only afforded to a few other sectors, such as the car industry.
Liz Truss has said that the “Australia deal does not set a precedent on agriculture” for future deals, which will be developed “case-by-case”. Nevertheless, the negotiations were a useful testing ground for developing a sensible UK policy in this area that balances liberalisation with providing safeguards to domestic farming, which will need time to adapt.
The agreement in principle provides lengthy phase in periods for the removal of UK tariffs on the most sensitive products, such as beef and lamb. The government has also confirmed that the UK’s domestic food standards remain unchanged and that, therefore, imports of hormone-treated beef will continue to be banned. The UK may find its position on standards comes under greater pressure in negotiations with the US, but only time will tell and this is ultimately a UK decision to make.
Critics have accused the Government’s trade agenda of prioritising the conclusion of new deals as political theatre at the expense of a wider strategy and long-term vision. However, earlier this year, the Integrated Review (IR) outlined a clear and ambitious strategy, placing trade at the heart of UK foreign policy, including the Indo-Pacific tilt. The negotiations with Australia, New Zealand, the CPTPP, and eventually India, are a manifestation of this approach. The IR also underlined that trade should be viewed as an important economic tool to promote growth that is distributed “more equitably across the UK”.
The challenge is to make this vision a reality in the months, years, and decades to come. Trade deals are only one part of the equation and businesses should be supported in ensuring these agreements deliver benefits in practice, with help offered at home and in navigating foreign markets.
Ensuring that more areas of the UK become attractive to foreign investors and are able to support greater numbers of exporting business and industries is the crucial objective that will really count. It will require long-term commitment across government in partnership with the private sector, and greater coordination of domestic policies on industrial strategy, innovation, skills, infrastructure, and local governance. This will not be easy and ultimately it is a job that extends well beyond the remit of DIT.